Selecting Your Chinese NEV Stock: An Ultimate Guide To NIO, XPeng, And Li Auto

Summary

• NIO, XPeng, and Li Auto share similar business development trajectories in the Chinese auto market.
• Their management teams are from divergent backgrounds and the companies prefer different types of talents.
• Both top Chinese capital managers and local governments support these EV pioneers.
• NIO is the absolute sales leader in the segment, while XPeng's NGP has the best features of autonomous driving.
• We remain bullish on NIO and XPeng in 2021, keeping our targets at USD 62 and USD 72 respectively.

The electric vehicles ("EVs") market was under the spotlight in 2020. Benefiting from the rocketing value of Tesla (TSLA), Elon Musk became the richest person in the world. Meanwhile, a few EV startups, including XPeng (XPEV) and Li Auto (LI) went public, attracting diverse investors' attention. Their compatriot NIO (NIO), which went public in 2018, saw its stock surge by 1,110%. While some investors place bold bets on these companies, increasing the growing avalanche of hype, some believe these stocks are not worth investing in, as their business fundamentals and current market caps are not seen to match.

To enhance the possibility of an objective view of the space, this article provides an in-depth comparison of Chinese EV pioneers - NIO, XPeng and Li Auto - across several essential dimensions. A combination of comprehensive business research and technology analysis allows us to tailor an actionable message for investors with different styles and angles regarding these companies. It is a long, data-heavy read for those willing to learn as much as possible about the trio.

Core management

Like many other inspiring startup stories, EV brands face a long process before they can truly succeed. Persistence, creativity and agile thinking are all indispensable. Another key element is the makeup of a company's core team, where compatible, complementary mindsets are fundamental to success. We will start the article by introducing the three management teams and how their backgrounds have been affecting the companies' strategies.

NIO's management team was one of the earliest groups generating ideas for manufacturing NEVs in China. In the beginning phase, the company employed a number of talents who later moved on with XPeng and Li Auto. These include Li Auto's founder, who used to be a director at NextEV (NIO's original name). Moreover, to some extent, NIO is weighted towards management with finance backgrounds. The crew has abundant connections with the Chinese multinational technology conglomerates like Tencent (OTCPK:TCEHY) (OTCPK:TCTZF), Xiaomi (OTCPK:XIACF) (OTCPK:XIACY), JD.com (JD) (OTCPK:JDCMF) and the Hefei government. Besides, the board has an outstanding spirit of surviving in adversity. For instance, NIO had some scandals like car safety problems, large layoffs and cash drain. But it was still revived in 2020 with consistent stellar car sales.

XPeng's management has years of experience in the automobile industry. Most of the team members are from GAC, a top carmaker in China. Even though XPeng has sold fewer cars than NIO and Li Auto, with some bad press around their safety record, their cars do not actually have any severe safety problems - only a few design flaws grumbled about by buyers. For example, XPeng P7's trunk was once called not user-friendly and hard to open; another occasion made the company recall tens of thousands of the G3 units.

In addition, some of XPeng's other core team members are from UCweb, another company founded earlier by XPeng's founder Mr. Xiaopeng He. Now a subsidiary of Alibaba (BABA), this corporation designs the most popular mobile browsers in China and Indonesia. With assistance from field experts, XPeng designs well-functioning software and in-car entertainment solutions. Recently, the management team has started to connect with a young generation who are willing to learn quickly. With a new marketing focus, XPeng has replicated NIO's strategies by branding itself through developing online communities and holding various activities with its stakeholders.

Li Auto's management team primarily consists of private equity partners and staff led by Li Xiang. This team is less experienced in car production, but they are capable of delivering high-quality products - as proved by Li ONE's sales momentum in 2020. The founder of Li Auto and Autohome, a major online forum for automobile consumers in China, Mr. Li leads a group of professionals focusing on a single EREV (extended-range electric vehicle) model. With less focus on R&D and vehicle design, this team doesn't seem to be as proficient as the top execs at NIO and XPeng.

Recruiting layouts and strategies

By October 2020, NIO's employee number had reached 7,194, of which 36% were R&D staff. Even if NIO is hiring fewer R&D people than XPeng, it, on average, pays the most competitive salary. Besides, NIO has an immense cohort of salespeople, who take up the largest share in the company's headcount.

XPeng appears to be more tech-oriented, focusing on R&D. The company is less concerned on the sales and marketing, with more weight on the manufacturing, administration and general management divisions.

