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Should You Buy the Dip in These 3 China-Based EV Stocks?

Rimmi Singhi
·5 min read

The rapid rally in China-based electric vehicle (EV) stocks suffered a temporary halt yesterday when stocks including XPeng Inc. XPEV, Li Auto Inc. LI and BYD Company Limited BYD declined 9.2%, 7.4% and 3.6%, respectively. The stocks slipped on the news of a government probe into the EV sector. The National Development and Reform Commission of China launched a nationwide review of e-mobility projects. China’s top economic planning body directed its local officials to investigate new energy vehicle (NEV) projects related to property developers, Evergrande Group and Shenzhen Baoneng.

The abovementioned EV stocks took a breather after registering eye popping gains in the past couple of weeks on the back of Tesla’s TSLA S&P inclusion news and Joe Biden’s victory, which created more optimism for the EV industry in general. While Xpeng, Li Auto and BYD slid yesterday, investors would do well to hold these stocks, as yesterday’s dip appears a temporary weakness in an upward trending market. These stocks are worth retaining in your portfolio amid bright EV prospects worldwide, particularly in China.

China’s EV Euphoria

Currently, China is the world’s biggest EV market but green vehicles still account for just around 5% of the country’s total auto sales. Importantly, the country aims electric cars to account for 25% of new car sales by 2025. China controls major part of the EV supply chain, spearheading production of battery raw materials. The country’s big push toward green vehicle adoption and EV supply chain dominance bode well.

Industry watchers have been quite optimistic about China’s progress in the transition toward EV future. Demand for NEVs has been on the rise amid climate change concerns and favorable government policies. In April, the government of China announced plans to extend subsidies and tax breaks for NEVs such as electric or plug-in hybrid cars for another two years to spur sales. 

With green vehicles being the future of driving amid stricter emission rules and improvement in the EV infrastructure on the back of superior technologies, automakers are fast changing gears to electric. Enormous amount of money is being injected into markets by investors who fear missing out on EV stocks’ crazy rally. Banking on the EV frenzy, Xpeng and Li Auto got listed in the U.S. markets on Jul 30 and Aug 27, respectively. Li is the second China-based EV maker to be listed on the U.S. stock market after NIO Inc. NIO. Xpeng Motors, backed by e-commerce giant Alibaba BABA, became the third China-based EV maker to go public in the U.S. stock market.

These EV High-Fliers Command Your Attention

Below we highlight three stocks namely Xpeng, Li Auto, and BYD, which currently carry a Zacks Rank #3 (Hold). Over the past month, shares of Xpeng, Li Auto, and BYD have surged 223%, 112% and 36.8%, respectively. While these stocks offer huge upside potential, investors should wait for better entry points before adding them to their portfolios. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

XPeng: One of the rising stars in the EV market of China, XPeng aims to boost e-mobility prospects on its innovative technology, expansion plans, and high-performance electric cars including P7 as well as G3. The company delivered 8,578 EVs in the third quarter, marking a 266% year-over-year jump. Superior R&D capabilities, robust delivery numbers and production ramp-up are driving the company. Upbeat guidance for the ongoing quarter is boosting investors’ confidence. XPeng anticipates deliveries of vehicles to be 10,000 units, suggesting a 210.8% year-over-year surge. Projected total revenues indicate a whopping year-over-year increase of 243.7%. The Zacks Consensus Estimate for 2021 earnings and sales calls for year-over-year growth of 59.4% and 169%, respectively.

Li Auto: Li Auto targets the niche market of spacious SUVs, which is the fastest-growing segment of China’s vehicle market. The firm currently has just one model in the market, i.e. Li One, whose volume production began in November 2019. Encouragingly, demand for Li One has been growing significantly. Deliveries rose 31% sequentially to 8,660 units in the third quarter of 2020, setting a new record. The company’s efforts to expand sales and the servicing network are commendable. As of Oct 31, Li Auto had 41 retail stores across 36 cities. Moreover, for fourth-quarter 2020, the firm expects sequential growth of 32.8% and 29.5% in deliveries and revenues from the mid-point of the respective guided range. The Zacks Consensus Estimate for 2021 earnings and sales calls for year-over-year growth of 93.3% and 95.4%, respectively.

BYD: One of the leading EV makers of China, the company stands to benefit from robust demand of green vehicles and batteries in the country. In addition to developing EVs, Buffett-Backed BYD is also one of the largest battery manufacturers, and is likely to gain from its scale as well as government support. The rechargeable battery business provides lithium-ion and nickel batteries that are essential for the development of green vehicles. Rising deliveries of ‘Han’ and ‘Tang’ models are driving the firm’s top line. Solid execution capabilities and expansion efforts outside China, particularly in the European market, will further fuel the stock. The Zacks Consensus Estimate for 2021 earnings and sales calls for year-over-year growth of 14.6% and 18%, respectively. The consensus estimate for 2021 earnings has increased by 8 cents over the past 30 days.

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Tesla, Inc. (TSLA) : Free Stock Analysis Report
Boyd Gaming Corporation (BYD) : Free Stock Analysis Report
Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
NIO Inc. (NIO) : Free Stock Analysis Report
XPeng Inc. Sponsored ADR (XPEV) : Free Stock Analysis Report
Li Auto Inc. Sponsored ADR (LI) : Free Stock Analysis Report
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