Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Equity Bottom-Up

In 5M, <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a>  China received ~72K orders for MIC M3, plus 22K backlog orders exiting 2020.  GF3 made 103K M3 in 5M, among which 69K were delivered in China and 29K were exported.  The estimated order backlog exiting May was ~25K, slightly down from 26K backlog exiting April.  Excess production at the GF3 has been exported to markets around the world.  If TSLA China does not implement effective promotional programs and or policies to stimulate demand, we estimate that MIC 3 orders will stagnate around 9K per month, vs. monthly production of ~21K.  In other words, MIC 3 exports are likely to increase MoM due to the lower cost structure including BoM of MIC cars.

In 5M, Tesla Motors (TSLA US)  China received ~72K orders for MIC M3, plus 22K backlog orders exiting 2020.  GF3 made 103K M3 in 5M, among which 69K were delivered in China and 29K were exported.  The estimated order backlog exiting May was ~25K, slightly down from 26K backlog exiting April.  Excess production at the GF3 has been exported to markets around the world.  If TSLA China does not implement effective promotional programs and or policies to stimulate demand, we estimate that MIC 3 orders will stagnate around 9K per month, vs. monthly production of ~21K.  In other words, MIC 3 exports are likely to increase MoM due to the lower cost structure including BoM of MIC cars.

Consumer Discretionary / Industrials

Henry Kwon

NIO closed at $34.06 on Friday, failing to close above its 10-Day EMA of $34.42, although the stock climbed as high as $34.78 intra-day. DCF analysis using consensus FCF forecast suggests that currently NIO's shares may be implying a 18.1% perpetuity growth outlook which would be bearish if the yield curve continues to steepen. While fundamental valuation implications do not necessarily become reflected in stock prices over a short period, Friday's technical chart alignment could signal further bearish short term price action.<ul>
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Bearish Technical Alignment on Friday: Dark Cloud Cover was formed on the daily candlestick chart on Friday. While the pattern needs to be confirmed on Monday, it may be a new bearish signal to what looks like an impending death cross that I mentioned in <a href="https://www.smartkarma.com/insights/nio-is-it-re-entry-point-yet" target="_blank" data-smartkarma-citation="insights:51824" rel="noopener">NIO: Is It Re-Entry Point Yet?</a> on May 20.</li>
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DCF Analysis Reality Check: At current share price, 3-year consensus FCF forecast and 1Q21 balance sheet details suggest that the market may be implying a 18.1% perpetuity growth rate and 139x terminal EBITDA multiple assumption. Long term fundamental valuations therefore would suggest there is further downside risk, but having said this, I would point out that other catalysts can often impact short term price action more strongly.</li>
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Systemic Risk could be a greater concern than company risk at this point: NIO remains a high beta EV play. While the 10-year Treasury yield looked more stable on Friday, any sudden spike in the Treasury yield can have a sharp negative effect on EV stock valuations.</li>
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A Short term Bullish Scenario: If the stock manages to reject the Dark Cloud Cover formation on Monday and close above its 10 day EMA, the move may accelerate price recovery with the first resistance level coming in at the 21 day EMA currently fixed at $35.68. Clearing these two hurdles may accelerate the upward momentum to the $38.19 - $38.67 zone, which represent the stock's current 200 DMA and the 61.8% Fibonacci Retracement, respectively.</li>
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A Short term Bearish Scenario: If Dark Cloud Cover is confirmed first support should come in at the stock's 78.6% Fibonacci Retracement at $30.98 which basically held recently. If the stock breaks below this level, however, the decline may accelerate towards the $20-22 zone last seen in October, 2020, over the next few trading sessions.</li>
</ul>Operating environment for NIO remains constructive. 3 month moving average sales volume comparison with XPEV and TSLA suggests NIO's volume sales have been more stable than its peers. Continuing sales growth in the context of overall improvement in 2021 auto demand and continuing tailwinds from the new car effect (EC 6) looks constructive for earnings implications over the next 1-2 quarters at current pace. At this point, therefore, we see more price risk stemming more from systemic risk than company risk.

NIO closed at $34.06 on Friday, failing to close above its 10-Day EMA of $34.42, although the stock climbed as high as $34.78 intra-day. DCF analysis using consensus FCF forecast suggests that currently NIO's shares may be implying a 18.1% perpetuity growth outlook which would be bearish if the yield curve continues to steepen. While fundamental valuation implications do not necessarily become reflected in stock prices over a short period, Friday's technical chart alignment could signal further bearish short term price action.

Bearish Technical Alignment on Friday: Dark Cloud Cover was formed on the daily candlestick chart on Friday. While the pattern needs to be confirmed on Monday, it may be a new bearish signal to what looks like an impending death cross that I mentioned in NIO: Is It Re-Entry Point Yet? on May 20.

DCF Analysis Reality Check: At current share price, 3-year consensus FCF forecast and 1Q21 balance sheet details suggest that the market may be implying a 18.1% perpetuity growth rate and 139x terminal EBITDA multiple assumption. Long term fundamental valuations therefore would suggest there is further downside risk, but having said this, I would point out that other catalysts can often impact short term price action more strongly.

Systemic Risk could be a greater concern than company risk at this point: NIO remains a high beta EV play. While the 10-year Treasury yield looked more stable on Friday, any sudden spike in the Treasury yield can have a sharp negative effect on EV stock valuations.

A Short term Bullish Scenario: If the stock manages to reject the Dark Cloud Cover formation on Monday and close above its 10 day EMA, the move may accelerate price recovery with the first resistance level coming in at the 21 day EMA currently fixed at $35.68. Clearing these two hurdles may accelerate the upward momentum to the $38.19 - $38.67 zone, which represent the stock's current 200 DMA and the 61.8% Fibonacci Retracement, respectively.

