The contrast is striking. While U.S. politicians demand the dismemberment of Chinese-created social network TikTok, the budding electric-vehicle industry is globalizing like it’s 1999. Tesla CEO Elon Musk was in Shanghai lately, boosting morale at his new gigafactory there and telling reporters, “China rocks.” Beijing-based
(ticker: LI) listed on Nasdaq July 30, and the shares jumped by nearly half. Rival Xpeng Motors looks to be next in line.
Economically, EVs are structured for old-fashioned trans-Pacific cooperation. China, after decades of state investment, has a wide lead over the U.S. and Europe in batteries and other components. “China is making a very concerted effort to lead in this industry,” says Will Riley, co-manager of SmartETF’s Smart Transportation & Technology fund (MOTO).
Investors in Chinese EV companies are certainly betting on a bright future, even as Covid-19 depresses sales within China by a third. Shares in top manufacturer Nio (NIO) have soared 250% year-to-date, nearly matching
(TSLA) itself. Rival
(1211. Hong Kong) and battery maker
Contemporary Amperex Technology,
or CATL (300750. China) have merely doubled.
There are reasons why the industry could avoid the head-on political collision that is shaking communications and social media. You can’t steal personal data through a car battery. Future vehicles will harvest information on their passengers through onboard navigation and autonomous driving systems. But U.S. firms like
General Motors (GM)
(GOOG) subsidiary Waymo lead the pack there, Riley says. China also has robust competition in EV batteries from U.S.-allied neighbors:
in South Korea, and Japan’s
Tesla’s principal supplier for the moment.
There are potential points of tension nonetheless. China holds a near-monopoly over some essential elements of the battery supply chain, like graphite anodes, says Martijn Rasser, a senior fellow at the Center for a New American Security. “This could be like rare earth metals [vital to electronics production],” he says. “There was not much awareness of China’s dominance there until they threatened to cut off Japan over an island dispute in 2010.”
It’s also quite possible that Nio, BYD or another Chinese company will build better electric cars cheaper, cueing a re-run of trade tensions with Japan 40 years ago, says Jack Barkenbus, a Vanderbilt University scholar who studies the field. “The Chinese will make some very competitive smaller cars,” he predicts. “Eventually we’ll say, ‘Make these cars in America and employ Americans.’”
Investors’ more immediate concern is whether to keep buying electric vehicle stocks after the dramatic run-up. The two big Korean names,
(006400. Korea) and
(051910. Korea), have kept pace with Chinese peers, doubling since Jan. 1. (Panasonic lacked the foresight to spin off its EV battery division; the conglomerate’s shares are flat on the year.)
The industry’s growth trajectory merits the soaring valuations, thinks Simon Webber, portfolio manager for the Hartford Schroders International Stock Fund. While Covid has temporarily dented demand, recovery packages have bolstered subsidies for future EV manufacturing and purchases, particularly in Europe. Webber sees the sector rocketing from 3% of global auto sales to more than 30% within five to eight years. “That will drive fundamental growth for companies that can defend their intellectual property,” he says.
It might be a good idea to start graphite anode production somewhere outside China, though.