On August 16, various stocks in the Tesla supply chain saw significant price surges, with companies like Xusheng Coand Wuzhou Xinchun hitting their daily price limitsNotably, Ningde Times, often dubbed “King Ning,” skyrocketed by 4% during the trading sessionThe continuous interest in Tesla-related stocks can largely be attributed to the escalating sales figures of Tesla, which are driving a burgeoning profit for the new energy vehicle (NEV) supply chain.

Recently, numerous companies have hinted at new collaborations with Tesla, igniting a wave of stock price increases and even setting new historical highs for some

Several prominent funds have begun to pour significant investments into these stocks, effectively engendering a rush for shares in these firms.

Expansion of Tesla's "circle of friends": Huayou Cobalt and other companies sign contracts

Historically, companies entering Tesla's supply chain have seen a substantial uptick in market share and performance, tying into the lucrative market conditions surrounding lithium batteries and other partsTherefore, stocks connected to Tesla’s supply chain have garnered heightened market attention.

Currently, the range of stocks connected to the Tesla supply chain is vast, covering areas such as lithium mining, lithium batteries, electric drives, body structures, central controls, and chassis components

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According to recent announcements from Tesla executives, the localization rate of its supply chain in China has exceeded 95%, presenting ample opportunities for related local businesses.

Recently, multiple companies have disclosed significant orders with Tesla.

For instance, Huayou Cobalt announced on July 31 that its subsidiary signed a deal with Tesla for the supply of battery material precursor products from July 1, 2022, to December 31, 2025.

Also on the same day, Zhongwei Shares affirmed that after signing a contract with Tesla in March of last year, they renewed their agreement on July 30 this year

Under the new terms, they will supply Tesla with the same battery materials from January 2023 to December 2025, with the contract amount exceeding 50% of the company’s audited operational income from the last fiscal year, estimated to reach around 10 billion yuan based on a revenue of approximately 20.072 billion yuan in 2021.

Indeed, as Tesla expands its production capabilities in China, particularly with the Shanghai Gigafactory steadily increasing its output, the company’s “circle of friends” is broadeningIn recent years, local auto parts manufacturers have been moving rapidly to enter the Tesla supply chain.

Aside from Huayou Cobalt and Zhongwei Shares, many other companies are also voicing their partnerships and expansions with Tesla, including Xusheng Co., Kodak Li, Jintian Co., Wuxi Zhenhua, Chao Da Equipment, Linglong Tire, Huayu Automotive, Wanxiang Qianchao, Haimeixing, Jucheng Co., Zhongkuang Resources, XINWEI Communication, and Mould Technology, among others.

For example, Mould Technology noted that it supplied 195,000 sets of bumpers for Tesla’s Model Y last year, while Wanxiang Qianchao stated it is collaborating with Tesla on various products, including electronic brakes and electronic auxiliaries.

Additionally, several firms are expediting their inclusion in Tesla's network

For example, XINWEI Communication announced on July 29 that it is developing related products and maintaining business connections with TeslaAsia-Pacific Shares expressed on July 18 that Tesla remains one of its potential clients, actively promoting its chassis systems, automotive electronics, and motor technologies to draw in more projects.

The market has reacted positively, with related company stock prices experiencing significant increases recentlyFor instance, Wuzhou Xinchun indicated on June 22 that its automotive thermal management system components, supplied through French subsidiary Valeo, support Tesla, resulting in a cumulative stock price jump of 27%. Haimeixing noted in late July that it has accumulated clientele in the NEB sector, which includes Tesla, as reflected by its stock reaching all-time highs recently.

However, it is noteworthy that some publicly listed companies without direct ties to Tesla have also faced investor inquiries about business cooperation with the automaker, only to clarify any misconceptions.

For instance, on July 29, when investors asked Zhongtai Motors about potential contract discussions with Tesla, the company responded that there were currently no such negotiations

Similarly, on July 27, there were questions directed at Liancai Technology regarding whether Tesla employs its power system testing technology, to which they clarified that Tesla is not their customer.

