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Briefing Sep 26, 2020 09:30 am EqualOcean

Li Auto’s New Car Plan Leaked

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Sep 23, 2020 09:13 am ·

Li Auto, Nvidia and Desay SV Automotive Sign a Tripartite Agreement 

The agreement between Chinese electric car manufacturers, world-renowned chip makers and automotive parts producers signed the deal on September 22, 2020, in Beijing. The Nvidia Orin system-on-chip selected by Li Auto was released in 2019 and is scheduled to be officially put into production in 2022. Orin uses a 7nm production process to achieve 200TOPS computing performance per second, which is seven times faster than the previous generation Nvidia's high-powered Xavier chip. With a massive improvement in computing performance, Orin's power consumption is only 45 watts. Xpeng's recently launched sedan; the P7 is equipped with the older version of Nvidia's High-Powered Xavier Chip. Besides, Li Auto will provide users with an upgradeable solution. The standard single-chip Orin can have 200TOPS computing power and can offer L2 advanced driving assistance functions. After upgrading to dual-chip Orin, the computing power reaches 400TOPS, which can support L4 autonomous driving.  Desay SV will provide an autonomous driving domain controller for the vehicle based on the new chip, which will make Li Auto the first new energy vehicle company to independently develop an L4 autonomous driving system. "I am very much looking forward to this new cooperation between the three companies to bring users a safer and more convenient autonomous driving experience," Wang Kai, Chief Technology Officer of Li Auto, said." As one of the leading NEV manufacturers in China, Li Auto will invest more R&D resources in the field of autonomous driving," he added. 

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Aug 11, 2020 10:00 am · EO Company

Li Auto Sells 2,516 'Li Xiang ONE's' in July 2020

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Aug 7, 2020 07:51 pm ·

China NEV Intelligence Newsletter

How can you track the most ground-breaking Electric Vehicle (EV) leaders, especially the ‘big six’ – NIO, Li Auto, Xpeng Motors, WM Motor, BYD and Tesla China? To get started, check out the new service from EqualOcean, which helps our readers understand these companies better so that they can capture the hottest investment opportunities.  ►How to Access Subscription: USD 90 for three months (starts from the payment date) Subscribe to the Newsletter with your email by clicking the above button. The Newsletter will be delivered at 19:30 each workday, Beijing Time. EqualOcean focuses on research into investment opportunities in China. We have an English and Chinese content team of 250, with massive internal resources and knowledge networks built up painstakingly over the past six years.  We have received requests and feedback and have incorporated suggestions from every credible source. We hope to provide a serious category product for China's EV market.    Today, we launch the project China NEV Intelligence Newsletter, featuring updates on NIO, Li Auto, Xpeng Motors, WM Motor, BYD and Tesla China. This initiative is not coming out of the blue. We have a proven track record in China's automotive industry, including dozens of industry research reports, NEV reviews and exclusive interviews with major automakers' executives. NIO founder William Li, WM Motor founder Freeman Shen, Xpeng Motors co-founder Henry Xia have attended our events as guest speakers. The top two China EV stocks, NIO and Li Auto, are the capital markets' new darlings, following in the path of Tesla. We expect to see Xpeng Motors and WM Motor landing on the public market in 2020. Along with Tesla China and the traditional car maker BYD, new-generation EV makers are leading new energy reform.   The industry is at an early stage – but is rapidly accelerating. The competitive landscape is worth tracing out; there are no absolute winners yet. NIO, Li Auto, Xpeng Motors, WM Motor, BYD and Tesla all have massive opportunities ahead and each has a chance to become the champion. How they manage to seize these chances and handle crossover challenges will weigh sharply in the value of their stocks.   Investors who are aware of the enormous potential and bright future of EV need to follow and do their research into the major players. This way, they can know the best entry points in the market. Therefore, EqualOcean has started to provide the NEV Intelligence Newsletter service. After subscription, you will receive a daily newsletter at 19:30 on weekdays (Beijing Time). The service is sold at USD 90 for three consecutive months. Please make sure you enter the correct email address.  All the contents in the Newsletter will be released on EqualOcean.com. Our paid subscribers will enjoy the contents 12 hours earlier. If you need to renew the subscription, please contact us at your earliest convenience at contact@EqualOcean.com.

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Analysis EO
Jul 31, 2020 01:46 pm ·

Tesla Share Prices Decouple from the Fundamentals [2/2]

This article is part II of our analysis on Tesla – check out part I before you read.  For the Model 3, we can expect a rise in sales as EV penetration increases in Europe. However, we think the sales for this model also hinge on two important factors: 1. The criteria for EV tax deduction and subsidies and 2. The corporate transportation preference. For the first factor, we have seen the EV tax policies in Europe being a crucial factor in demand for Tesla. For instance, as the benefit in kind tax was capped for EV below EUR 50k in the Netherlands, Tesla Model S and X sales dropped to near 0 from 1000 per quarter. In terms of corporate transportation preference, although each corporation’s preference may vary, it might be presumptuous to assume Model 3 will be the ideal substitute for existing corporate fleets solely based on cost. While corporate fleets in Europe are dominated by BMW 5 and Mercedes E class, both the size and the prestige of Model 3 are more in line with BMW 3. So, despite the short term cost benefit, we see that wide adoption of Model 3 in Europe could also be hampered by the demand for class. For Model Y, we currently see it as a growth driver for Tesla because of its unique design and pricing. In terms of design, Model Y is a crossover between sedan and SUV and is targeting a wide range of consumers. In terms of pricing, it is priced a little under USD 50k – it is not subject to competition with more luxury models like Audi e-tron and Jaguar i-pace. A concern for Model Y sales is the potential cannibalization. While Tesla Model 3 and Model Y use 70% of the same gears and are similar in many ways, a surge in demand for Model Y can replace the existing demand for Model 3. China – The arrogant Tesla is not about to beat local competitors Since Tesla delivered its first Shanghai-made Model 3 to Chinese consumers back in January 2020, the car model has become the best-selling EV. Tesla reached around 46,000 car deliveries in the first half of the year, dwarfing smaller ones like NIO (14,483), Li Auto (9,500) WM Motor (7310) and Xpeng Motors (3,381, ex-June). Tesla's production is ramping up meanwhile, and it aims higher. The Shanghai plant's current production capacity for Model 3 is 150,000 per annum; its Model Y production is expected to begin in early 2021 with a production capacity no less than Model 3. Factoring this, we assume it can reach a total 300,000 annum capacity in 2021.  However, we hold the opinion that the ambitious EV leader is not yet ready to reach lasting dominance in the massive and lucrative market. Experience tells us that it could be hard for overseas leaders to dominate the Chinese market easily – consider the failures of giants like Uber and Google. We see a high potential of the new-generation management growing on the ground to rule the market due to 1. favoring policies 2. deeper understanding of domestic customers and innovation in service and tech.  China's new electric vehicle (NEV) subsidy policy that came out in April continues to favor the local. It is now only applicable to NEVs with the pre-subsidy price of CNY 300k or below, with the exemption of those adopting battery swap models, like NIO. We see a critical signal here: Beijing supports new tech innovations and will foster more domestic brands. Some foreign brands' versions of Tesla and Mercedes products will not be eligible – rather they will be the 'catfish' that will motivate others.  Tesla reacted to the policy by cutting prices down, which will lead to a slipping gross profit margin of the car model (the lowest among other, 17%) and the overall automotive GPM, in our view. This activity sparked the anger of Tesla car owners as they had bought the car with higher prices before (and it happens from time to time).  However, Li Auto choose to remedy the subsidy gap caused by the changing policies for its customers (around 8,000 per Li One), showing Chinese brands providing better services to win mindshare. The company's Extended-Range Electric Vehicles (EREV) tech is helping it carve out a position for itself as a company that understands the tipping point of battery tech, and the insufficient charging infrastructure in China. Read more about Li Auto, the brand that broke NIO's record in reaching 10,000 deliveries.  Tesla's neglecting of Chinese consumers has been reported widely. For instance, it was accused of substituting promised new control chips with an older version without notice in March. Chinese customers might switch to local brands that know them better, with higher cost performance and better service.  

Analysis EO
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Analysis EO
Jul 31, 2020 12:20 pm ·

Tesla Share Prices Decouple from the Fundamentals [1/2]

