Back to top

Image: Bigstock

4 Stocks to Ride China's Robust EV Market

Read MoreHide Full Article

Climate change concerns and favorable government policies have been aiding sales of new energy vehicles (NEVs) in China. Although the country’s total vehicle sales for May 2021 fell 3% year over year, snapping the 13-month winning streak, electric vehicles remained a bright spot for the world’s largest auto market. Per the China Association of Automobile Manufacturers, NEVs including all-electric, hybrids and hydrogen fuel-cell vehicles surged a whopping 160% year over year to 217,000 units in May, marking the 11th straight month of increase.

Key electric vehicle (EV) firms based in China witnessed a massive surge in sales volumes last month. NIO Inc. (NIO - Free Report) — dubbed as the Tesla (TSLA - Free Report) of China — delivered 6,711 vehicles, marking a year-over-year rise of 95.3%. Li Auto (LI - Free Report) and XPeng Inc. (XPEV - Free Report) delivered 4,323 and 5,686 units, representing year-over-year growth of 101.3% and 483%, respectively. Warren-Buffett-backed BYD Co. Ltd. (BYDDY - Free Report) sold 32,800 all-electric and hybrids vehicles, up 190% year over year. Pure electric passenger cars delivered by the firm jumped 126% year over year to 18,711 units. U.S.-based EV king Tesla sold 33,463 EVs made in China in May 2021, up from 25,845 sold in April, per the China Passenger Car Association (“CPCA”).

Upward Trajectory to Continue, Prospects Rosy

China's NEV industry has been on the uptrend since July 2020, backed by government stimulus measures like extended subsidies and tax exemptions, which have boosted the sale of green vehicles. Advancement in the EV charging infrastructure in the nation owing to state-of-the-art technologies is further driving the demand for eco-friendly vehicles. Buoyed by favorable government policies along with improving consumer confidence and economy, the rebound in green vehicle demand and sales is expected to continue.

China-based EV makers including NIO, XPeng and BYD are actively expanding their production capacity in the country, thanks to the government's promotion of zero-emission vehicles. Banking on the EV euphoria in China, various auto biggies including Toyota, Volkswagen, General Motors (GM - Free Report) and Ford (F - Free Report) are ramping up investments in the China EV market. 

China’s big push toward green vehicle adoption and EV supply chain dominance bodes well. Importantly, the country projects EVs to account for 25% of new car sales by 2025. CPCA projects NEV sales in China to hit 2.4 million units this year, indicating an increase from around 1.3 million units in 2020. Per a report by Deloitte, by 2030, China will account for 49% of the global EV market.

During the China Auto Chongqung Summit held over the last weekend, Wang Chuanfu, the founder of BYD, predicted that sales of NEVs will account for 70% of China’s new vehicle sales by 2030. NIO’s founder, William Li, seems more optimistic, forecasting a penetration rate of 90%, per media reports.

Given the upbeat scenario, we highlight four stocks that would help you capitalize on the China EV market’s solid prospects.

Stocks in Focus

General Motors: U.S. auto giant General Motors commands a huge presence in China, which is the biggest EV market in the world. The company strengthened its line-up in China with Hong Guang Mini EV, which was launched last July under the Wuling brand. It is currently the best-selling EV in China. General Motors is accelerating the development of advanced technologies in China to enable an all-electric future. The company’s next-generation EVs (across all brands) in China will be powered by Ultium Drive, General Motors’ proprietary battery platform. The auto biggie plans more than 40% of its launches in China to be NEVs by 2025. The stock currently sports a Zacks Rank #1 (Strong Buy) and has a long-term expected EPS growth rate of 9.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesla: Tesla’s ambitious production plans in the country bode well. China is the second biggest market for this EV behemoth, where the company is spending heavily to boost earnings prospects. Tesla’s Shanghai factory is ramping up well and commands a higher market share in the China EV market. Robust production of Model 3 and Y — which are among the top 5 hot-selling EVs in the country — at the Shanghai Gigafactory bodes well. The plant is operating at full capacity and Tesla plans to further expand it, which provides the company with enough growth visibility. The stock currently carries a Zacks Rank #3 (Hold) and has a long-term expected EPS growth rate of 37.5%.

Ford: Ford is going the extra mile to demonstrate its EV prowess in China, which happens to be its second-largest market. The firm’s China 2.0 business transformation plan is aimed at strengthening product line-up, with more customer-centric products and focus on customer experiences. In April, Ford starting taking pre orders for its popular EV Mustang Mach E, which is set to be available to customers in the coming months. The company has set up a BEV division for R&D, production and distribution of green vehicles in the country. The stock currently carries a Zacks Rank #3 and has a long-term expected EPS growth rate of 21.8%.

NIO: NIO seems to be well positioned to cement a strong long-term foothold in the EV market of China. Rising demand for ES6, ES8 and EC6 models is enhancing the firm’s top line. The company’s strong standing with the government of China gives it an advantage in the massive China market. The firm’s strategic partnership with Mobileye and battery swap technology are expected to be other growth drivers. Its upbeat guidance for second-quarter 2021 revenues and deliveries boosts confidence. The stock presently carries a Zacks Rank #3. The Zacks Consensus estimates for earnings for the current year implies year-over-year growth of 115.7%.

Zacks' Top Picks to Cash in on Artificial Intelligence

In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.

See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>