A cybersecurity review of Chinese ride-hailing giant Didi Chuxing on its third day of trading has shaken international investor confidence in the Chinese company, sending EV stocks into a big pullback as well. In Deutsche Bank's view, there's no need to worry too much for investors in Chinese EV stocks.
In a research note sent to investors Tuesday titled "Could China EV stocks emerge winners from Didi debacle?", Deutsche Bank analyst Edison Yu's team argued that amid China's crackdown on Didi and the broader Internet platform, China EV stocks are emerging as one of the most reliable and safe secular growth sectors.
What is unique to the EV sector, according to Yu's team, is the strong government support for the EV industry at both the central and local levels, as they create manufacturing jobs, promoting a cleaner environment and a desire for exports to foreign markets.
"Ultimately, the government is striving to be a global leader in EV technology across the entire value chain," the team wrote.
Yu's team notes that, unlike big tech platforms that dominate one market, including Didi, there is a low concentration of market power within the automotive industry, with the largest OEM having less than 15 percent share.
For Nio, Xpeng Motors, and Li Auto, their combined share of the EV market is likely to be less than 10 percent even by the end of the year, the team said.
The sense from talking to investors, companies, and industry players is that Beijing is becoming extremely focused on redistributing power and wealth after years of unchecked dominance by the tech platforms, the note said.
On July 2, China's cybersecurity review office said in an announcement that it was implementing a cybersecurity review of Didi to prevent national data security risks, safeguard national security and protect the public interest.
Yu's team said that while the investigation is focused on cybersecurity and data security, the government's true intent is to level the playing field for everyday consumers. This is also true for payments, games, music, education, and e-commerce, in addition to Didi.
Policymakers are now intervening to make regulation more relevant, given that the rapid growth of the tech ecosystem seems to be triggering broader social anxiety, the team said.
"For example, in education, while the emergence of online tutoring/classes is certainly a positive development, the government wants to ensure quality of service and low pricing due to the cultural importance of allocating resources to education and also to encourage a higher birthrate," the team said.
Yu's team believes that as investors better understand this dynamic, there will be more interest and money flowing into China EV stocks.
Didi's stock has fallen more than 30 percent since it came under scrutiny on July 2. Over the same period, Nio and Xpeng are both down about 9 percent, and Li Auto is down more than 5 percent.
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