It's been a rough couple of months for Tesla (NASDAQ:TSLA) as the electric-vehicle (EV) company tries to make inroads in the all-important Chinese auto market.
A Chinese regulator announced last week that Tesla was voluntarily recalling more than 285,000 vehicles in the country to address an issue with the company's driver-assist system. The recall, which Tesla says can be managed via an over-the-air software update, follows previous criticism from Chinese authorities. This resulted from consumer complaints about Tesla vehicles and a high-profile demonstration by an angry customer at a Shanghai auto show.
Hopefully for Tesla's sake, this is just a patch of bumpy road as the company continues to build its presence in China; but if not, there are other automakers well positioned to gain share in this large, rapidly growing market.
Here's why three Motley Fool contributors believe NIO (NYSE:NIO), Lucid Motors (Churchill Capital IV) (NYSE:CCIV), and XPeng (NYSE:XPEV) are set up well to capitalize on any issues Tesla has in China.
The "Tesla of China" is beginning to accelerate
Lou Whiteman (NIO): NIO, with its charismatic entrepreneur CEO and portfolio of luxury EVs, has long been referred to as "the Tesla of China." The business results are beginning to match the hype.
NIO delivered 20,060 vehicles in the first quarter, up 423% year over year, and analysts expect it to deliver more than 90,000 vehicles for all of 2021. There is plenty of room for growth, as NIO recently signed a new agreement with its manufacturing partner that would provide capacity for up to 240,000 units annually.
The company isn't yet profitable, but it's on track after losing less than expected in Q1. And with more than $7 billion in cash on its balance sheet, it has money to continue its expansion, both in China and international markets starting with Norway.
NIO is winning in China in part because the company has had success establishing itself as a lifestyle brand instead of simply an automaker. Customers are invited to hang out at NIO clubhouses, a cross between a dealership showroom and a lounge, or buy NIO-branded accessories, clothing, and food products. NIO also offers a lifetime warranty and free roadside assistance.
The bottom line for me: I believe Chinese consumers, like their American counterparts, will gravitate toward a homegrown brand if that brand can deliver a level of quality and reliability that matches what international competitors deliver. NIO is building a loyal following in the world's most important automotive market and has the product lineup and cash in the bank to continue to make progress building out its business.
This company really could be the "next Tesla" if the giant stumbles
John Rosevear (Churchill Capital IV/Lucid Motors): I think the jury is still out as to whether Tesla is really faltering in China, or if this is just a rough patch that will pass in a few quarters. It's worth noting that Toyota went through its own rough patch in China in 2012 and 2013, while the Chinese and Japanese governments were feuding over some islands. But Toyota recovered, and it's doing very well in China now.
That said, any trouble for Tesla -- long seen as the EV juggernaut -- opens doors for just about every other company aiming to sell stylish and upscale EVs. That includes big names like Volkswagen and General Motors, both of which have huge operations in China. But EV investors might be better off looking at smaller, newer names.
Among those names, I like Lucid Motors a lot. The company, led by Tesla veteran Peter Rawlinson, is aiming its first model, the Air luxury sedan, squarely at the space occupied by Tesla's premium Model S. But unlike Tesla, which has been trying to reinvent the auto-manufacturing wheel for years, Lucid is adopting Big Auto's best practices in its Arizona factory, which is set to begin building the Air this fall.
Make no mistake, the Lucid Air is a luxury vehicle. Its price will start at $70,000 and top out at a bit over $160,000. The company already has more than 10,000 reservations, which are a lot for a high-end vehicle. Given its strong early reviews, I suspect the Air and the big Lucid SUV that will follow will both sell nicely.
While you can't buy Lucid's stock yet, you can buy shares of the special purpose acquisition company that is set to merge with Lucid on July 23 -- Churchill Capital IV. I don't promise that it will "go to the moon" right away, but having met Rawlinson and some of his team, and having seen an early prototype Air, I can tell you that I believe this company has a strong chance of success over the next few years.
Xpeng is ready to deliver
Rich Duprey (Xpeng): I think we're already seeing the results from the struggles Tesla is going through, and it's why I like Xpeng here.
The Chinese EV start-up just reported its June deliveries, and they were up 15% sequentially at 6,565 vehicles and over 600% from last year. For the second quarter, Xpeng delivered 17,398 vehicles, a 439% gain from last year.
The company shipped 4,730 P7 sedans in June, the highest monthly total for the vehicles since Xpeng introduced them in mid-2020. All told, more than 34,500 P7s have been delivered, a significant number because the P7 competes against Tesla's Model 3.
What I like about Xpeng is its planned lineup of EVs runs the gamut of vehicles that would appeal to different consumers. This month it plans to introduce an updated G3 crossover, the G3i, with deliveries beginning in September, while sometime in the fourth quarter, it plans to introduce its third production vehicle, the P5, which it calls a "family friendly smart sedan."
Success begets success, and though Xpeng listed its stock first in the U.S., it also just listed it in Hong Kong, selling 85 million shares at $165 Hong Kong each (or 21.00 USD each), a slight discount to the value of its U.S.-listed shares.
According to Bloomberg, Xpeng is the first Chinese EV company to successfully complete a so-called "homecoming listing," which many Chinese companies are planning on doing as a backstop against being kicked off U.S. exchanges because tensions with the U.S. continue to rise.
Although Xpeng is not yet profitable, sales are rising rapidly, and it has reiterated its intention to reach profitability by 2023 or 2024. Tesla is not to be dismissed lightly, but Xpeng is an electric car stock to watch.