2019.03.19 Zhang Wei Views:
On March 5th, Nio (NIO.NYSE), the leader of China’s new energy vehicle (NEV) start-ups, announced a net loss of $9.3B in its annual report. The report also predicted far weaker growth of sales in the future than had been expected, and its factory-building plans are put on ice. Later, its shares plunged 31% amid a 7-day losing streak and its market value evaporated by $4.21B. The number of NEV start-ups have long exceeded 100, while most of them are going to face an existential crisis in 2019. NEV as well as autonomous driving is absolutely a promising direction for investments. But there are no NEV firms worth of an investment so far.
On March 5th, Nio (NIO.NYSE), the leader of China’s new energy vehicle (NEV) start-ups, announced a net loss of $9.3B in its annual report. The report also predicted far weaker growth of sales in the future than had been expected, and its factory-building plans are put on ice. Later, its shares plunged 31% amid a 7-day losing streak and its market value evaporated by $4.21B. The number of NEV start-ups have long exceeded 100, while most of them are going to face an existential crisis in 2019. NEV as well as autonomous driving is absolutely a promising direction for investments. But there are no NEV firms worth of an investment so far.
China’s “car-making spree” has been launched around 2015. As policies have further skewed toward the auto industry, it has again become an investment trend with the capital playing a part in it. The auto industry is both capital and technology-intensive and its finance market size has been probably valued at ¥220.18Bn. With China government withdrawing financial subsidies for NEVs, the industry competition is about to turn policy-driven to market-oriented. As the tide ebbs, these NEV start-ups need to compete against traditional manufacturers with the quality of their products on their own. The success of these new forces depends entirely on their products and brand recognition.
To speak plainly, the recent crop of carmakers in such numbers over a short period isn’t about taking up a fad. Most companies are just coveting the heavily subsidized NEV market with opportunities for a quick profit. However, phasing out subsidies will speed up the reshuffling of the industry this year.
It can be seen that it’s the whole vehicle manufacturers who sit atop the “pyramid” because they have the best brand recognition. The industry only provides limited space for vehicle manufacturers, so we reckon that most vehicle star-ups will go bankrupt this year. Another ending for them is to be acquired by larger whole vehicle makers or taken over by real estate developers who are eager to funnel their money from virtual economy into real economy but act in a foolish way.
That being said, there are still many chances that can be sought from the industrial chain in the fledging NEV market. Apart from whole vehicle manufacturers, there are also auto parts suppliers that are major players in the auto industry like Robert Bosch (BOSCHLTD. NS) , Aisin Seiki (ASEKY). Do Chinese firms have the chance to optimize the NEV industrial chain resources and will there be competitive upstream or downstream companies in Chinese auto industry? These are the things we’re going to wait and see.
Above are excerpts from Zhang Wei’s article Why None of China’s NEV Start-ups Worth Investing In. He sharply criticized Chinese NEV start-ups’ pseudo-innovations and NEV subsidies “cheat”. He noted that zero to one innovation requires long-term accumulation with large capital expenditures, which is hard to be replicated and overtaken in a few years. But he didn’t deny the opportunities in NEV industrial chain because he believed that NEV and autonomous driving are the important trends in the future. Chinese firms still stand a chance to develop into major forces in upstream and downstream sectors by optimizing NEV industrial chain resources. The editorial was originally published on CoStone Capital WeChat. Access to the full article in Chinese: https://mp.weixin.qq.com/s/VE6g9GWx2xpVS_NMJOrtdw
Rewritten by Lu Ying, Edited by Li Yunzhen
Over the past year, the bull market returned, with technology leading the way.
As I said back in October 2024, the rally that began on September 24 was not merely a rebound, but a reversal. Since then, China's capital markets have undergone a broad revaluation, moving from undervaluation toward fair value.
The Shanghai Composite Index reached its highest level in a decade. The "Yi-Zhong-Tian" trio—Eoptolink, Zhongji Innolight and TFC Communication, three prominent Chinese optical communications stocks—saw their share prices multiply severalfold in a single year. Cambricon's market capitalization briefly exceeded RMB 600 billion. Elsewhere in the technology sector, triple-digit price-to-earnings ratios and valuations exceeding RMB 10 billion became commonplace.
Some investors were greedy; others, fearful. Still others asked me: Are technology stocks in a valuation bubble?
My answer is that what we are witnessing is the hunger and anxiety of an era, reflected in the capital markets. Once you understand this, the current fervor for technology investing is no longer difficult to explain.
Investment has nothing to do with macroeconomics, but everything to do with geopolitics.
China-US relations will shape the investment landscape for decades to come. Geopolitics has played a major role in shaping the hunger and anxiety of our times, fundamentally reshaping the way we invest.
What, then, lies at the heart of China's hunger and anxiety?
The Fourth Industrial Revolution is already underway, yet China has not fully overcome the technological shortcomings left by the Third. There is no time to lose.
This is why some people wonder: Why do Chinese computing chip companies command such high valuations when their technologies still lag so far behind NVIDIA's? Why does NVIDIA trade at just 50 times earnings, while a company hailed as "China's answer to NVIDIA" commands a multiple of 300?
To me, this gets the logic exactly backward.
It is precisely because these companies cannot catch up with NVIDIA in the near term that they command a higher strategic premium. The wider the technological gap, the greater the strategic value.
The further something lies beyond our reach, the stronger our hunger. The harder it is to catch up, the deeper our anxiety. If China were to achieve a complete breakthrough in computing chips one day, valuations might actually come down.
Where can one find China's most spectacular natural landscapes?
Much of the answer, I believe, lies in and around the Hengduan Mountains: the Meili Snow Mountains, Jade Dragon Snow Mountain, Mount Gongga, Mount Siguniang, Jiuzhaigou, and many others. Vast differences in elevation and deep fault lines have given rise to landscapes of extraordinary grandeur.
Hard-tech investing follows a similar logic.
Technological gaps, discontinuities in capabilities, and missing links in industrial systems: a leap in difficulty brings a leap in valuation, and a successful breakthrough can, in turn, bring a leap in returns.
This logic extends well beyond computing chips. It is equally evident in memory semiconductors, commercial spaceflight, and other sectors where China still faces substantial technological gaps with other countries.
It was precisely this conviction that led CoStone Capital, starting in 2016, to decisively focus its investments on three areas: hard tech, emerging industries, and life sciences and healthcare. In this context, "hard tech" refers specifically to important industries in which China faces a technological gap with the United States.
Thanks to this forward-looking strategy, CoStone Capital established an early presence across the full value chains of key sectors, including semiconductors, artificial intelligence, and robotics.
Looking ahead, the frontiers of technological progress and industrial upgrading are boundless. Nor can the gaps in hard technology be closed overnight. The twin windows of opportunity presented by technological innovation and the development of homegrown alternatives to foreign technologies have only just begun to open.
The road ahead is long, but the future holds immense promise.
As an investment firm, CoStone Capital will continue to invest where the hunger and anxiety of each era run deepest, move forward with the tensions that shape our times, and extend our reach toward the most challenging—and most important—frontiers.
Spring 2026