Traders searching for the next Tesla – XPEV up 50% in two trading days!

November 26, 2020 10:30

After Tesla was snubbed in September and not initially picked by the S&P500 Index committee, the electric car maker will join the S&P500 on Monday, December 1st.

This step seems overdue, given the fact that Tesla is already one of the S&P 500′s 10 most valuable companies and helped its CEO Elon Musk to become the second richest person in the world after Amazon CEO Jeff Bezos.

#NIO.US and #XPEV – who is the next Tesla?

As a result of the news on November 16th, Tesla shares sky-rocketed to new All Time Highs and pushed the market capitalization of the company to over 500 billion USD as of Tuesday, November 24th.

The developments around Tesla are currently spilling over onto other electric vehicle car producers, especially from China.

Following the run on Tesla shares, and given the fact that Chinese national policy is encouraging the launch of several Tesla rivals in China, the world's largest auto market, here's what unfolded next:

  • #XPEV, or Xiaopeng Motors, another Chinese electric vehicle manufacturer, headquartered in Guangzhou, with offices in Mountain View, California in the US, saw a rise of 50% in its stock price in only two trading days.
  • This brought the market capitalization of the company, which went public in August this year, to around 30 billion USD.

Another car manufacturer, NIO, was also affected. We already made NIO a topic shortly before the company released its earnings on November 16th after markets closed. NIO reported stronger numbers than expected, presenting Earnings per Share (EPS) of $-0.14 against the $-0.17 per share expected. Here's how they fared:

  • NIO's stock pushed to new All Time Highs as well
  • It is currently holding substantially above 50 USD per share, bringing the market capitalization of the company to more than 50 billion USD
  • It is still only 1/10th of Tesla's market cap

Swings in #NIO.US stock on an intraday basis are already massive and we are very careful in terms of long engagements here and trying to find the "next Tesla". Seeing the potential of a sharp decline, developments in #XPEV are even crazier.

When looking at the developments in the electric vehicle space over the last months, one is certainly reminded, to some extent, of the "Dotcom" bubble around 2000. We consider this hype not to be sustainable, probably even irrational.

On Wednesday, Chinese electric vehicle companies took their first hit, and a serious one at that, after news hit that the Chinese government is currently investigating the sector. This revealed that the current hype around NIO, LI or XPEV and the sharp pushes higher in their stock prices are not a one-way-street.

How can you trade #XPEV in this environment?

This all points to an overall very volatile environment in which electric vehicle manufacturers find themselves and should be taken into account if a trader is planning to take positions in the respective stocks.

Still, we want to emphasize, once again, that shorting a stock that's currently trading at elevated levels and showing signs of massive irrationality should be taken very, very carefully.

John Maynard Keynes once said that markets can stay irrational way longer than traders can stay solvent.

Now, given the recent run higher, we consider a break to below 63.00 USD a potential bearish sign and catalyst, leaving the stock of #XPEV vulnerable to a drop down to its breakout level of around 49.00 to 50.00 USD.

A stop above its current All Time High at 70.50 USD delivers a risk-reward-ratio greater than 1 to 1.5:

Source: Admiral Markets MT5 with MT5SE Add-on, #XPEV CFD 15min chart (from November 16, 2020, to November 25, 2020). Accessed: November 25, 2020, at 15:15 PM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2020, the value of #XPEV has increased, since its IPO on August 27, 2020, by 209.8%.

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