Want to Bet on China’s EV Growth? Here Are 6 Stocks to Consider | The Motley Fool
From January to November, 2.5 million electric vehicles (EVs) were sold in China, including plug-in hybrids. That’s a year-over-year increase of 178%. In the first half of this year, China accounted for roughly 42% of global EV sales. Global EV sales for 2021 are estimated to be around 6 million units, which means China will likely maintain its lead in EV sales for the year.
With strong governmental support for both EVs and public charging infrastructure, China’s future EV growth looks certain. Here are six stocks to bet on this growth narrative.
Nearly 25% of Tesla‘s (NASDAQ:TSLA) revenue for the first nine months of 2021 came from China. In the third quarter, it derived nearly 23% of its revenue from China. According to CleanTechnica, the company controls roughly 10% share — the third highest — of China’s EV market. Clearly, China is an important market for Tesla.
A major chunk of cars produced at its plant in Shanghai are exported. With a local manufacturing base, Tesla would surely like to expand its sales in China in future. Thus, an investment in Tesla automatically pivots you to China’s EV market growth.
General Motors (NYSE:GM) sells EVs in China under two joint ventures (JV) — one with the state-owned SAIC Motor, and another with SAIC Motor and Wuling Automobile. The SAIC-GM-Wuling JV (SGMW) venture controlled roughly 15% of China’s EV market between January and October. That’s the second highest share of China’s EV market.
While that looks big, GM’s International segment, which includes earnings from China, contributed less than 5% of General Motors’ adjusted earnings before interest and tax (EBIT) for the nine months ended Sept. 30. What’s more, less than one-fourth of the sales under the two JVs are electric.
While General Motors’ EV sales in China are growing, its competitors are growing faster. In two months, SGMW’s market share has fallen roughly 2%. SGMW’s HongGuang Mini EV is the top-selling EV model in China. If the company manages to bring new and successful EV models, it could retain its share in the competitive Chinese market.
Investors should note that only a tiny percentage of their investment in General Motors stock is exposed to China’s EV market.
BYD (OTC:BYDDY) controls the highest share, 18%, of China’s EV market. The company derives more than half of its revenue from auto and related products. In November, BYD delivered 97,242 vehicles. Of that, 90,121 units were EVs, including plug-in hybrids. Moreover, 46,137 units were full electric. So, the traditional automaker has clearly shifted to EVs.
Apart from vehicles, BYD derives roughly 40% of its revenue from mobile handset components, and roughly 8% from rechargeable batteries and solar products. But the company is witnessing a strong growth in the EV segment, which could form an increasingly higher portion of the company’s revenue mix.
BYD stock is trading at a price-to-sales ratio of around 3.6. With a long history of operations and a better price-to-sales multiple than many EV stocks in the market, value-focused investors will find BYD stock attractive.
Nio, Li Auto, and Xpeng
The three Chinese EV makers — Nio (NYSE:NIO), Li Auto (NASDAQ:LI), and Xpeng (NYSE:XPEV) — have some things in common. All three are new, pure-play EV companies. All three started at nearly the same time — in 2014 and 2015. The three companies are primarily targeting the passenger car and SUV market and can potentially give Tesla stiff competition in China, and elsewhere.
As the above graph shows, Nio generates the highest revenue among the three, but Li Auto and Xpeng have been growing revenue at a higher rate than Nio lately. Even so, all three companies are growing their revenue at impressive quarterly year-over-year growth rates of more than 100%.
The three companies face stiff competition from established players, including Tesla, General Motors, and BYD, as well as several other players in the EV space. But all three companies look promising, have already sold several thousand vehicles, and are growing sales rapidly.
All in all, Nio, Xpeng, and Li Auto offer a more explicit way to invest in China’s EV market. However, investors must consider their appetite for the risks of investing in international stocks before starting a position.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.