Nio, LI, XPEV: Ranking the Top 3 Chinese EV Stocks to Buy
Source: shutterstock.com/Nixx Photography
Chinese electric vehicle makers have had an incredibly torrid time this year amid supply-chain troubles and the weakening macroeconomic environment. However, recent results from top Chinese EV players have been impressive, and show that headwinds are easing. The stock market is taking none of that into consideration, with top-tier Chinese stocks to buy continuing to trade in the red.
Though it’s a challenging time for the sector, most experts are upbeat about its future. Edmund Harris, a top analyst at Guinness Asset Management, states that he is optimistic about China’s long-term growth prospects, despite its recent troubles. He feels the government has been forced to reset and face some of the economy’s long-standing challenges, such as a shrinking labor force. Hence, the country’s labor force may be forced to become more productive and focus on higher value-added activities, such as the EV sector.
Harris feels that Chinese EV stocks are likely to outperform their global peers over the next few decades. With that said, let’s look at three Chinese EV stocks to buy in order of their attractiveness as investments.
Li Auto (NASDAQ:LI) is one of many leading Chinese EV manufacturers which has seen a steep decline in its share price over the past several months. The firm has struggled to grow its production volumes for the better part of the year, but has picked up the pace last month. Li delivered 11,531 vehicles in September, up 62.5% from the prior-year period.
Despite the company’s challenges in the second quarter, its revenues totaled $1.27 billion, representing year-over-year growth of 73%. Li’s revenues are expected to accelerate going forward with the roll-out of new SUV products in the latter-half of the year.
Li is ahead of its peers in the race to break even, which is why I have it at the top of my list. I think the company could etch out a small profit this year, depending on how its margins hold up amidst inflationary pressures. Nio and Xpeng are expected to produce their first profits in 2024 and 2025, respectively. Also, LI stock trades at just 2.5-times forward sales, slightly lower than its peers.
Once-darling EV producer Nio (NYSE:NIO) has seen its shares tank by more than 70% year-to-date. Supply-chain bottlenecks have hampered its growth trajectory over the past several months. However, the company’s recently-released blow-out third quarter delivery report is indicative that headwinds are easing. Nio posted recored deliveries in September, and extended its streak to four months in a row where it delivered 10,000 or more vehicles.
Nio has the potential to significantly scale up its production in the fourth quarter at its current rate. Moreover, the company could potentially end the year with 35% year-over-year growth, hitting 128,000 units, according to the company. Recent company comments suggest that Nio “been making active preparations to meet this target” in the fourth quarter.
Moreover, this EV player has set itself up to resume growth at a monstrous pace next year, with multiple new model releases. Also, the company is pushing ahead with its European expansion plans, targeting four countries initially. Hence, with its incredible growth runway ahead, and NIO stock trading under 3-times sales, it’s an excellent time to wager on this growth stock, in my view.
Xpeng (NYSE:XPEV) is another Chinese EV juggernaut that has been red-hot over the past few years. However, supply-chain hiccups have weighed down its results since June. The company continues to suffer from margin weaknesses and geopolitical issues. Delivery growth slumped due to a resurgence of the coronavirus in China and the resultant lockdowns. Nevertheless, its stock price looks appealing from a speculative point of view, sitting near all-time lows.
The third quarter reflected a relatively weak season marred with multiple challenges. However, there is likely to be a meaningful volume ramp-up in the fourth quarter this year and in 2023, with multiple new models hitting the market. Xpeng should also benefit from its navigation pilot ADAS and the development of more semi-autonomous functions, which will further strengthen the quality of its product.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines