EV Makers XPeng and Nio Share Prices Surge Amid High Expectations Following Recent Rally: UBS

Shares of Chinese electric vehicle (EV) manufacturers XPeng and Nio are reflecting elevated expectations following a recent surge, according to a report from UBS.

The investment bank noted that the overall Chinese automotive sector has experienced a significant increase of 30-50% in the past month, spurred by a range of monetary and fiscal policy easing measures.

Consequently, Chinese automakers now account for 13% of the global automotive market capitalization, up from 9% just two months ago. However, this remains modest when compared to their 20% share of the global car market and 60% share of the EV market.

Despite this growth, UBS analysts express caution regarding the high valuations at which XPeng and Nio are currently trading, both rated as Neutral. XPeng is valued at 1.5 times its projected 2025 price-to-sales ratio, while Nio stands at 1.1 times. UBS points out that these valuations imply that both companies will capture considerable market share and achieve high-single-digit net margins in the coming years, without needing further equity financing.

While such growth is possible, UBS believes it may be challenging to realize, particularly in light of tough competition from larger, more cost-effective firms like BYD and Li Auto.

UBS maintains a positive outlook on other Chinese automotive companies, such as CATL and GWM, which they consider to have more appealing valuations. CATL, trading at 20.7 times its projected 2025 price-to-earnings ratio, is seen as well-positioned to capitalize on the accelerating electrification in Europe. Meanwhile, GWM, with a PE of 7.9 times for 2025, is believed to have growth potential through domestic premiumization and international expansion.

The bank advises investors to be selective within the Chinese automotive sector, highlighting CATL and GWM as their top recommendations, while remaining cautious regarding XPeng and Nio due to their high valuation expectations.