Does China have too many electric vehicle companies?

September 16, 2021 13:42

The uptake of electric or hybrid vehicles among consumers is increasing, thanks to the different regulatory measures and restrictions imposed by different governments - following the well-known Agenda 2030. 

Recently, the Spanish capital has approved new mobility restrictions for polluting vehicles that will come into force in the coming months. This plan will establish different zones in Madrid in which only vehicles with the corresponding energy and emissions certifications will be allowed to circulate freely, thus joining other major European capitals and cities which have already imposed similar measures.  

All of this leads us to believe that the development of these types of vehicles is only going to grow in the coming years. This realisation has led large vehicle manufacturing companies to increasingly offer this type of car to their consumers and companies - as we saw after the agreement reached by Kia Motors and Uber in June.  

Undoubtedly, the current king of this niche market is Tesla, despite the fact that Elon Musk's company has to compete with giants and premium brands such as Mercedes, BMW and Audi, which have all been in the automotive sector for much longer. However, the reality is that in the race to take over the electric car market, for the moment, it seems that China is Tesla's main competitor.  

In recent years, China has seen the emergence of a number of electric vehicle companies, including NIO, Xpeng and BYD. But could this be a problem?  

Although it is beneficial for there to be competition in the sector, as this favours innovation and prices, it seems that, as far as the Chinese Minister of Industry and Information Technology is concerned, it is a problem. He considers that there are too many companies of this type, so it seems that the government will try to encourage their consolidation. Therefore, we may see the beginning of possible merger movements in the coming months by the Chinese government - which generates uncertainty in this sector.  

Despite this, it seems that the expansion of these companies outside the Chinese market continues. We have recently learned that NIO has received a five-star Euro NCAP safety rating, allowing it to sell its ES8 model in Europe. It also expects to start selling its popular ET7 in Germany during the fourth quarter of 2022, which could prove to be a strong boost to its production and revenues.  

Although last year NIO was one of the big stars of the market, so far in 2021 this stock has fallen around 22%. It is currently trading at around 38 dollars per share having experiencing a sharp decline after reaching record highs above 66 dollars per share on January 11, entering its current downtrend and confirming the negative divergence that we could see in its MACD indicator.  

If we look at the daily price chart, we can see that the price has found strong support at 31 dollars per share represented by the lower red band where it experienced a strong rebound until it faced its downtrend line at 55 dollars per share. Currently, we can see that, although price is struggling to regain the $40 level, its moving averages are making a possible triple bearish crossover, which could trigger a new bearish move if it loses the support level represented by the upper red band.   

Such a break could take the price to its yearly lows and the loss of this level would open the door to a further correction. If the price manages to break above and hold the $40 per share level, it could experience a new upward momentum where it would have to face several resistance levels. Therefore, as long as the price is not able to break above its downtrend line the sentiment will remain negative.  

Depicted: Admirals MetaTrader 5NIO Daily Chart. Date Range: 23 July 2020 – 16 September 2021. Date Captured: 16 September 2021. Past performance is not a reliable indicator of future results. 

Evolution of the last three years: 

  • 2020: 1,112.24% 
  • 2019: -36.89%
  • 2018: -8.74% 

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Roberto Rojas
Roberto Rojas Financial Analyst, Admirals Spain

Roberto is a Financial Analyst with a European Financial Advisor certificate and a Double Degree in Business Administration and in Actuarial and Financial Sciences. In 2013 was graduated as an Expert Manager in Equities