Monday and Tuesday were the Mid-Autumn Festival holiday in China, but of Chinese electric car companies plunged in the US amid Evergrande's debt problems and renewed fears of shortages of automotive chips.

and Motors both fell 6.2 percent on Monday, while dropped 7.49 percent. The latter two rebounded slightly on Tuesday by less than 1 percent, with NIO down 0.77 percent.

How to make sense of all this drama during the Chinese holiday? Edison Yu, an analyst at Deutsche Bank, gave his take in a research note sent to investors on Tuesday:

We wish everyone a Happy Mid-Autumn Festival! Despite the holiday, there was a lot of activity coming out of China, primarily driven by liquidity concerns surrounding Evergrande. This has raised issues about broader contagion which our macro colleagues have written about (To scale "the Great Wall of worry" will require a China policy "put").

We note Evergrande NEV (708-HK) is 65% owned by parent Evergrande Group (3333-HK) and has seen its stock drop >90% since April. In the past month, Evergrande Group has been looking to sell its stake (or at least partial portion) including having preliminary discussions with who is looking to grow aggressively in EVs.

Following comments by the government that it wants more consolidation in the industry, we would not be surprised to see automakers join forces or even give up on China to some extent (e.g., Hyundai, PSA/FCA). However, we don't expect consolidation to occur too quickly given importance of preserving jobs and plentiful local government funding resources.

China EV stocks (LI, NIO, XPEV) were down considerably yesterday (6-7%) in the US, likely exacerbated by Li Auto's 3Q guidance cut. Li Auto reduced its 3Q outlook from 25,000-26,000 to 24,500, implying just under 6,500 deliveries for September, materially below the initial 10,000 target.

Li Auto attributed the shortfall to the production of chips related to a millimeter-wave radar supplier in Malaysia. While plants have partially opened up after COVID lock downs, the new Li ONE is using dedicated chips for its 5th generation millimeter wave radar which have been slower to ramp up compared to general purpose chips.

LI"s cut follows NIO lowering its outlook earlier this month which we believe was caused by Bosch's ESP supply shortage in Malaysia. NIO's revised outlook implies a large MoM step-up to >9k deliveries in September vs. <6k in August; this appears somewhat aggressive now considering lingering issues in Malaysia.