A Short term Bearish Scenario: If Dark Cloud Cover is confirmed first support should come in at the stock's 78.6% Fibonacci Retracement at $30.98 which basically held recently. If the stock breaks below this level, however, the decline may accelerate towards the $20-22 zone last seen in October, 2020, over the next few trading sessions.
Operating environment for NIO remains constructive. 3 month moving average sales volume comparison with XPEV and TSLA suggests NIO's volume sales have been more stable than its peers. Continuing sales growth in the context of overall improvement in 2021 auto demand and continuing tailwinds from the new car effect (EC 6) looks constructive for earnings implications over the next 1-2 quarters at current pace. At this point, therefore, we see more price risk stemming more from systemic risk than company risk.

NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

China Specialist, Auto and Industrial Specialist

Victoria Li

Thematic (Sector/Industry)

Official sales data about China's April auto sector might be released later than usual, due to long holiday of Labour Day in China. Based on available data, we estimate sales growths of both auto sector shipment and end demand in April 2021(vs. April 2019) to accelerate. OEMs shipment accelerated as well, which might be a good sign that chips shortage started easing.According to individual EV makers' latest sales data, China's NEV sales might be flattish MoM. It continues outperforming the overall auto market. In April, Xpeng(XPEV.US) car sales increased slightly MoM, while NIO's (NIO.US) sales decreased slightly MoM due to chip shortage. Li Auto's (LI.US) April sales  grew 13% MoM.

Official sales data about China's April auto sector might be released later than usual, due to long holiday of Labour Day in China. Based on available data, we estimate sales growths of both auto sector shipment and end demand in April 2021(vs. April 2019) to accelerate. OEMs shipment accelerated as well, which might be a good sign that chips shortage started easing.According to individual EV makers' latest sales data, China's NEV sales might be flattish MoM. It continues outperforming the overall auto market. In April, Xpeng(XPEV.US) car sales increased slightly MoM, while NIO's (NIO.US) sales decreased slightly MoM due to chip shortage. Li Auto's (LI.US) April sales  grew 13% MoM.

China Auto: Early Positive Signs of Chips Shortage Easing

Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

Chart Partners

Chart Partners objective is to discover medium-term cycle turns and profit opportunities before they unfold, within structural trends while preserving capital with clear degrees of risk. We have real return ideas. 

Markets are dynamic and trading systems must reflect this. It is crucial to determine underlying correlations and lead-lag relationships within global markets and the impact on linked instruments. Our weekly Chartonics product gives you short-term trading strategies that can be applied within the medium and longer term macro trends that are mapped out in our strategy updates. 

Our methodology fuses global market variables and isolates drivers in trends. We specialize in FX, index trade in NY and Asia with a focus on Asian stocks. 

Technical Analysis

<a href="https://www.smartkarma.com/entities/xpeng-inc" target="_blank" data-smartkarma-citation="entities:29217:1" rel="noopener">Xpeng (XPEV US)</a> displays weaker bull energy where the 30 support is now under pressure again after a rally that stalled at 38/39, representing fresh resistance. Downgrading to dig for support near 23/20.Rally failure to reach the 45 pivot resistance sets a weaker tone for Xpeng.Trendline resistance if the bull/bear pivot that will control the range.Macro positive is the bull wedge that is forming but does appear to need more time.

Xpeng (XPEV US) displays weaker bull energy where the 30 support is now under pressure again after a rally that stalled at 38/39, representing fresh resistance. Downgrading to dig for support near 23/20.Rally failure to reach the 45 pivot resistance sets a weaker tone for Xpeng.Trendline resistance if the bull/bear pivot that will control the range.Macro positive is the bull wedge that is forming but does appear to need more time.

We expect market competition in China's BEV segment rise in the next two years. The interesting thing is that most of new models announced/launched lately target C-segment market. The second popular market is A-segment sedan, in which 3 new models were launched and would start delivery by the end of this year.  B-segment has the least new model announced.  Which models would be the best sellers in their target markets? Which OEM/brand would gain solid market position?

We expect market competition in China's BEV segment rise in the next two years. The interesting thing is that most of new models announced/launched lately target C-segment market. The second popular market is A-segment sedan, in which 3 new models were launched and would start delivery by the end of this year.  B-segment has the least new model announced.  Which models would be the best sellers in their target markets? Which OEM/brand would gain solid market position?

China

XPeng Inc. designs, produces, and distributes electric vehicles. The Company designs, develops, manufactures and markets smart smart electric vehicles, as well as finance, parts, and maintenance services. XPeng serves customers in China.

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XPeng (XPEV US)

TSLA China Losing to Chinese NEV OEMs

TSLA will begin to experience excess production of the Y in the next couple of months, as the China order backlog wanes from 43KQ1 to 17K Q2. Y...

JL Warren Capital

NIO: Dark Cloud Cover with Close Below the 10-Day EMA on Friday May Add A Short Term Bearish Signal

Dark Cloud Cover bearish reversal pattern was formed on Friday's daily candlestick chart, while a DCF analysis based on current 3-year consensus...

Henry Kwon

China Auto: Early Positive Signs of Chips Shortage Easing

Official sales data about China's April auto sector might be released later than usual, due to long holiday of Labour Day in China.

Victoria Li

Xpeng Support Downgrade

Xpeng (XPEV US) displays weaker bull energy where the 30 support is now under pressure again after a rally stall at 38/39, representing fresh...

Thomas Schroeder

China EV: Which Is the Next Best Seller?

We expect market competition in China's BEV segment rise in the next two years. The interesting thing is that most of new models announced/launched...

Victoria Li

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