3 Stocks to Invest in China's EV Surge

3 Stocks to Invest in China's EV Surge

The Chinese electric vehicle (EV) market is flourishing, with local manufacturers achieving remarkable sales figures. In 2022, BYD, a leading EV maker, sold an incredible 1.57 million electric vehicles, marking a 73% increase from the previous year and making it the world's largest electric car company, surpassing even Tesla. This impressive figure does not count the additional 1.44 million hybrids sold during the same timeframe.

Recognizing the immense potential of this sector, Xiaomi, a prominent smartphone manufacturer, has announced its entry into the electric vehicle market with its first model. "We see rapid new energy vehicle, or NEV, adoption in China, stimulated by regulatory push and improving charging infrastructure, among others," notes Vincent Sun, an equity analyst at Morningstar.

By 2025, it is projected that NEVs will constitute over 40% of total passenger car sales in China, a significant increase from 16% in 2020. Investors looking to capitalize on the rapidly expanding Chinese EV market should consider these U.S.-listed stocks that are covered by Morningstar.

Li Auto

Li Auto stands as a prominent Chinese NEV producer, having sold more than 133,000 NEVs in 2022, capturing roughly 2% of China’s passenger NEV market. The company is focused on expanding its offerings, intending to include battery electric vehicles (BEVs) and plug-in hybrid vehicles (PHEVs) to appeal to a wider audience.

In 2022, Li Auto’s monthly deliveries surged to unprecedented levels, achieving a staggering 182% year-over-year growth. The company has announced plans to unveil its first all-electric vehicle, MEGA, in March 2023.

The automaker is well-positioned to benefit from the ongoing NEV adoption in China, driven by regulatory support and advancements in charging infrastructure, according to Morningstar's analysis. The fair value estimate for Li Auto's stock sits at $39.10 per American Depositary Share (ADS), based on anticipated demand for their NEV models and improved profitability resulting from economies of scale.

BYD

BYD has emerged as a key player in China's EV landscape since shifting entirely to NEVs by discontinuing combustion engine vehicle production in 2021. The company sold over 1.8 million passenger cars in 2022, making up approximately 28% of the NEV market in China.

Having once been underestimated as a rival to Tesla, BYD surpassed three million new energy vehicle productions in 2022, marking its second consecutive year overtaking Tesla’s output. Starting as a battery supplier, they expanded into vehicle manufacturing in 2004. Sun's analysis indicates that BYD is the largest NEV manufacturer in terms of sales volume in China.

The company aims to dominate the mass market with competitively-priced BEV and PHEV models, relying on their strong brand recognition. Projections suggest that revenue from their automobile segment will rise to over 80% by 2025, underpinning a fair value estimate of HK$316 for the stock.

Nio

Recognized for its focus on the premium EV segment, Nio is planning to launch a new mass-market brand in 2023 to tap into growing demand while maintaining its upscale branding. With sales exceeding 122,000 EVs in 2022, Nio holds approximately 2% of the passenger NEV market in China.

Nio differentiates itself with ongoing advancements in technology, including battery swapping and autonomous driving capabilities. Their goal is to establish over 4,000 battery swap stations worldwide by 2025, with about 1,000 anticipated outside China.

Though Nio has not yet reached profitability, the trend in vehicle deliveries is expected to improve profitability. Forecasts anticipate reaching nearly 300,000 unit sales in 2025, grabbing a 3% market share in the passenger NEV sector. Sun values the stock at $12.50 per ADS, expecting continued market share gains over traditional automakers.

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For more information on our offerings, take a look at Jixin Auto. Additionally, you can find more details about the growing industry by exploring New Energy Vehicles China.