Stocks of a Chinese company that manufactures electric vehicles Li Auto ( LI 4.58% ) The stock price increased by as much as 5.1% on Monday, but later decreased to a 4.1% gain by 1:49 p.m. ET.
Despite the lack of news specific to any particular company, today brought a new report from Bloomberg New Energy Finance indicating that China is considering a significant increase in subsidies for its “cash for clunkers” program. This could potentially boost sales of new electric vehicles in China this year, leading to a rise in the stock prices of all Chinese electric vehicle companies today, with Li in particular seeing a significant increase.
China is offering incentives to exchange your fuel-inefficient vehicle for eco-friendly electric vehicles.
Starting from April, China has introduced a program called “cash for clunkers”, where individuals can exchange their old, less fuel-efficient internal combustion engine (ICE) vehicles for a subsidy towards purchasing either an electric vehicle or a more efficient ICE vehicle. Subsequently, in July, China revealed that it would be increasing the subsidy for electric vehicles to 20,000 yuan, without specifying the total amount the government would allocate for this initiative.
According to a report released on Monday by BloombergNEF analyst Siyi Mi, it was proposed that the additional subsidies could be aimed at supporting an additional 1.1 million electric vehicles, effectively doubling the original subsidy amount. This doubling could have a significant impact on China’s electric vehicle manufacturers, potentially boosting 2024 EV sales in China by approximately $26 billion, based on an average price of slightly above $25,000 per electric vehicle in China.
Li had been experiencing strong sales growth over the past year, but there was a significant slowdown in first-quarter deliveries compared to the growth rates seen in previous quarters. Additionally, during its latest earnings call, Li mentioned that its April deliveries, which are the first month of the upcoming second quarter, had only increased by 0.4%.
However, this month, the company reported 51,000 deliveries in July, setting a new monthly delivery record, which represents a 49.4% increase compared to the same month last year. This suggests that the new subsidies may have contributed to boosting Li’s sales momentum. Therefore, an increase in subsidies could potentially lead to further positive developments. With the company’s stock value declining by more than 48% in the last year, it is not surprising that this news has helped propel Li’s stock in a positive direction.
Investing in Li Auto is still considered a risky choice.
Although Li’s sales have picked up speed again in July, it is important for investors to be aware that its profit margins have decreased due to intense competition and price wars. EV makers In China, as well as globally, Li experienced a shift in financial performance from making profits to incurring operating losses in the initial quarter, despite a 52.9% increase in deliveries.
The EV industry is facing a challenging situation due to factors like inflation, increased interest rates, tariffs restricting China’s OEMs from selling their products to other nations, and various economic issues. This has prompted China to enhance its subsidy program, which is positive news for all Chinese OEMs, especially considering the higher rate of EV adoption in China compared to the United States.
Nevertheless, ideally, the industry should be able to function with profitability independently, without relying on financial support. Although battery electric vehicles are expected to dominate in the future, the journey towards that outcome will be challenging, and it is uncertain how available resources will be distributed. profits made by car manufacturers .