Li Auto, as per its employee sourcing strategy, prioritizes cost-efficiency with less spending on R&D and sales. However, it is currently the most active among the three in hiring sales personnel.

Brand ethos and corporate vision

NIO's motto is 'shaping a joyful lifestyle through selling premium smart electric vehicles.' Apart from their high-end SUVs, NIO differentiates itself from its competitors by highlighting customer services.

Their 'worry-free' service permeates into small details. For instance, the company will offer free coffee to car owners while they are swapping batteries. Consumers tend to have a highly satisfying shopping experience, with door-to-door services and other leisure activities provided by NIO. These enjoyable experiences have boosted car sales and increased user stickiness in the NIO community.

This leads to NIO's premium market position instead of lowering prices to obtain favors from its consumers. With a well-structured strategy, they have no incentive to change the pricing model. The company is also very likely to apply a similar business model in the European and other global markets it plans to expand to.

XPeng's perspective concentrates on another popular type of business model. The company provides tailored service to China's middle-class tech-savvy consumers. This group wants to have smart EVs with the latest technology. It is consistent with the story in which a veteran engineer-CEO is leading lots of engineers doing R&D. XPeng is known as the 'bravest' player in the industry striving for innovation-based growth.

Taking a look at the EV blueprint, the prototype of Li Auto's Li ONE is to solve issues for most middle-class families. This principle shows management's interpretation of the EV value proposition. As the CEO, Li Xiang can present a highly satisfying product in Autohome - he can also make acceptable EVs for consumers with a 7-seat model while having fewer worries about driving range. Li ONE's EREV model should boost the company's short-term growth as a transitional model. From this aspect, it will probably need to unveil another pure EV, which may pose a challenge in the future.

The stories behind

As the nominal leader in the Chinese EV race, NIO set off fast from its inception in 2014 and subsequently scrambled along at a steady pace. The company received funding regularly from 2015 to 2020. In total, NIO has four car models and three of those have been massively delivered. The company is supported solidly by many 'best-in-China' corporate players like Tencent, which invested in NIO twice in 2017. Other big tech players, including Xiaomi and JD.com, are also among its backers.

Besides, the Hefei local government has made every effort to be an important pillar of NIO's success. They provide resources and funding support for the long-term growth of NIO in Hefei. As a return, NIO has to cooperate tightly with other local corporations, including building headquarters in the city. Deutsche Bank's analyst Edison Yu believes that it is a favorable deal for NIO as the government didn't ask for much stake from the company. The relationship between the two parties is further improved by the intention of the Hefei government to build a local EV supply chain. Last but not least, NIO chose Hefei-based JAC Motors to support its manufacturing. Now they are preparing to build the second plant.

XPeng started showing rather outstanding results from 2019. Previously, it acquired capital from investors like Alibaba and the Matrix Partners. To produce cars, in 2017, it has selected Haima Motors for outsourcing. 2019 was important for XPeng: the first model (G3) was launched and first delivered in that year. Due to a slack NEV market, the car didn't enjoy great success right away.

XPeng completed an IPO on the NYSE and launched a self-built CNY 6 billion plant in Zhaoqing in 2020. Alternatively, the company received CNY 4 billion funding from the Guangzhou government in September 2020 to build a smart EV manufacturing base in Guangzhou by the end of 2022. Like the Hefei government, the Guangzhou government cares more about traction on local employment and synergy effects in the supply chain instead of focusing on the financial benefits. XPeng P7, the firm's second model, became a relative success, compared to G3. At the moment, XPeng is preparing a rollout of its third model.

Compared with NIO and XPeng, Li Auto seems to be a low-profile company, focusing on a single EREV model and growing its production capacity steadily. The company has been pacing steadily, rolling out Li ONE in 2018. They have also received capital support from Meituan (OTCPK:MPNGF) (OTCPK:MPNGY), which is the most important investor apart from Li Xiang himself. Meituan and its founder, Wang Xing, led Li Auto's three rounds of funding, as well as its USD 1.1 billion IPO. Li Auto recalled thousands of cars in November 2020 but eventually solved its technical problems. Besides this, the company also chose to build a plant by itself in Changzhou after acquiring manufacturing capacity through the purchase of Lifan Group.

