Chinese EV stocks such as Nio (NYSE:NIO), Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) are revving higher today following interest rate cuts by the People’s Bank of China. Positive news from the EV sector is also helping matters.
Chinese stocks in general are higher today after the country’s central bank reduced lending rates in the key housing sector. The benchmark Hang Seng index in Hong Kong rose 3.4% today, bringing its 2022 year-to-date gain to 6.6%. China’s central bank also lowered its one-year loan prime rate from 3.8% to 3.7%, and lowered its five-year rate from 4.65% to 4.6%. Like other U.S.-listed Chinese stocks, NIO, XPEV and LI rallied on this news.
What Happened With Chinese EV Stocks
With the property sector struggling and the Olympics due to start in Beijing on Feb. 4, China’s central bank cut key rates. The interest rate reductions show China moving in the opposite direction of the United States, where the Federal Reserve will likely hike rates four times this year. Investors should know though that the two economies are facing separate challenges. China wants to boost its economy ahead of huge international attention. The U.S. is working to combat inflation, a labor shortage and supply constraints.
Investors, especially ones holding tech stocks, clearly like the interest rate cuts. This has helped to send Chinese EV stocks higher too.
At the same time, electric vehicle companies have made several positive announcements that have improved investor sentiment. This includes Nio hiring a key executive away from Swedish carmaker Volvo to lead its business development and expansion efforts in Germany and elsewhere in Europe. According to media reports, Ralph Kranz, director of commercial operations at Volvo Germany, is leaving the company at the end of February to join Nio, which entered Europe last fall.
Chinese EV stocks are also getting a lift from strong December delivery numbers. Nio, Xpeng and Li Auto, combined, shipped more than 40,000 electric vehicles in December. That is a one-month record that shows the industry is maturing and gathering steam.
Why It Matters
Like all Chinese stocks, electric vehicle companies got hammered over the last year as regulators in China cracked down on publicly traded firms. Nio’s share price has fallen 50% in the last 12 months. Xpeng’s stock is down 19% and Li Auto’s share price has pulled back 15%. The interest rate cuts, combined with the positive news, are providing a much-needed boost to Chinese equities.
U.S. investors that hold the three Chinese EV stocks will be hoping that the interest rate cuts will be a catalyst needed to get Nio, Xpeng and Li Auto rising again. The latest delivery numbers and growth outside of China are also positive indicators that should help lift Chinese EV stocks out of their doldrums and, hopefully, move them into positive territory as we progress through 2022.
What’s Next
Continued positive news from China’s electric vehicle makers will be needed to keep their share prices buoyant. Further interest rate cuts by China’s central bank could help too. For today, the stocks are moving in the right direction. If the trend continues, investors might want to take a position while prices are still near their 52-week lows.
On the date of publication, Joel Baglole 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.
