Editor's note: COVID-19: Economic Analysis is a series of articles comprising experts' views on developing micro and macroeconomic situations around the globe amid the COVID-19 pandemic. This article's author Thomas Zhang is the head of greater China analysis of Uzabase, a Tokyo-based business intelligence firm.

As the summer heat sweeps around the nation, China's auto market seems to have picked up some momentum. The latest figures released by the China Passenger Car Association showed that retail passenger car sales reached 1.6 million units in July, up 7.7 percent year-on-year. What sounds more encouraging is that sales of new energy vehicles (NEVs) jumped 19.3 percent year-on-year in July to 98,000 units, the first month to return to a positive annual growth rate in more than a year's time. Are investors who have betted heavily on China's NEV sector finally seeing some light at the end of the tunnel?

The overall macroeconomic environment seems supportive. As one of the first major countries coming out of the COVID-19 lockdown and returning to normalcy, China's second quarter GDP grew 3.2 percent year-on-year, comfortably beating most of the forecasts. Consumer spending and confidence are recovering from COVID lows too, albeit a bit slowly. People's willingness to spend on large-ticket items looks set to increase.

In China, government policies always play a crucial role in industrial growth. The NEV sector is of no exception. Since the pandemic, it is getting a great deal of support from the government in various ways despite a few bumps along the way. In some cases that even meant a U-turn. For example, initially the Chinese government intended to end the subsidies for NEVs (which started nearly a decade ago) by the end of this year, only to change course urgently in April and extended the NEV subsidies through to 2022 by adopting a phased-out cut on the subsidies.

Megacities, especially Beijing and Shanghai, have also rolled out policies to support NEVS, mostly in the form of increasing the number of license plates issued and the building of more charging piles. In May, Beijing's municipal government announced plans to increase 20,000 NEV license plates in one go in the second half of 2020, while the government of Shanghai promised to build 100,000 EV charging piles by 2022, fully aware that accessibility to convenient charging facilities play a critical role in consumers' purchasing decision.

The support from the authorities through these and other policies are widely advertised, and investors have clearly taken the heed. Situations started to turn as soon as the COVID-19 pandemic seemed to be brought under control in China. Leading NEV makers in China, including NIO, Li Auto and Xpeng, sprang back into action by either pushing for more production in order to fulfill the orders the collected before the COVID-19 outbreak, or by launching new models to fight for bigger market shares, or simply by raising more finance in order to fund expansion.

The latest into the party is Xpeng, which filed to list its shares on the New York Stock Exchange in early August. Just days before the filing, Xpeng also secured 400 million U.S. dollars investment from Alibaba (which is already one of Xpeng's biggest shareholders), the Qatar Investment Authority and Abu Dhabi's sovereign wealth fund Mubadala. The story goes that the initial target was to raise 300 million U.S. dollars, but Mubadala jumped on board almost in the last minute and forked out an additional 100 million U.S. dollars so as not to miss the gravy train.

Clearly Mubadala has seen a good investment opportunity in Xpeng, and the wider Chinese NEV market behind it. While we are not aware of the detailed approach Mubadala took to make the decision to invest in Xpeng, a quick look at Li Auto, one of Xpeng's closest competitors, might give us a few clues. Li Auto raised 1.1 billion U.S. dollars on its debut day on Nasdaq at the end of July. Its IPO price of 11.5 U.S. dollars per share was at the top end of the targeted range, and its share price has gone up a lot in the two weeks since the IPO day, reaching to nearly 20 U.S. dollars at one time, before paring back to around 15 U.S. dollars in the last few days. Investors are buying into its story.

It's a similar case with NIO, another key competitor of Xpeng. NIO was listed on the New York Exchange back in September 2018 and was the first major Chinese EV maker to list in the US. Since IPO, NIO's share price has been lacklustre for most of the time, but it started to soar since early May this year, rising for about four times in a short spade of two months. Investors have hardly had time to digest the skyrocketing before placing more bets into it.

One could say that Chinese EV makers' performance on the US capital markets spurred more appetite from global investors into the sector. Hence the investment from Mubadala into Xpeng. Even Geely, one of China's leading private automakers that acquired Sweden's Volvo a decade ago, and which makes the Geometry A electric car, revealed that it plans to list on Shanghai's Nasdaq-style Star Market later this year, in a show of confidence that investors are still going to pour their money into the sector, no matter what.

Yes, no matter what. At least that's how Evergrande Health views this. As the loss-making EV arm of China's well-known property developer Evergrande Group, it unveiled six EV models called "Hengchi" in one go in early August, spanning from SUVs to crossovers to sedans. If all goes well, Evergrande Health intends to start mass production of these six models next year, although no details are revealed yet regarding pricing or availability.

Amid all the euphoria, however, there has been bad news that is unavoidable. Byton, the once high-profile EV startup backed by China's tech giant Tencent and the Taiwan-based manufacturing conglomerate Foxconn, ceased operation for at least six months at the end of June due to financial problems. Despite its completed new factory in Nanjing, it failed to deliver on time its M-Byte SUV model that was showcased in the Frankfurt Motor Show last year. Byton blamed the COVID-19 pandemic for the delay and furloughed most of its employees in both China and the U.S.

Whether this is taken on board by the investors is anyone's guess. By now the overall sentiment is still upbeat, particularly after Tesla's share price soared more than five times since March low, and after its market capitalization surpassed that of Toyota in early June. As the world's leading EV maker, Tesla is closely followed and carefully studied by investors all over the globe. Its movement in China draws special attention because Tesla has been seen as setting benchmarks in many ways in the world's largest market for NEVs. In terms of sales, Tesla has been leading the race in China too. It's been selling more than 10,000 Model 3s (all made in its gigafactory in Shanghai) every month since May, way ahead of its local Chinese competitors.

And Tesla shows no sign of slowing down. It has recently launched a hiring spree in Shanghai, not only planning to add about 1,000 factory workers at its Shanghai plant, but also looking to hire designers at its China studio, the first time it does so. This shouldn't be a surprise, though, because Tesla made it known back in January this year that it was contemplating opening a design and research centre in China to make "Chinese-style" cars that would be sold globally. The hiring spree only seems to be fulfilling that already-announced plan.

It seems perfectly reasonable for investors to harbor a very positive sentiment in the NEV sector in China, at least for now, following the runaway share price of Tesla and the recovery of the NEV sales number. Top EV makers' option for IPOs in the US in spite of the tense Sino-US relations further demonstrates that optimism. The caveats are there, of course, but it's up to the investors how seriously they treat them. After all, it's widely acknowledged that China is leading the global recovery from the COVID-19 pandemic and a major source of stimulus comes from the so-called "new infrastructure" initiative spearheaded by the Chinese government, which apparently relies immensely on the auto industry. And investors are clearly seeing huge opportunities there.

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