Chinese electric vehicle stocks NIO (NYSE:NIO), XPeng (NYSE:XPEV), and Li Auto (LSE:LI), had been on a bit of a bull run in recent months. They were dragged down along with other tech stocks earlier in the year, but the drop was extended as China enacted lockdowns to bring Covid-19 outbreaks under control.
So let’s take a closer look at these stocks and see whether now is a good time for me to buy.
Chinese EVs
Li Auto stock soared in May and June as Covid-19 restrictions were reduced. The firm also announced the long-awaited launch of its L9 model — a six-seater, full-size flagship SUV. Li claims that the SUV is the best family SUV available for less than $750,000. That’s a very bold claim when you consider the L9 only costs $70,000.
NIO is probably my favourite Chinese EV stock. The company has a broad range of models on offer, which will help revenue growth. It’s been on a Tesla-esque growth curve in recent years and I think its technology could be a real winner in the years to come. It’s battery-swapping tech allows drivers to change empty batteries for full ones at NIO charging stations in just a matter of minutes. NIO is also looking to open a second factory this year, but unlike its peers, it’s not the owner of its factories.
Xpeng offers a cheaper range of vehicles than its peers. But its delivery volume is the highest. Xpeng reported 34,422 EV deliveries during the second quarter of 2022 and topped the list of related Chinese brands for the fourth consecutive quarter. XPeng is also taking on Tesla in Europe and is undercutting the US brand with its P5, which is being sold for around $57,000.
Is now the time to buy?
One issue is that I can only buy these stocks through their US listings at the moment. And with the pound weak, now isn’t the best time to buy dollar-denominated stocks. Eventually, I believe that the pound will get stronger and therefore currency appreciation could wipe out my gains.
However, I see Chinese EV stocks as having big growth potential and therefore I’m willing to overlook my concerns about the currency.
I also believe that now looks like a good time to buy. In all honesty, there isn’t a massive amount between these three companies in terms of valuation. They all trade with cheap price-to-sales (P/S) ratios (Xpeng 4.9, NIO six, Li Auto eight).
Xpeng is down 40% over the past 12 months, while NIO is down 47%. Li Auto is the only manufacturer up (7%) on this time last year.
I do have some concerns about the impact of slowing economic growth globally, and more Chinese lockdowns, on sales, but I see that as already being priced in. Chinese growth concerns are one of the reasons why these three companies have P/S ratios that are just a fraction of Rivian (222) and Lucid (160).
While I’m positive on all three companies, my personal favourite in NIO. I think the brand offers something really unique and I think the swappable batteries will be a big plus in the years to come.