Longi, Tesla & Xpeng
Bloomberg reported that Longi may be the next solar panel maker to see products detained at the U.S. border under a Biden administration crackdown prompted by allegations of human rights abuses in the Asian nation. Longi has a 3 years contract with Xinyi Solar and Longi is expected to buy at least 35% of Xinyi Solar's projected annual demand.
The company’s 3 years average PE was 69x and 2021E PE is 45.5x and 2022E PE is 34.9x.
The company’s production is expected to pick up around 33% - 47% yoy in year 2022E. However, political risks due to US ban will result in share price overhang.
Longi’s solar modules have been notified that detainments are “imminent”. It’s estimated that around 10% of Longi’s solar module sales are exported to the US. Xinyi Solar's share price was also negatively impacted as Longi is one of Xinyi Solar's major customers.
According to EV Performance Index that incorporates range, drivetrain efficiency, and total cost. Tesla EV Performance Index has improved since the first release of the Model S circa 2013.
Lithium-ion battery cost declines have plateaued since 2005 after two decades of declining roughly 10% each year. However, the thing that’s overlooked is these 10% annual cost declines pushed the unit cost of lithium-ion batteries across a critical threshold which enabled the production of electric vehicles at scale.
Based on Wright’s Law, EVs should continue to improve with each cumulative doubling in production. These improvements could materialize in any of a number of ways: faster charging, longer range, and/or lower prices.
Source: Bloomberg New Energy Finance
According to Bloomberg NEF, the case for electric vehicles moving into the mainstream or out of the early adopter stage of growth has been fueled by the increase in energy density in lithium-ion batteries and the corresponding drop in cost that comes along with it.
Xpeng (Nasdaq:XPEV) is a Chinese smart electric vehicle company and they develop in-house full stack autonomous driving technology and in-car intelligent operating system as well as core vehicle systems including powertrain and electrification. Currently, the company has two types of cars, G3 and P7.
For 6M2021, the company sold 11,242 G3 cars and 19,496 P7 cars. P5 model will be launched in 4Q21.
Around 95% of the revenue is derived from sales of EV cars, while the remaining 5% is derived from services and others.
This includes sales of parts, accessories and services which will grow in line with higher accumulated vehicle sales. In April 2021, Xpeng entered into agreement with Wuhan government. Xpeng will commence the construction of new manufacturing and power train plants in Wuhan with annual capacity of 100k units.
By year 2035, China plans to stop selling ICE cars. Hence, we expect the sales of EV cars to pick up significantly over the next few years. We like Xpeng as the company currently ranks #3 in terms of sales volume. The services segment will also grow gradually as sales volume pick up, which will help to drive the company’s margins in the long run.
P5 is in the affordable price range, which will boost the sales volume. P5 is also China’s first model to have LIDAR and urban area navigation pilot function, which will likely attract tech savvy customers.
Fed tapers asset purchases
Fed has voted to begin the process of tapering its USD120bn per month in asset purchases starting with USD15bn less in November amidst growing concerns that rising inflation could harm the economy.
Tapering of asset purchases is a process of gradually decrease how many assets the central bank is buying each month. On the flipside, the process of purchasing securities for simulative purpose is known as quantitative easing (QE). QE is an unconventional tool that started in year 2008 which consists of the large scale purchase of various types of assets including Treasuries, corporate bonds and other securities.