1、Equity Research 8 February 2022China Technology China Electric Vehicles: Not Just Brawn, But Brain Too - Initiate LI, NIO and XPEV at OW We are initiating coverage of leading Chinese EV makers with Overweight ratings. EVs and Smart Cars are among Chinas top national priorities and the TAM is not jus

2、t China but the global auto market. We believe that the rapid adoption of EVs around the world and booming EV sales have presented Chinas EV makers a rare opportunity to not only take a sizable market share of the domestic auto market the largest in the world with about 25-30% global share by units

3、sold per annum but also build a dominant position on the world stage. It is a national priority for China to develop cutting-edge EV and autonomous driving technologies, and to export competitive EVs around the world, as Chinese smartphone manufacturers have done in recent years. Several leading EV

4、makers have already started selling their products in Europe. Not only is China the worlds largest auto market, its auto industry accounts for over one-third of the global automotive profit pool. The enormous domestic profits available incentivize Chinas EV makers to invest heavily both in technolog

5、ies and in manufacturing capacity in order to stay ahead of the pack. In addition, the highly developed EV component supply chain in China enables EV start-ups to scale quickly. Compared to many countries in the world, including the US, China has one of the most supportive and well-thought-out gover

6、nment policy agendas for the EV industry. Measures such as qualified subsidies for EV purchases (low-quality EVs excluded), sales taxes waivers, free and readily available “green” license plates, as well as a national carbon credit system for all auto makers, EV or ICE, have been instrumental in hel

7、ping achieve EV penetration of around 14% in the country today. It is nearly impossible at this point to accurately envision what the future smart car may look like, or who the eventual winners and losers will be. Innovations and capabilities in autonomous driving and automobile robotics will ultima

8、tely decide the winners. With this as a backdrop, we initiate coverage with an Overweight rating on three leading Chinese EV makers: purpose-built EV producer Li Auto (LI), luxury early mover and battery innovator NIO (NIO), and mass-market oriented and value-focused XPeng Motors (XPEV), and aim to

9、closely monitor their progress in developing cutting-edge smart car technologies and expanding their product portfolios to address mass-market needs.Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies covered in its research reports. As a result, investors

10、 should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Please see analyst certifications and important disclosures beginning on page 81 .CORE I

11、nitiating Coverage #energyrevolution Completed: 07-Feb-22, 18:48 GMT Released: 08-Feb-22, 05:10 GMTRestricted - ExternalBarclays | China Technology8 February 20222Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12、 . . 5 Electric Vehicle Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 EV Penetration rising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13、. 8 Chinas EV market is massive but crowded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Government policy historically an EV adoption driver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Critical parts of the value

14、chain in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Consumer adoption considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 New energy tech and alternative EV makers

15、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Tesla in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 A complicated relationship . . . . . . . . . . . .

16、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Li Auto (LI) - Purpose-built for families to start . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Investment Thesis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17、 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18、 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Valuation . . . . . . . . . . . . . . . . . .

19、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 NIO Inc. (NIO) - Made in China luxury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Investment Thesis . . . . . . . . . . . . . . . . . . . .

20、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Financials . . . . . . . . . . . . . . . .

21、. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Valuation . . .

22、 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 XPeng Motors (XPEV) - Affordable and advanced . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Investment Thesis . . . . . . . . . . . . . . .

23、 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Company Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Financials . . . . . . . . . . .

24、 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 Valu

25、ation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 CONTENTS8 February 20223Barclays | China Technology Summary of our Ratings, Price Targets and Earning EstimatesRatingPricePrice TargetEPS

26、 FY1 (E)EPS FY2 (E)CompanyOldNew3-Feb-22OldNew%ChgOldNew%ChgOldNew%ChgChina TechnologyPosPosLi Auto Inc (LI)NROW26.83N/A38.00-N/A0.51-N/A0.64-Nio Inc (NIO)NROW23.13N/A34.00-N/A-1.52-N/A-1.29-XPeng Inc (XPEV)NROW34.52N/A45.00-N/A-6.66-N/A-6.31-Source: Barclays Research. Share prices and target prices

27、 are shown in the primary listing currency and EPS estimates are shown in the reporting currency. FY1(E): Current fiscal year estimates by Barclays Research. FY2(E): Next fiscal year estimates by Barclays Research. Stock Rating: OW: Overweight; EW: Equal Weight; UW: Underweight; RS: Rating Suspended

28、 Industry View: Pos: Positive; Neu: Neutral; Neg: Negative Potential +/-: Potential Upside/Downside 1 Percentage change in EPS relative to previous year.8 February 20224Barclays | China Technology Valuation Methodology and RisksChina TechnologyLi Auto Inc (LI / LI)Valuation Methodology: Our price ta

29、rget of $38 is based on 25x FY23E nominal EBITDA of $1.5bn.Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target: 1.) EREV obsolescence faster than expected, may face difficulty and margin pressure in transition to BEV maker. 2.) Unable to expand product portfoli

30、o beyond the Li ONE. 3.) Increased competition in its price segment. 4.) Lack of communication from mgmt and falling behind competitors in international expansion efforts Nio Inc (NIO / NIO)Valuation Methodology: Our price target of $34 is based on 25x FY23E nominal EBITDA of $2.2bn.Risks which May

