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China, the world’s biggest electric vehicle market, has seen exponential growth in its auto sector over the past couple of years. China’s EV industry now expects sales to hit a record 6 million in 2022, this would be double the EV sales seen in 2021, showcasing a market that is becoming challenging for legacy automakers.
The Chinese government is pushing for the adoption of new energy vehicles (NEVs) by offering subsidies to manufacturers and purchase tax cuts for buyers. The country recently announced a goal to develop sufficient charging infrastructure to meet the needs of 20 million NEVs by 2025. Additionally, China is also rapidly expanding its lithium-ion battery industry.
China’s EV push makes sense as the country is among the world’s top polluters, and the electrification of vehicles will reduce the country’s dependence on imported oil, reduce air pollution and help the country reach carbon emission targets.
Here are some China EV stocks that investors can keep an eye on:
BYD
Shenzhen-based EV-maker BYD (002594.SZ / 1211.HK) is a publicly listed firm with a market capitalization of 849.09 bn yuan ($126 bn). The Warren Buffet-backed company more than tripled its China EV sales in July, with the total sales overtaking that of Tesla. BYD’s Shenzhen-listed stock has largely been unchanged over the past year. The company made it to the Fortune Global 500 list for 2022, showcasing its rapid growth and subsequent achievements. The stock has a forward P/E ratio of 101.92 and a trailing P/E ratio of 244.72. It has a price-to-book ratio of 7.54. For the quarter that ended March 30, the company reported a revenue of $9.85 bn, a more than 63% jump. The quarterly net profit rose 240.59%.
SAIC Motor
SAIC (600104.SS) is China’s state-owned automaker and is the country’s biggest player in the sector. The company makes EVs as well as internal combustion engine vehicles, but the latter is still a major part of the business. SAIC has set up a joint venture with Alibaba to manufacture electric vehicles. Weak consumption in China has weighed on the company’s stock, which is down nearly 18% in the past year. However, the company’s revenue (TTM) was $120.27 bn, whereas it posted a 43.74% growth year-on-year in July sales. The stock has a forward P/E ratio of 7.66, with a price-to-book ratio of 0.68. The annual net profit margin of the company stood at 4.35%. Market analysts see an average EPS of 2.5 for FY23.
NIO
Chinese EV-maker NIO Inc (NIO.N) is listed on the New York Stock Exchange and has seen its stock price fall 52.79% in the past year, largely due to fears of possible delisting. NIO offers a large variety of electric vehicles and has sophisticated technology competing with the likes of Tesla. The recently launched Nio ES7 is dubbed the ‘fastest SUV yet’. NIO is a loss-making company, but industry analysts expect the company to cut its losses and nearly double its revenue in 2023. The stock has a price-to-book ratio of 6.98. Analysts expect the company’s EPS to improve to negative 0.16 in 2023, from a forecast of negative 0.6 EPS in 2022.
Xpeng
Established in 2015, EV-maker Xpeng (XPEV.N) offers smart electric vehicles such as SUVs, sports sedans and family sedans, among others. The stock has fallen 44.17% in the past year due to tightening financial conditions, chip shortages and a resurgence of Covid in China. The company sold 43% more electric vehicles in July over the same period last year. The company is currently dealing with production issues and expects to see even more output in the coming quarters. While the revenue for the quarter ended March 30 rose 152.6%, the company had an annual net profit margin of negative 23.17%. The stock currently has a price-to-book ratio of 3.34.
Li Auto
Founded in Beijing in 2015, Li Auto is listed on the New York Stock Exchange (LI.O). The company has a market capitalization of nearly $30 bn, and the stock has registered a growth of 4.68% over the past year. The company saw its quarterly revenue grow 73.30% but is making hefty losses. However, analysts expect the current negative EPS to turn positive to 0.26 in FY23.
Apart from the above-mentioned EV companies, some other notable stocks to keep an eye on are Geely, Dongfeng Motor, Cherry Automobile and Great Wall Motors, among others.
China’s battery stocks to watch
China’s EV battery prowess is unparalleled, with about 56% of the total global market share. Chinese battery maker CATL alone had 34.8% of the global market share during the first half of 2022, said a report by South Korean battery research firm SNE Research. BYD came in at the third spot among the list of the world’s top 10 battery makers, which includes a total of six Chinese battery manufacturers.
CATL
China-based Contemporary Amperex Technology Co (CATL) is the world’s biggest EV battery maker and is listed on the Shenzhen stock exchange (300750.SZ). The company has a market capitalization of $182 bn, and the stock has marginally ticked higher in the past year. The company has an annual net profit margin of 13.70%. For the first quarter of 2022, CATL reported a 153% year-on-year increase in sales, but saw its net profit fall by 23.6%, largely due to record high lithium prices. The stock has a forward P/E ratio of 54.95, and a quarterly price-to-book ratio of 14.04.
Tianqi Lithium
While not a pure EV company, Tianqi Lithium (002466.SZ) is making big moves in the EV space to capitalize on the rising demand for electric vehicles. The company is the world’s biggest miner of lithium, the key element used in EV batteries, and controls more than 46% of the global production of the mineral. China EV market is increasingly looking to meet the lithium demand, and Shenzhen-listed Tianqi recently raised $1.7 bn via a secondary listing in Hong Kong. The company’s Shenzhen-listed stock has delivered 15.44% returns in the past year. For the first quarter of 2021, the company posted a 481.41% rise in revenue year-on-year, and a more than 1,400% jump in net profit. The stock has a forward P/E ratio of 16.52, and a quarterly price-to-book ratio of 10.41.
China EV thematic funds
For those who do not want to invest in individual shares, there are mutual funds with high exposure to the EV sector or individual thematic funds.
However, the selection when it comes to specifically investing in China’s EV sector is limited. While there are a handful of ETFs investing globally in the EV industry, like the KraneShares Electric Vehicles & Future Mobility Index ETF or iShares Self-Driving EV and Tech ETF, New York-based ETF provider Global X, a unit of Mirae Asset Financial Group, offers a fund that only tracks Chinese companies that are active in the electric vehicles industry.
The Global X China Electric Vehicle and Battery ETF tracks the Solactive China Electric Vehicle and Battery Index NTR. The top three holdings as of August 11, 2022, are automation products developer Shenzhen Inovance Technology, and battery makers EVE Energy and CATL.
“We believe electric vehicle sales in China will remain strong till the end of the year on the back of national and local stimulus policies. Consumers will likely shift their car purchase decision earlier to this year when favourable policies are still available, which means we may see a deep decline of sales in 2023 if subsidy exits,” said Mirae Asset in its mid-year global EV and battery review note.
*All figures as of August 17, 2022
