Insights

Li Auto leads the pack with superior execution, but risk-reward increasingly favors Xpeng and Nio after a drastic sell-off this year, Morgan Stanley said.

Xpeng delivered weak 4Q results, accompanied by a muted 1Q outlook that shows March demand still under pressure, Deutsche Bank said.

The team calls Nio management's long-term strategy the Blue Sky Blueprint, saying it will be a moat for the EV maker, though it's very costly to build.

"Even if we exclude these one-time headwinds, vehicle of margin of 13.5% would have been a miss and lowest since 2Q20," Deutsche Bank said.

Fitch expects sales of passenger NEVs in China to grow by more than 30 percent in 2023, while ICE vehicles will decline by the low teens.

Deutsche Bank expects the latest round of price cuts to spur a big rebound in EV orders, with at least eight automakers already offering some type of price discount or promotion so far.

CICC expects the first quarter to contribute 15.7 percent of China's 2023 NEV sales, with 20.7 percent, 27.6 percent and 35.9 percent from the second to fourth quarters, respectively.

China EV stocks are up an average of 20 percent year-to-date but have underperformed China tech ADRs since December, likely due to investor concerns about weak first-quarter sales and increased competition, according to Edison Yu's team.

By fighting for volume, Xpeng's gross margins will take a hit as costs are not materially lower, Edison Yu's team said.

On a full-year basis, the reopening of China will have a positive impact on consumer sentiment and should boost vehicle production and sales in the second quarter, said Edison Yu's team.