Tesla's Record Sales Propel Stock Bounce

The bullish trend in Tesla supply chain stocks is largely aligned with the continued growth in Tesla's overall sales.

Statistical data reveal that in June alone, Tesla's wholesale sales in China reached 78,900 units, marking a historic monthly high and an increase of 145% compared to May, as well as a 138% jump year-on-year against June of the previous year

In the first half of this year, Tesla's wholesale sales in China totaled 294,700 unitsJuly, however, saw a decline likely due to production line upgrades at the Shanghai Factory.

Additionally, Tesla disclosed its global delivery figures indicating that it delivered 310,000 units in the first quarter of 2022 and 255,000 units in the second quarter, marking a 27% increase compared to the same period last yearAltogether, Tesla achieved 565,000 deliveries globally in the first half of the year, with Chinese sales accounting for half of their total global deliveries. Notably, Tesla aims to deliver 1.5 million vehicles by the end of this year, a goal that requires more than 900,000 units delivered in the latter half.

Currently, constraints such as production capacity are still causing extended delivery timelines for Tesla, somewhat limiting overall sales

Concurrently, Tesla is also scaling up production efforts.

Tesla’s global capacity expansion plans indicate that, following upgrades to the Shanghai factory, the annual output capacity is projected to reach between 1.1 and 1.2 million vehiclesCEO Elon Musk noted that the company has produced over 3 million cars, with the Shanghai factory responsible for producing 1 million of those. With capacity enhancements, Tesla’s sales prospects are expected to improve accordingly.

Stimulated by continuously improving sales figures and production expansion, Tesla's stock price has seen a rebound of nearly 40% since the beginning of July until August 15.

Foreign Investment Shows Preference for Relevant Companies, with Multiple Funds Targeting Huayu Automotive

Tesla supply chain stocks continue to capture the attention of foreign investors and renowned Chinese investment institutions, demonstrating solid interest.

A review of recently disclosed business collaborations with Tesla by listed companies shows that out of ten identified stocks in the Shenzhen Stock Connect, six have seen increased holdings from northbound funds this second half of the year. Huayu Automotive, Huayou Cobalt, and Linglong Tire, have individually received over 10 million shares from northbound funds.

Notably, public equity funds in China exhibit immense interest in Tesla-related stocks

A review of the second quarter positions reveals that Feng Mingyuan, a prominent fund manager overseeing funds totaling over 40 billion yuan, has included Huayu Automotive in the top ten positions of several funds he manages.

Specifically, Feng currently manages nine funds and several—including the Xinao New Energy Industry Fund, Xinao Core Technology Fund, Xinao Leading Smart Choice Fund and Xinao Advanced Intelligent Manufacturing Fund—have included Huayu Automotive within their top ten holdings during the second quarter.

For instance, as of the end of the second quarter, the Xinao Core Technology Fund held 4.6569 million shares of Huayu Automotive, valued at 107.1 million yuan, marking its top position

Additionally, the company has newly entered as the fourth and third largest holdings in Xinao New Energy Industry and Xinao Smart Growth funds, respectively.

The surge in investments reflects an optimistic outlook among institutions regarding the entire Tesla supply chainGuotai Junan has pointed out that the Tesla supply chain is a core direction for the automotive sector in the latter half of the yearThe automotive sector is expected to continue transitioning from a total volume recovery to marginal growth in new energy vehicles, particularly pinpointing intelligent electric component suppliers and vehicle producers with changing sales margins, with a significant emphasis on Tesla’s supply chain.

In addition, expectations around Tesla’s robotics business are gradually taking shape, where high-quality suppliers of Tesla’s NEV components have potential for business expansion, which could lead to valuation enhancements.

(The mentioned stocks are for illustrative analysis only and do not constitute a buy or sell recommendation.)