Shares of Chinese electric vehicle (EV) stocks Li Auto (LI 7.63%) and XPeng (XPEV 3.32%), as well as Vietnamese EV maker VinFast (VFS 5.38%), plunged in March, down 34%, 18.6%, and 16.8%, respectively, according to data from S&P Global Market Intelligence.
Expectations may have been high for this cohort heading into the month. After all, Li Auto crushed its fourth-quarter earnings report in February and was riding high heading into March. However, Li's monthly deliveries suddenly disappointed, especially regarding the launch of its new Li MEGA electric minivan.
The disappointment around Li and other EVs also soured the mood for XPeng and Vinfast, each seeing a large strategic shareholder sell more shares during March amid the global EV slowdown.
Li's about-face stuns EV investors
Li's month didn't start particularly well. Reporting monthly deliveries as most EV makers do, Li reported February deliveries of 20,251 on March 1. While that figure was up 21.8% year over year, which is certainly not terrible, it may have disappointed investors, given the red-hot 184.6% deliveries growth posted in the fourth quarter. And it was below the run rate needed to achieve the company's Q1 guidance for 100,000 to 103,000.
Li may have been banking on a big boost for deliveries of the new Li MEGA, an electric minivan-type vehicle boasting a whopping 710 km (440 miles) of range and ultra-fast charging, designed for multigenerational households. However, sales of MEGA disappointed. On March 21, the company pre-announced a downwardly revised delivery guidance range of 76,000 to 78,000, missing initial guidance by a whopping 24%.
Xiang Li, chairman and CEO, offered a mea culpa, describing the Li MEGA marketing strategy as "misplaced," going for a "1-to-10" mass hypergrowth strategy too early. Instead, Li says the company will now adopt a "0-to-1" strategy of targeting only well-off families in major cities.
Image source: Li Auto.
That note seemed to indicate the Chinese EV consumer is weaker than Li expected, which cast a pall over other Chinese EV stocks and really EV stocks in general. That was obviously not good for either XPeng or VinFast.
That's why, despite XPeng beating analyst estimates when it reported fourth-quarter earnings on March 19, investors chose to look at the deceleration implied in its first-quarter guidance and compressed gross margins amid the highly competitive price war in China.
And XPeng took another leg down after internet giant Alibaba (BABA 1.14%) disclosed it had filed to sell another part of its stake in the carmaker. Alibaba plans to sell about 33 million shares worth about $314 million, according to a March 21 filing, taking its stake in Li from 10.2% to 7.5%.
While Alibaba's share sale is likely part of Alibaba's own strategy to refocus its business, it still isn't exactly a vote of confidence.
Finally, VinFast, while not as exposed to China, is still exposed to Southeast Asian countries around China. Importantly, it's also subject to intense competition and price wars from the region's Chinese EV companies. In March, one of its major investors, U.S.-based shareholder Yorkville Advisors, decided to sell some of its stake, as the company filed to help Yorkville sell 5.1 million shares.
Will EVs bounce back, or is the market in for more disappointment?
It's a tough EV market globally, as many car brands have ramped up production, perhaps ahead of the consumer appetite for EVs. Higher interest rates, an economic malaise in China, and a price war among EV vendors are all taking their toll.
While EVs are still likely the wave of the future of mobility, this shakeout could continue to worsen before it improves.
