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Is There Any Hope Left for New Energy Vehicle Companies?

Over the past two years, many small and medium-sized shareholders of new energy vehicle companies have likely felt disheartened as stock prices have plummeted. Compared to the AI computing power supply chain or the semiconductor industry, they might feel as though they're teetering on the edge. But weren't new energy vehicles supposed to be the future? Indeed, the penetration rate of new energy vehicles is on the rise, and autonomous driving represents a significant direction for AI applications. So, why isn't the new energy vehicle sector thriving? What's going on?

 01 Why the Continuous Decline?

Leo often advises against thinking you're smarter than the market. While the capital market may experience periodic mispricings, it tends to be efficient in the long run. If prices consistently deviate from your expectations, it's wiser to re-examine your investment logic rather than constantly blaming the market.

This principle applies specifically to the new energy vehicle sector.

The sector's previous surge was excessive. Don't be misled by its current dire state; the hype surrounding new energy a few years ago was akin to today's AI frenzy. Many companies in the supply chain were valued at 5x, 10x, or even 20x their worth. The industry was equally frenzied. Now, the popular saying is 'standing in the light,' but back then, it was 'with lithium, you can go anywhere; without lithium, you can't take a step.' The issue of fund products deviating from their original investment style also existed at that time. There was even an instance where a Guosen Securities researcher projected CATL's performance all the way to 2060!

In essence, the sectors now performing poorly were once grandiose. The same can be said for new energy, photovoltaics, medicine, consumer goods, Chinese internet stocks, and so on. A glance at their historical charts reveals a similar pattern.

This becomes even clearer when comparing the valuation trends of many companies, including industry leaders, in these previously hyped sectors. During their hype phase, their valuations were extremely high, effectively overdrafting (overdraft here means 'anticipated' or 'front-loaded') expectations for the next few years!

This is the fundamental reason for their prolonged stock price slump in recent years!

The capital market is a venue for trading expectations. Once expectations are fully priced in, all that remains is their fulfillment. If, during this process, the market discovers that performance consistently exceeds expectations, market capitalization can continue to rise. However, if performance falls short, valuations must be adjusted downward. The worst-case scenario involves companies that were purely hyped on concepts. After their valuations peak, the market realizes that they not only fail to meet expectations but also lack performance, leading to a brutal phase of declining valuations and earnings.

Which scenario is more likely? Clearly, companies that fail to meet expectations are the vast majority. This is why, after hype, sectors typically undergo a prolonged process of valuation regression and deflation, with few exceptions. This is particularly evident in the A-share market for a simple reason: A-shares lack a mature short-selling mechanism, and liquidity is excellent, making it easy for hype to reach extremes and resulting in a very long subsequent deflation process.

For the new energy vehicle sector, this means a valuation regression process following the full pricing in of expectations a few years ago. Over the past two to three years, the industry has generally underperformed expectations.

 02 The Industry Has Indeed Underperformed Expectations

Firstly, in terms of demand, although industry penetration continues to rise, with the latest monthly new energy vehicle penetration exceeding 60%, sales growth has gradually slowed. In 2020, growth was 10.9%; in 2021, it surged to 157.5%; in 2022, it was 93.4% year-on-year; in 2023, growth dropped to 37.9%; in 2024, it was 35.5%; and by 2025, it's projected to be only 28.2%. In the first five months of this year, growth slowed further to 12%. The slowdown trend is glaringly obvious.

New Energy Frontier does not doubt that, in the long run, new energy vehicle penetration in the Chinese market could reach 100%, but this will undoubtedly take a considerable amount of time and can only happen after solid-state batteries are successfully commercialized on a large scale, completely resolving safety and range issues. Before that, reaching 80% penetration would be quite impressive.

With limited room for penetration growth and fierce competition from internal combustion engine vehicles, competition in the automotive industry will inevitably intensify, and the competitive intensity in the new energy vehicle sector will also continue to rise. Every company will face survival issues.

In the face of escalating competition, no one is truly safe, including currently leading companies like Tesla and BYD. The reasoning is straightforward: if everyone wants to survive, they will engage in increasingly fierce competition. Additionally, since the remaining players are all publicly traded companies, some even deeply tied to local state-owned assets, they are unlikely to collapse easily. They won't give up until the last second, making this a prolonged elimination race.

Given China's manufacturing advantages, these domestic fierce competitors could have gone global to capture international markets. Unfortunately, for any major automotive manufacturing country, automobiles are the most critical industrial sector, if not the most important. They won't easily open their markets to Chinese companies and will inevitably impose various trade disputes. Moreover, new energy vehicles require infrastructure support, and not every country has China's level of infrastructure development. Many countries even have poor power grid construction, making electric vehicles less advantageous compared to gasoline vehicles. This significantly constrains the global rise in new energy vehicle penetration.

Of course, global new energy vehicle penetration will gradually increase—this is an undeniable trend. From a first-principles perspective, new energy vehicles are clearly superior to internal combustion engine vehicles, but various constraints mean global penetration won't rise as quickly as in China. This is also a certainty.

These factors determine that, at the industry level, all new energy vehicle manufacturers face challenges. In the face of massive industry challenges, any company's individual strengths become insignificant. Don't expect to gain more by researching a particular manufacturer more deeply or predicting its model sales more accurately—the certainty is too low.

Even if a certain model becomes a hit, in this fierce competitive environment, competitors can quickly catch up and seize your market with more cost-effective offerings. From this perspective, no new energy vehicle manufacturer is safe or investment-worthy right now.

So, does this mean the industry has no opportunities?

Not necessarily. The industry's opportunities don't lie in sales rebounds. To be honest, the outlook for sales growth is relatively pessimistic for the next few years, and it's unlikely to return to the explosive growth rates of previous years. The future opportunity in the new energy vehicle industry lies in the business model upgrades brought about by the full maturation of autonomous driving technology.

 03 The Future of New Energy Vehicles Lies in Intelligent Driving

Only when autonomous driving technology is fully mature and begins large-scale commercialization can new energy vehicle manufacturers break free from the pricing constraints of simply selling cars. They can then enjoy market revaluation, set new expectations, and increase valuations.

Because when autonomous driving technology matures and begins large-scale commercialization, the business models of new energy vehicle manufacturers will undergo comprehensive iterative upgrades. This won't just bring objective subscription fees for autonomous driving (domestically, due to intense competition, there will likely be one-time buyout options or even standard inclusions). More importantly, besides selling vehicles to consumers (C-end), manufacturers can expand to the business-to-business (B-end) sector, including robotaxi services, unmanned delivery, and more, opening up entirely new imaginative spaces.

This transformation will significantly enhance traffic efficiency at the national and societal levels, as well as the efficiency of many industries, becoming part of a country's comprehensive competitiveness. In turn, this will greatly promote the rise in new energy vehicle penetration globally.

Only then can the industry usher in a new round of valuation increases.

When will this happen?

New Energy Frontier cannot provide a definitive answer, but from a technological perspective, 2027 could see gradual maturation, with true large-scale commercialization likely arriving by 2030. At that point, along with solid-state battery technology, it could become the trigger for the second major wave in the industry.

Until then, it's advisable not to be overly optimistic about the industry.