This Chinese Car Company Is Crushing Tesla

Matthew Carr By Matthew Carr
Emerging Trends Strategist

Market Trends

It’s been an extremely difficult year for Chinese stocks.

And I’m not merely talking about the likes of Alibaba (NYSE: BABA) and JD (Nasdaq: JD) – or a host of other companies that trade in the U.S.

The Shanghai Composite is suffering a brutal 2018, tumbling more than 15% year to date

Not only is it now in bear market territory, but years of gains have been erased.

In fact, China’s stock market is approaching levels not seen since the “Black Monday” crash three years ago, which sparked a sell-off around the world.

Not to mention the trade war with the U.S. is fueling uncertainty.

Still… it’s not all gagworthy.

Several high-profile Chinese companies have sought higher ground this year through initial public offerings (IPOs) on U.S. exchanges.

For example, Chinese discount e-commerce company Pinduoduo (Nasdaq: PDD) IPO’d in late July. Just a couple months after video-streaming service iQiyi (Nasdaq: IQ) did. Pinduoduo is looking to be the next Alibaba or JD – in a Groupon (Nasdaq: GRPN) sort of way. And iQiyi is the Chinese Netflix (Nasdaq: NFLX).

But there’s another IPO on the horizon that investors should watch. One that’s aiming to be the next Tesla (Nasdaq: TSLA)… and it’s already beating Tesla in China.

Keep an Eye on This Auto Market

China is the world’s second-largest economy, behind the U.S.

And it’s focusing on being more eco-conscious and environmentally friendly. The country has a Blue Sky initiative, which looks to retire small coal-fired power plants and replace them with cleaner energy sources.

This is part of the reason U.S. exports of liquefied natural gas (LNG) to China have surged. And it’s why the country accounts for 45% of total global spending on solar energy.

Though the movement has also caught on with consumers.

In 2017, more than 1 million electric vehicles were sold worldwide. And most of them were sold in China.

In terms of size alone, China’s EV market is already nearly three times that of the U.S…

Of course, China’s enormous population does play into the equation.

But the more important statistic is that EVs accounted for 2.2% of China’s automotive market in 2017.

For comparison, EVs made up less than 1.5% of the U.S. automotive sector last year. The U.S. market would need a major catalyst to propel sales to anywhere near the level Chinese consumers are already buying at.

This is a continuous reminder that the EV market outside the U.S. is immensely more attractive. And in China, not only are there more vehicles sold but they’re becoming increasingly popular.

It’s a trend investors can’t ignore.

Especially since more than 300,000 EVs have already sold in China this year.

Now, for those EV fans who have been turned off by the volatility in Tesla following Elon Musk’s failed buyout, don’t fret.

Because there’s a nascent Chinese trailblazer already making waves.

Blue Sky Is Coming

EV startup NIO just filed a $1.8 billion IPO for its American depository receipts under the ticker “NIO.” This would make it the largest ever U.S. public offering for a Chinese automaker.

It would also make it the second-largest Chinese IPO this year, behind iQiyi’s.

On top of that, the company’s name in Mandarin translates to “blue sky is coming.”

In June, NIO began deliveries of its ES8. This is a seven-seat SUV that’s purely electric. And it’s seen as a competitor to Tesla’s Model X. The company also plans to release a lower-priced electric SUV, the ES6, later this year.

As of the end of July, NIO had delivered 1,331 ES8s in 2018. That may not sound like many. But it has 17,000 unfulfilled reservations with nearly 5,000 nonrefundable deposits.

To put that number in perspective, Tesla delivered 14,833 vehicles to China last year. That’s a little more than 1,200 EVs per month. And Bloomberg estimates that Tesla’s deliveries this year are running between 800 and 1,000 per month.

That means NIO is already outselling Tesla. Yet it has only one model on the market, whereas Tesla has two.

The NIO IPO just adds another enticing element to the Chinese EV space.

So forget Tesla. Forget the trade war.

Companies like NIO are targeting hungry domestic consumers who see EVs not as a fringe movement… but as the future.

Good investing,

Matthew