What happened
Shares of rising Chinese electric-car company Li Auto (LI 6.69%) cratered 9.8% through 9:45 a.m. ET on Monday as competition heated up in China's domestic electric-vehicle (EV) industry. This morning, the South China Morning Post (a Hong Kong-based, English language newspaper owned by Alibaba) reported that Chinese cellphone giant Huawei is getting into the electric-car space with a new S7 electric sedan built jointly with local automotive company Chery Automobile.
So what
As SCMP explains it, the Huawei-Chery joint venture (JV) "Luxeed" is primarily aimed at dethroning Tesla (TSLA -1.11%) as the dominant luxury EV brand in China. But there may be collateral damage in this fight.
Luxeed's S7 is described as a "coupe-like electric vehicle" based on Chery's own E0X platform and "superior to Tesla's Model S in various aspects." And while it's not on the market yet, it will be by November, when production will begin.
But beyond the Model S, which is mainly a niche product at this point (even for Tesla), the Luxeed JV brings mass market heft to Huawei's automotive ambitions. As SCMP reports, Chery -- still mostly a manufacturer of traditional automobiles -- has an EV-focused subsidiary named Jetour that produced more than 180,000 EVs last year.
That's 35% more than Li Auto's production last year and 47% more than Nio. It's also 49% more than Xpeng.
Now what
As the largest of China's three publicly traded EV stocks (I'm not counting BYD in this calculus because it's not traded on U.S. exchanges), Li is logically the biggest local competitor to Huawei and Chery that can be bet against by U.S. stock market investors.
While it's impossible to know beforehand how successful Luxeed will be at competing in the EV space, Chery's success with Jetour suggests "it could be a contender," so to speak. So while today's sell-off in Li Auto shares seems to be a bit of an overreaction to one single news story in the Chinese press, it does bear watching.
