U.S. automakers facing ‘a nightmare’ in China, analyst says

Wedbush Senior Analyst Dan Ives joins Yahoo Finance Live to discuss the outlook for the EV and auto market in China, secular growth trend for electric vehicles, and promising auto stocks.

Video transcript

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PRAS SUBRAMANIAN: Welcome back to Yahoo Finance Live. This is "What Just Happened." I'm Pras Subramanian. Let's talk about China's auto sector. From Detroit's Big Three to Volkswagen, building market share in the nation has been a critical goal for decades. COVID put a wrench in that plan, to say the least. VW Group, one of the many taking a hit from COVID-related stoppages, though a major plant in Chengdu just reopened a few days ago.

Tesla, meanwhile, suffering from ongoing demand issues, leading it to cut prices and reportedly slashing output at Shanghai Gigafactory. For more on that, let's bring in Dan Ives, senior analyst at Wedbush, who joins me now in studio. Dan, thanks for joining us. Let's talk about overall, big picture in China. What's your take on what's happening there with all the COVID-related stuff, with regards to automakers?

DAN IVES: Look, it's been a nightmare. I mean, I think you're starting to see cracks in the armor for the first time in years. And obviously, competition is increasing in the EV landscape. You've seen that. I almost call it a "Game of Thrones" going on between Tesla and NIO, XPeng, and others. And I think that's the hearts and lungs of the overall EV bull story. So I think that you've seen a lot of pressure on these automakers. And it's a storm they need to navigate.

PRAS SUBRAMANIAN: You know, you mentioned Tesla. You know, we've seen reports of production cuts. They've had to cut prices as well, and actually adding some sort of insurance incentives. Are you kind of worried about Q4 for Tesla?

DAN IVES: Look, I think, after the Cinderella ride for the last 3 to 4 years, they're hitting some hurdles. And I think you've seen that. And even though a lot it was-- we'll call it production or supply-chain driven, you're starting to see some demand cracks. Now, look, I don't believe the longer-term story in China is thrown out the window. I just think they're navigating, now, some really-- for the first time in years, some growth challenges. They're cutting price. You've seen some-- I'd say supply chain reductions. And now we got to see-- not just in Q4 but 2023-- 2 million units. That's the line in the sand, globally.

PRAS SUBRAMANIAN: So you think that with the sort of production-- the COVID restrictions going away, that Tesla might actually have some kind of runway here?

DAN IVES: Look, I feel like that's going to-- similar to Apple, right? I think that's going to give them a little more flexibility. Because right now you got consumers locked in their apartments or houses. They're not focused on iPhones and Teslas, right, or lululemon pants. And I think that's part of the problem is that now, what's a normalized environment look like in China? Recession's clearly hit, but now I think the street's starting to look past this. And what is 2023 look like? I think that's really the focus right now, not just for Tesla, for NIO, xPeng, BYD, and others.

PRAS SUBRAMANIAN: So GM also, a lot of operations in China, a bunch of joint ventures there. They've also came out with their newest, like, EV game plan, an updated game plan where they're seeing profits kind of push forward a bit from those types of vehicles. Is GM kind of better positioned in China than Tesla?

DAN IVES: Look, I mean, and I was there in Detroit this week, spending time at the headquarters. I think right now, the most underestimated story across automotive is GM. I think the transformation that Mary and the team are building on EV is, while I have skepticism, I believe we're going to sit here two or three years from now and view this as a really pivotal chapter for the company because of the Ultium, because they ultimately own that food chain.

You start to do some math. I believe this could be a stock that gets significantly rerated. And even if China, for them, is insignificant in terms of what the conversion opportunity for GM, there's a renaissance in the 313 area code between GM as well as Ford.

PRAS SUBRAMANIAN: And that Dearborn rivalry, that crosstown rivalry. Back to China again, we're talking about the world's biggest car market, the biggest EV market by far and away. We talked about GM and Tesla sort of battling it out. Maybe one of those guys will be on top. But could it be BYD? I mean, they really knock it out of the park with EV and hybrid sales. Are they sort of the sleeping giant there?

DAN IVES: I think they are. I think that's one-- you know, everyone knows them. But I think, under the covers, that's sort of probably one of the biggest opportunities for them, in terms of in the China market. Now, look, the golden child continues to be NIO, you know, in terms of what they're obviously doing.

Look, it's not a zero-sum game, and I think that's the one that's important. You're going to see a lot of vendors continue to benefit. You still have conversion, in terms of overall EVs, that's in the low teens, a lot of opportunity ahead.

PRAS SUBRAMANIAN: A lot of opportunity there for multiple competitors there too. Dan Ives, Wedbush, thank you so much for joining us.

DAN IVES: Thanks for being here.