Chinese Auto Sales Slowdown In Li Auto

Automotive sales are slowing down in China. Li Auto, a premier EV automaker in China is reporting a raid slowdown in sales. For example, after increasing by 21% in July and 10% in June, vehicle deliveries increased by just 2% month-over-month in August. Shares have fallen by almost 25% since early August as a result of these concerns about slowing growth, and the current situation is being made worse by China’s worsening macroeconomic problems.

The On Balance VolumeThe On Balance Volume indicator (OBV) is a technical analysis tool used to measure the flow of money into and out of a security over a specified period of time. It is a cumulative ... More had its 45 day moving average line (purple) go from support to resistance which suggests LI stock could go lower than a 50% Fibonacci retracementFibonacci retracement is a fundamental tool in the arsenal of technical analysts and traders. Rooted in the mathematical principles of the Fibonacci sequence, this technique is wid... More.

LI stock appears on its way to retest its 200 day moving average (red line).

Chinese Macroeconomics Problems

As China’s troubled real estate and property sector comes under new scrutiny, many Chinese ADRs are trading at a discount today. The enormous Chinese real estate developer Evergrande recently announced that it can no longer issue new debt after filing for bankruptcy protection in August. Consequently, the company’s restructuring plans are now in doubt, raising concerns that its demise might have an impact on the Chinese economy as a whole.

The much steeper decline in LI stock price may be due to the fact that LI produces higher end vehicles that cost more than most of its rivals’ products. The company was again the top seller of high-end new-energy SUVs in China that cost more than RMB300,000. Consumers may look to trade down to less expensive vehicles in a more unsteady macroeconomic environment, or they may find it difficult to get financing for more expensive cars.

We do think that the Chinese government will continue to support the EV market through various incentives, but it’s unlikely that sentiment will significantly change on these names until investors have more faith in the Chinese economy.

The Chinese electric vehicle (EV) market is the largest in the world. It has experienced rapid growth over the past decade. In 2020, China accounted for approximately 41% of global EV sales. According to the China Association of Automobile Manufacturers, around 1.37 million EVs were sold in China in 2020, representing a 12% increase compared to the previous year. The Chinese government has been actively promoting the adoption of EVs and implementing policies to support their development, which has contributed to the significant expansion of the EV market in China.