Product strategies

NIO's EVs have an advantage known as the 'integrated design' and can be easily recognized. The company focuses on the sport utility vehicles market, the largest passenger car market segment in China. The company's car portfolio consists of a middle SUV ES6, large SUV ES8, and sloping rear SUV EC6 tailored to young individuals. Currently, the management team is working on their first sedan ET7 equipped with some new features. Besides, unlike Tesla's simple interior design, NIO wants to offer buyers more options on selections of air suspension, Brembo brake pad, Nappa upholstery, seat heating, and more. Finally, NIO car owners can enjoy unique charging experience, battery swap and customer services. These services make NIO stand out among EV makers in China and symbolize the company as a high-end brand.

XPeng has drawn to a different game, aiming to evolve car models fastly. The company's first car G3 is an ordinary model EV with no staggering features. But the company refreshed people's minds after launching the sports sedan P7 in April 2020. With a stylish exterior and tech features for automatic parking, the model also has in-car voice recognition and car light shows, karaoke… On the other hand, P7 doesn't have top-notch hardware and interior like NIO but is still acceptable especially compared with automobiles in the same price class. Due to the P7's success, the management team transformed the model into several versions, including the performance model, the long-range model reaching 706 km, and the most recent one with gullwing doors. The company is expected to launch and start delivering a new sedan in Q4 2021.

Li Auto's ONE is the only product scheduled for 2022. With a limited model variety, the company tries to meet the needs of a diverse group. It has a non-experimental design, 6/7 seats, and power that achieves 800 km driving range with 40.5 kWh battery and gas power supply. This model also provides splendid entertainment experience through four in-car screens. One key feature is its EREV model, a non-pure EV that can drive only 180 km when only using the battery for power. Li Auto doesn't have any EV infrastructures like supercharging points or swap stations, which tends to misguide people thinking that Li Auto is not really an EV maker.

More comprehensively, according to Autohome, NIO's cars are versatile, performing better than their peers generally. For example, ES6 performs better than 90% of cars in the peer group on power, range, control and hardware. Its safety and space exceed 82% and 89% of cars in the segment. Li Auto and XPeng's models have some 'short stave' space like G3 and P7, and the range of Li ONE.

Core technology

In terms of software and self-driving systems, NIO and XPeng are more advanced than Li Auto. Because of its higher production cost, NIO's basic bundle includes several features like Collision Warning, Automatic Emergency Braking and Blind Spot Detection (BSD). There are advanced features like Navigation On Pilot (NOP) and automatic parking that normally require additional spending. XPeng P7 also provides more options with buyers on the pilot features. But most of them involve additional charges. In some important features like parking and NBS, NGP (Navigation Guided Pilot) performs better than NIO's NOP. Besides, Li Auto only offers a limited pilot driving experience.

Marketing

Due to NEVs' technology traits, the marketing strategy of most vendors is somewhat similar to that of those selling electronic devices, with a high standard of offline and online retailing and multi-channel systems. This is quite different from traditional car sales and venue-dealerships like 4S stores in China.

There are advantages and disadvantages to the new retailing. But overall, it is favored by the companies.

Pros:

• The product is accessible to consumers within a certain commuting distance.

• The stores are exposed to more traffic than remote stores.

• Lower and nimbler customer acquisition cost.

• The cost for stores targeting potential customers is more affordable than before.

• Online and offline activities make it effective for brands to maintain relationships with clients.

Cons:

• The costs of exhibiting cars in the downtown area are getting higher as more models emerge. The selling and marketing strategies are easy to mimic.

• It's difficult to manage a more complicated selling and marketing process.

By entering the NEV space with higher costs, NIO excels in design, site selection, selling, and after-market service. NIO uses a new retailing network covering online and offline, including NIO Houses, NIO Spaces and mobile applications, such as NIO Day and NIO Power. Due to weaker budgeting performances, XPeng and Li Auto also adopted a similar approach, but, at the moment, can't compete with NIO in many aspects, including branding, after-market service and location selection.

At a glance

When it comes to growth stocks, the ability to innovate is a crucial argument in the conversation. Resulting from the multidimensional comparison of the three Chinese EV makers, we can easily state that Li Auto is a laggard in this race (we have also explained this assertion in another Seeking Alpha article). While holding its shares might be a decent short-term speculation strategy, the company is not likely to deliver significant value in the long term, when the electric vehicle sector enters the stage of maturity in China.

NIO and XPeng, on the other hand, appear to be well-equipped, versatile automakers. We keep our price targets at USD 62 for the former and at USD 72 for the latter.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.