Recently the Tesla (NASDAQ: TSLA) share price broke above the $1,500 threshold, bringing its market cap to ~ $270 billion and making Tesla the largest car manufacturer in the world. In the past 52 weeks, Tesla share price has moved up by more than 500% despite a still negative return on equity. It is currently trading at a 730x P/E multiple vs a 10-20x in the industry, 40x multiple of luxury car maker Ferrari. Having 1% of the total car manufacturing revenue and 30% of global OEM market cap, investors are clearly valuing Tesla for far more than its sales. Although Tesla has a first mover advantage in the expanding Electric Vehicle market, we think the growth expectation baked in for Tesla’s current share price could be unrealistic. Technical Perspective – The end of the short squeeze A Short Squeeze happens when a stock rises higher sharply, forcing investors who bet on the stock price falling to purchase the stock at the market price to recover their positions, and as consequence, pushing the price even higher. We think short squeeze played a role in pushing up TSLA’s share price over a reasonable range, but now, with short bets on TSLA decrease, TSLA’s share momentum is likely going to face headwinds. According to data, TSLA shares shorted by investors were 23% of total shares one year ago, and this number decreased to ~ 8% recently. Along with short positions falling lower, the TSLA share price is also moving proportionally upward. Now, data shows it will take less than 1/3 of trading volume compared to last year to clear all TSLA’s short positions, meaning that a temporary sharp price increase will have less additional upward effects on TSLA’s share price because there will be less short sellers buying. Brand image and margin trade-off The success of Tesla in the EV market can be attributed to the brand image it has built with its technology and futuristic design. Tesla has traditionally been able to apply a premium value to its vehicles and shift consumer preferences. However, in Europe we see two headwinds regarding Tesla’s premium in brand image. 1. The high problem rate and low accessibility of relevant services are destroying Tesla’s credibility. 2. As Europe is the home court to many established auto brands such as BMW, Daimler, Volkswagen, Renault, and etc, Tesla is likely to face some headwinds as it expands. In addition, Tesla’s strategic shift, from high end S and X model sales to a focus on lower end Model 3 and Model Y sales, is further lowering margins and bringing both short term and long term bottom line concerns. Compared to the 24% gross margin of Model X and S, Model 3 and Model Y are currently running on 17% margins. With decreasing Model X and S deliveries and increasing Model 3 and Model Y deliveries, Tesla is further pressing its margins. While the increasing EV presence is a consensus, the pace of inflection is subject to debate. Given the volatility of taxes and various policy benefits in the past, Tesla might need to further lower its margin if existing tax and policy benefits are limited in any way. In the long run, as existing ICE (internal combustion engine) manufacturers launch more EV models at all price levels, Tesla might capture a smaller market share, resulting in weaker bottom-line growth. Europe – A big upside and big volatility In our view, Tesla sales in Europe have proven the high correlation of environmental law and Tesla sales. Currently, the two largest Tesla consumers in Europe are the Netherlands and Norway, accounting for 40% of total Tesla sales in the continent. Both countries are also pioneering in BEV adoption – while they account for 3.8% of total passenger vehicle sales in Europe, they accounted for 35% of the BEV market in Europe in 2018. Policy in Norway required all new light vehicles sales by 2025 to be ZEV (Zero Emission Vehicles) and 75% new heavy commercial van sales to be ZEV by 2030. In the Netherlands, the government also required an all ZEV sales target by 2030. Both countries also provided tax incentives for ZEV buyers. As a result, Tesla was able to quickly gain tractions and saw a jump in sales. With the EU's goal being to aggressively reduce carbon dioxide emissions by 2025, we might see Tesla’s adoption rate rise in other countries as purchasing and maintenance incentives come to light, especially in Germany and the UK. Policy is crucial, and growth is mixed To comply with the tough emission rules in Europe, EV penetration will rise by approximately 5.5x from 2018 to 2021, and Norway and Netherlands’ share will drop from 38% to 10%  by BNP Paribas’ estimate. Germany and the UK are likely to be the drivers for this EV growth. If sales in Norway and the Netherlands are any leading indicator for Tesla’s sales in Germany and the UK, Tesla could be capturing hyper growth in Europe and fully support a $400/share valuation given by BNP Paribas. However, we think the driver for Tesla’s growth in these two countries could be very volatile. The growth story in Germany and the UK was constructed upon the large corporate fleet demand in either country, accounting for 53% and 56% of total vehicle demand respectively. According to BNP Paribas, this could create a TAM of 3.2 million units. With multiple growth catalysts, it’s important to analyze how sales of each model for Tesla will perform under the current situation. For Model X and Model S, future sales are not looking very optimistic – 1. These two models might not be able to fully enjoy the tax benefits in Europe due to their high price, and 2. Model S and Model X are subject to quality concerns and can incur high maintenance costs. This article is part I of our analysis on Tesla. Please continue to part II.

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Jul 29, 2020 10:53 am ·

Li Auto's US IPO Gets Fully Subscribed

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Oct 16, 2020 09:30 am ·

Chinese-made Tesla Model Y Price Expected to Drop

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Oct 14, 2020 01:02 pm ·

Tesla China Reduces Model S Price

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Oct 13, 2020 09:30 am ·

CICC Raises BYD's H-share Target Price by 60%

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