From January to November, 2.5 million electric vehicles (EVs) were sold in China, including plug-in hybrids. That’s a 178% increase year over year. In the first half of this year, China accounted for about 42% of global sales of electric vehicles. Global electric vehicle sales for 2021 are estimated at around 6 million units, which means China is likely to maintain its lead in electric vehicle sales for the year.
With strong government support for electric vehicles and public charging infrastructure, the future growth of electric vehicles in China looks certain. Here are six stocks to build on this growth story.
Almost 25% of You’re here‘s (TSLA 1.32% ) revenue for the first nine months of 2021 comes from China. In the third quarter, it achieved nearly 23% of its turnover in China. According to CleanTechnica, the company controls around 10% of China’s electric vehicle market share – the third highest -. Clearly, China is an important market for Tesla.
Much of the cars produced at its Shanghai plant are exported. With a local manufacturing base, Tesla would surely like to expand its sales in China in the future. Thus, an investment in Tesla will automatically pivot you towards the growth of the Chinese electric vehicle market.
General Motors (GM 6.02% ) sells electric vehicles in China through two joint ventures (JVs) – one with state-owned SAIC Motor and the other with SAIC Motor and Wuling Automobile. SAIC-GM-Wuling JV (SGMW) controlled around 15% of the Chinese electric vehicle market between January and October. It is the second highest share of the Chinese electric vehicle market.
While this seems significant, GM’s International segment, which includes earnings from China, contributed less than 5% of General Motors’ adjusted earnings before interest and taxes (EBIT) for the nine months ended September 30. In addition, less than a quarter of the sales of the two JVs are electric.
As General Motors’ sales of electric vehicles in China increase, its competitors are growing faster. In two months, SGMW’s market share fell by around 2%. SGMW’s HongGuang Mini EV is the best-selling EV model in China. If the company manages to come up with new models of successful electric vehicles, it could maintain its share of the competitive Chinese market.
Investors should note that only a small percentage of their investment in General Motors shares is exposed to the Chinese electric vehicle market.
BYD (BYDDY 0.80% ) controls the highest share, 18%, of the Chinese electric vehicle market. The company derives more than half of its sales from automobiles and related products. In November, BYD delivered 97,242 vehicles. Of that number, 90,121 units were electric vehicles, including plug-in hybrids. In addition, 46,137 units were fully electric. Thus, the traditional automaker has clearly turned to electric vehicles.
In addition to vehicles, BYD derives about 40% of its revenue from cellphone components and about 8% from rechargeable batteries and solar products. But the company is experiencing strong growth in the electric vehicle segment, which could form an increasingly large part of the company’s revenue mix.
BYD stock is trading at a price-to-sell ratio of around 3.6. With a long history of operations and a better price-to-sell ratio than many EV stocks on the market, value investors will find BYD stock attractive.
Nio, Li Auto and Xpeng
The three Chinese electric vehicle manufacturers – Nio (NIO 0.62% ), Li Auto (LI 4.41% ), and Xpeng (XPEV 1.52% ) – have things in common. All three are pure new electric vehicle companies. All three started around the same time – in 2014 and 2015. All three companies primarily target the passenger car and SUV market and have the potential to give Tesla fierce competition in China and elsewhere.
As the graph above shows, Nio generates the highest income among the three, but Li Auto and Xpeng have been increasing their income at a higher rate than Nio in recent times. Despite this, all three companies are growing their revenues at impressive quarterly year-over-year growth rates of over 100%.
All three companies face stiff competition from established players including Tesla, General Motors and BYD, as well as several other players in the electric vehicle industry. But the three companies look promising, have already sold several thousand vehicles and are rapidly increasing their sales.
Overall, Nio, Xpeng, and Li Auto provide a more explicit way to invest in the Chinese electric vehicle market. However, investors should consider their risk appetite of investing in international stocks before starting a position.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.