31、Impede the Achievement of the Barclays Research Valuation and Price Target: 1.) Unsuccessful at transitioning to an EV maker for the masses. 2.) Increased competition in the luxury segment from incumbent international (i.e. German) brands). 3.) Falls behind on autonomous driving in the intermediate

32、term.XPeng Inc (XPEV / XPEV)Valuation Methodology: Our price target of $45 is based on 25x FY23E nominal EBITDA of $1.7bn.Risks which May Impede the Achievement of the Barclays Research Valuation and Price Target: 1.) Broad portfolio of competitively priced products creates difficulties achieving ec

33、onomies of scale, hampering profitability. 2.) Hybrid sales model undesirable in communicating value proposition vs. competitors. 3.) Mass market tilt does not produce outperformance in units delivered.Source: Barclays Research8 February 20225Barclays | China Technology Executive Summary We are init

34、iating coverage of three leading Chinese EV players, LI, NIO, and XPEV with OW ratings and price targets of $38, $34, and $45, respectively. As China has been making giant strides in advancing its technologies across multiple sectors, from communication equipment and internet to high-end manufacturi

35、ng and renewable energy, the Chinese government has been proactively planning for the next set of national priorities: technologies the country should be focused on in the next few decades. New Energy Vehicles and Electric Vehicles in particular are likely top of the list, for several reasons. First

36、ly, China has failed, for the most part, to establish a competitive position in the global ICE market. Despite China being the largest auto market in the world in recent years, with about 25 mm units sold in 2021 out of worldwide sales of about 80 mm, domestic players have relatively low market shar

37、e even in China, and their cars are rarely seen outside the country. This is in stark contrast to many car-producing countries. A casual observer is likely to see mostly European cars in Europe and Japanese cars in Japan. Delving into the background of the missed ICE opportunity, we note that at the

38、 time when demand for ICE cars took off in China roughly 20 years ago, the Chinese government had little experience dealing with foreign auto makers, or trying to transfer core technologies into China or motivate domestic players to come up with competitive technologies and products. Furthermore, do

39、mestic auto players were not ready to launch anything remotely close to what foreign players were offering. Fast forward to today, and foreign-branded cars (European, Japanese, Korean and American) make up the majority of the cars sold in China, particularly in higher-tier cities. Todays China is ob

40、viously not what it was 20 years ago, and nor are todays Chinese companies, supported by an exceptionally exuberant capital investment environment (venture capital, private equity, sovereign wealth, etc.) Chinese authorities and Chinese companies appear determined not to let the EV opportunity slip

41、through their fingers. We also believe Chinese EV makers have the global auto market squarely in their sights over the long term, sensing a rare opportunity to export their products and go global, as many American, European, Japanese and Korean companies have over the last century. Chinese EV player

42、s hope to follow in the footsteps of Japanese and Korean auto makers over the last 40 years, with the goal of someday becoming the largest auto maker in the US a feat Toyota has only recently accomplished. It will surely be a very long road, but given strong support from the Chinese government and a

43、n underlying desire for Chinese manufacturers to move away from making childrens toys and towards high-value and high-tech consumer products, we believe these companies should have a decent shot at success. Some of these companies have recently started selling their cars outside of China (e.g. NIO a

44、nd XPEV in Norway) and these early attempts bear close monitoring. One cannot talk about the EV industry without paying due respect to Tesla, which is not only the largest EV seller in the US, but also in China, having about 20% market share, which is equivalent to NIO, LI and XPEV combined. We see

45、a reasonable basis for drawing a parallel here between the smartphone and EV industries. Early on, Apple led the way in smartphones with its revolutionary iPhone, and a number of Android-based phone manufacturers led by Samsung completely took over the industry once dominated by traditional cell pho

46、ne manufacturers such as Nokia, Motorola and Ericsson. At the time, Chinese manufacturers had very little presence. A few years later, leveraging the massive domestic cell phone end market and robust domestic component supply chain, Chinese brands such as Huawei and Xiaomi quickly emerged as top 5 g

47、lobal smartphone manufacturers. In the case of EVs, we think Chinese 8 February 20226Barclays | China Technologyplayers will catch up to global leaders such as Tesla even faster, given the EV supply chain is more centered around China than even the smartphone industry; EV batteries and other raw mat

48、erials such as rare earth metals coming mostly from the region. Chinese EV makers have the opportunity to become the largest global EV manufacturers in the next 10 to 20 years. One of the most important drivers of rapid EV adoption globally in recent years has been government policy support, and it

49、is no different in China. In fact, we would argue that supportive government policy is the biggest reason why EV penetration (as percentage of new car sales) in China stands at around 14% today. The Chinese government has had one of the most aggressive and coherent national policies on EVs, providin

50、g consumers with sizable subsidies (in the forms of discounts and waivers of sales taxes) to purchase EVs instead of ICEs. These subsidies have strict parameters with EVs that fail to meet certain specs such as battery range or density ineligible. With this well thought-through discount mechanism, t