Multiple factors are pushing Chinese EV stocks down this week. While widespread negative market momentum is making it hard for growth stocks to rally, several electric vehicle (EV) companies reported disappointing third-quarter deliveries.
As InvestorPlace Assistant News Writer Eddie Pan reports, both Nio (NYSE:NIO) and XPeng (NYSE:XPEV) came in below internal predictions. And while Li Auto (NASDAQ:LI) beat out expectations by roughly 1,100 EVs, that hasn’t been enough to help the sector gain any momentum.
Yesterday, XPEV reached a 52-week low as many other EV stocks plunged into the red. While the entire sector has struggled this week, several U.S. companies are back in the green today. This warrants a closer look at China’s EV leaders, which are still falling.
What’s Happening With Chinese EV Stocks
Of the prominent Chinese EV stocks, BYD (OTCMKTS:BYDDY) has been the strongest today. As of this writing, it is down less than 3%. By contrast, XPEV is down 3% for the day while NIO has fallen more than 7%. LI has taken the worst beating so far, declining nearly 12% and showing no signs of a rebound.
October has been an overall difficult month for the EV sector so far. September ended with the turbulent initial public offering, or IPO, of Leapmotor. The Chinese EV producer plunged 41% on its first trading day, generating turbulence for Chinese EV stocks across the board. As Pan reported, this served as proxy by which investors could gauge the strength of China’s EV market. If the disappointing IPO serves as an indicator, it likely did not inspire much confidence in the sector.
However, investors shouldn’t lose sight of the bigger picture here. This is an extremely difficult time for all EV producers as bearish energy continues to abound. These trends make for a particularly difficult time for growth stocks.
Does this mean investors should be avoiding Chinese EV stocks? Not at all. Some experts have argued their current low price points make for an excellent buy-the-dip opportunity.
Investors should focus on Nio’s long-term growth catalysts such as its European expansion. Tomorrow is Nio Berlin 2022, at which the company will debut its ET5, ET7 and ES7 models. And while InvestorPlace’s Louis Navellier acknowledges LI stock comes with some risk, he also predicts a potential turnaround as the company gears up to launch a new SUV model.
Li also boasts encouraging financials. As InvestorPlace contributor Larry Ramer reports:
“The company’s margins are improving, with its gross margin coming in at 21.5% in the second quarter, up from 18.9% in the second quarter of 2021. This bodes well for the automaker’s profitability going forward.”
Ramer also sees BYD as a likely winner among Chinese EV stocks due to its partnerships with both Tesla (NASDAQ:TSLA) and German rental-car company Sixt.
The Road Ahead
It is important for investors to be mindful of the realities of a bear market. When the growth stocks that lead sectors are struggling, it creates the type of momentum that pushes most stocks down.
This is true for Chinese EV stocks, and the country’s supply chain problems and Covid-19 lockdown measures haven’t helped ether. But these companies are taking steps to show investors they will bounce back when markets do. Events like Nio Berlin 2022 are a good reminder that these companies are focused on conquering demand-rich markets.
On the date of publication, Samuel O’Brient 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.