A top Chinese government meeting on Monday boosted investor optimism, with Nio and Xpeng, the laggards of the past few months, coming into more favor.
Shares of US-listed Chinese electric vehicle (EV) trio Nio (NYSE: NIO), Xpeng (NYSE: XPEV), and Li Auto (NASDAQ: LI) soared overnight, with Nio and Xpeng performing particularly brightly. Many wondered what was going on.
Nio rose 10.87 percent to $11.73 by the close of US stock markets on Monday, its biggest one-day gain since June 27.
Nio has gained a cumulative 56 percent in the US since June and was up 20 percent for the year so far.
Xpeng rose 9.96 percent to $16.01 on Monday, its biggest one-day gain since June 30. The company was up 99.6 percent since June and 61 percent year-to-date.
Li Auto rose a smaller 3.27 percent to $38.18 in the US on Monday, giving it a 31.4 percent gain since June and 87 percent year-to-date.
As of Monday's close, Nio had a market capitalization of $21.2 billion, Xpeng $13.9 billion and Li Auto $39.8 billion.
A top government meeting on Monday was seen as the most significant factor driving these stocks higher, as it sparked investor expectations for greater economic stimulus in China.
The much-anticipated meeting of the Political Bureau of the Communist Party of China Central Committee on Monday acknowledged that China's economy is now facing new challenges, in stark contrast to its better-than-expected performance at the meeting in late April.
These challenges are mainly due to a lack of domestic demand, difficulties in the operation of some enterprises, more risks in key areas, and a complicated and severe external environment, the meeting mentioned.
The meeting emphasized that China needs to actively expand domestic demand by boosting consumption of automobiles, electronic products and household goods, and promoting consumption of services such as sports and leisure, culture and tourism.
Just four days ago, China released a document on new measures to boost auto consumption, which lists 10 measures, three of which are directly related to support for the new energy vehicle (NEV) sector.
On the policy front, yesterday's meeting mentioned that China should vigorously implement macro-control and strengthen counter-cyclical adjustment and policy reserves.
At the same time, the meeting mentioned for the first time that the country needs to activate the capital market and boost investor confidence.
The signals from the meeting contributed to a broad-based rally in US-listed Chinese companies, with the KraneShares CSI China Internet ETF (NYSEARCA: KWEB) up 4.54 percent overnight.
Of the Chinese EV trio, Nio and Xpeng have fared better than Li Auto, perhaps because they've been laggards over the past few months.
Amid positive industry sentiment, investors tend to take advantage of laggards like Nio to catch up, Morgan Stanley analyst Tim Hsiao's team said in a July 11 research note.
The team expects Nio deliveries to reach 15,000 units in July and to maintain a steady upward trend in September.
For Xpeng, investor sentiment is improving markedly as deliveries of the new SUV G6 began earlier this month.
Goldman Sachs analyst Tina Hou's team initiated coverage of Xpeng on July 11, bullish on its G6, the company's technological capabilities, and gains from falling battery costs.
Goldman Sachs had a buy rating on Xpeng, with a price target of $18.1 for the company's US-traded ADRs and HK$70 for its Hong Kong-listed shares.
Morgan Stanley offers views on Nio's recent outperformance, expects 15,000 deliveries in Jul
