Chinese EV Stocks Had Brutal Week. One Analyst Knows Why.


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A NIO ES6 electric sport utility vehicle


Sean Gallup/Getty Images

It was a tough week for investors in Chinese electric-vehicle makers. One analyst has an idea about what’s behind this week’s downturn.

Shares of

NIO

(ticker: NIO),

XPeng

(XPEV), and

Li Auto

(LI), fell about 5%, 10%, and 15%, respectively, this week. That performance stands in contrast to

Tesla

(TSLA), which gained about 9% over the same span. The

S&P 500

and

Dow Jones Industrial Average

both rose more than 1% this past week.

Deutsche Bank analyst Edison Yu offered his commentary on this week’s action in a research report published on a Friday. “We believe this week’s weakness has been driven by worries about competition,” wrote Yu.

The Chinese electric-vehicle market is the world’s largest and the most competitive, “with essentially every major technology company now planning to build at least some part of the electric vehicle,” Yu noted. He named

Baidu

(BIDU), Foxconn, Huawei, and Xiamoni, among others getting into the Chinese electric-vehicle market. His list didn’t include Tesla, which expanded its Chinese offering to include Model Y crossover vehicles recently, and

Ford Motor

(F), which started taking orders for its Mach E in China this week.

Still, Yu believes Nio, Xpeng, and Li Auto can be long-term winners. Of the three, he prefers NIO and XPeng, rating both shares Buy. His price target on NIO is $70. His price target on XPeng is $48 a share. Yu rates Li stock Hold and has a $32 price target for those shares.


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All three targets are well above where shares have been trading this week. NIO stock closed Friday at roughly $36 a share. XPeng and Li shares closed at about $31 and $19, respectively.

Yu’s peers largely agree. The average analyst price targets for NIO, XPeng, and Li are about $62, $51, and $39, respectively.

Overall, more than 70% of the ratings on the three stocks are Buy. The average Buy-rating ratio for stocks in the Dow is about 60%.

Barron’s warned investors to be cautious with the three Chinese stocks in December, writing that new competition was a problem and the stocks themselves are expensive. The three stocks are down more than 25% since that article was published.

Write to Al Root at allen.root@dowjones.com