How do you pick the next Tesla stock winner in China’s booming EV market?

Name: Tesla exports first China-made cars to Europe with shipment of 7,000 Model 3 electric sedans
Uploaded: 2021-02-05T17:30:07.000Z
Duration: 1 min 16 s
Description: Tesla exports first China-made cars to Europe with shipment of 7,000 Model 3 electric sedans

Given how quickly electric vehicle companies’ stock prices have rocketed, a short-term correction seems likely. But, in the long term, the sector is supported by structural trends which underpin the case for investing. Here are three things to focus on

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Potential customers chat near a NIO ES6 electric vehicle in Beijing, on November 28, 2020. Despite rapid growth, electric vehicles still make up only around 5 per cent of China’s car market. Photo: VCG via Getty Images

Chaoping Zhu

Published: 1:30am, 6 Feb 2021Updated: 3:10am, 6 Feb 2021

New-energy vehicle (NEV) companies have become a red-hot investment theme in recent months. Since the end of September, the benchmark NEV Power Battery index in the A-share market has surged almost 60 per cent. In the overseas markets, Chinese and global electric vehicle stocks have also soared. But is the rally sustainable?

Given how quickly NEV companies’ stock prices have rocketed, a short-term correction is likely. But, in the long term, the sector is supported by structural trends, including changes in technologies, consumer demand and global environmental policies, all of which underpin the case for investing.

The challenge is in picking the winners in a sector in the very early stages of its bloom. This will become increasingly difficult given the rising number of electric vehicle makers and supply chain companies newly listed in China and overseas, as well as the many traditional carmakers joining the battleground.

At this stage, technology is king when it comes to picking companies likely to have a competitive edge. The most crucial factor is battery durability.

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Tesla exports first China-made cars to Europe with shipment of 7,000 Model 3 electric sedans

When customers think about switching from cars with internal combustion engines to battery-powered vehicles, the first thing they look at and worry about is range. A typical electric vehicle’s range of 400-500km (250-310 miles) per charge would only last a few days for a driver in China who commutes to work daily, for example.

There are two ways to address such concerns. The first is to improve battery technology, to upgrade cruising power and enable a car to run up to 1,000km (620 miles) per charge. The second is to make available more accessible and convenient charging services.