The Surge in China's Electric Car Market: One Stock Doubles in Value This Year

Chinese EV Startup Xpeng Receives $700 Million Investment from Volkswagen for Joint Development

Market Expansion and Joint Collaboration

Chinese electric car companies are in need of cash, while foreign automakers are looking to tap into the Chinese market. To address these needs, Chinese EV startup Xpeng has announced a $700 million stake from Volkswagen to develop two cars specifically for the Chinese market. This partnership aims to leverage both companies' strengths to create innovative electric vehicles that cater to the growing demand in China and globally. As a result, Xpeng's stock has experienced significant growth, with U.S.-traded shares up 135% year to date. Everbright Securities has upgraded the stock to buy, predicting it will outperform the broader market by at least 15% in the next six to 12 months.

Technological Licensing and Profitability

According to a report by Everbright Securities, technological licensing has the potential to become a new model for driving profits in the electric car industry. The report states that large brands like Volkswagen have control over the supply chain and cash flow, but lag behind in terms of technological capabilities. On the other hand, new Chinese brands have advanced technology, but face challenges in production management and cash flow. This collaboration between Xpeng and Volkswagen allows for the exchange of expertise and resources, benefiting both companies.

Challenges and Potential Growth

While Xpeng is currently the only brand in China offering the equivalent of Tesla's Full Self Driving software, its cash and cash equivalents have decreased in the first quarter. This decrease, along with stagnated deliveries, highlights the challenges faced by Xpeng. Similarly, Volkswagen has experienced a decline in vehicle deliveries in China, attributed to a parts shortage and increased competition from local electric car brands. However, both companies see growth opportunities in the Chinese electric car market, which is projected to grow by 27% this year. Furthermore, China's dominance in the electric car industry has led to increased exports of electric vehicles from the country, offering additional growth prospects.

Investment Opportunities

While the focus is often on automakers themselves, investment opportunities go beyond the companies. Nomura suggests looking at component manufacturers that play a crucial role in the production of electric vehicles with assisted driving capabilities. Among the recommended investments are battery giant CATL and motor controller supplier Inovance. These companies are poised to benefit from the growing demand for electric vehicles and technological advancements in the industry.

Conclusion: Expanding Business Opportunities in the Chinese Electric Car Market

The $700 million investment by Volkswagen in Chinese EV startup Xpeng signifies a significant opportunity for new businesses looking to enter the growing Chinese electric car market. This joint collaboration aims to leverage the strengths of both companies and develop innovative electric vehicles specifically tailored for the Chinese market. One of the key advantages of this collaboration is the exchange of expertise and resources, allowing for technological licensing and increased profitability. While Volkswagen brings its established supply chain and cash flow, Xpeng offers advanced technology. This partnership addresses the challenges faced by both parties and positions them to tap into the growing demand for electric vehicles in China and beyond. Despite challenges such as cash flow and production management, Xpeng's stock has experienced remarkable growth, indicating investor confidence in its future prospects. Furthermore, the projected 27% growth of the Chinese electric car market presents lucrative opportunities for new businesses seeking to enter the industry. China's dominance in the electric car sector has also led to increased export opportunities for electric vehicles, further enhancing the growth potential. Moreover, investment opportunities extend beyond automakers themselves. Component manufacturers like battery giant CATL and motor controller supplier Inovance are poised to benefit from the growing demand for electric vehicles and technological advancements. These companies play a crucial role in the production of electric vehicles with assisted driving capabilities, making them attractive options for new business ventures. In conclusion, the partnership between Xpeng and Volkswagen paves the way for new businesses seeking to enter the Chinese electric car market. By leveraging each other's strengths and addressing challenges, they position themselves to capitalize on the growing demand for electric vehicles and the technological advancements driving the industry forward. Article First Published at: https://www.cnbc.com/2023/07/30/chinas-ev-game-is-speeding-up-one-stock-has-doubled-this-year.html