Even with macroeconomic headwinds, China remains one of the world’s fastest growing electric vehicle markets. In 2023, China accounted for 60% of all EVs sold globally. Being an attractive market also implies the entry of many players and intense competition. It’s estimated that the Chinese markets have 500 EV makers.
It’s clear that not all companies will survive, with a majority likely to fail or get acquired. The Chinese EV industry is gradually moving towards consolidation. This column focuses on identifying the Chinese EV stocks to buy and hold for massive value creation.
It’s worth noting that China and Norway are leading in EV adoption. By 2030, it’s expected that 40% of vehicles sold in China will be EVs. Therefore, there is ample headroom for growth, and some of the best EV companies will grow multi-fold in terms of revenue and cash flow upside.
Let’s discuss three Chinese EV stocks to buy for multibagger returns potential.
BYD (BYDDF)
BYD (OTCMKTS:BYDDF) is an obvious choice among Chinese EV stocks to buy. In Q4 2023, BYD dethroned Tesla (NASDAQ:TSLA) as the top EV player. BYDDF stock trading at a forward P/E of 20.6 is attractive, and I expect a sharp upside from current levels.
Within China, BYD is the top company in EV sales. In 2023, BYD reported a market share of 35.5%. With the financial muscles, focus on innovation, and policies favoring “Made in China,” BYD will remain a market leader.
It’s also worth noting that the company is making inroads in some attractive global markets. For example, BYD is constructing a manufacturing complex in Brazil with an estimated annual production capacity of 150,000 units in its first phase. The company will be rolling out its Dolphin model in Indonesia in July.
Amidst these positives, it’s worth noting that BYD had a relatively weak first quarter. Macroeconomic headwinds and pricing war impacted sales and profitability. The focus on high-end segments will ensure that margins remain attractive despite competition. The temporary headwinds present a good opportunity to accumulate BYDDF stock.
Li Auto (LI)
Among the emerging EV companies, Li Auto (NASDAQ:LI) is an attractive bet. After a deep correction of 42% for year-to-date, LI stock trades at an attractive forward P/E of 17.2. This seems like a good accumulation opportunity, and I expect LI stock to deliver multibagger returns by the decade’s end.
Recently, Li reported Q1 2024 results, and vehicle deliveries for the quarter were higher by 52.9% yearly to 80,400. Compared to Q4 2023, vehicle margin declined by 340 basis points to 19.3%. Relatively weak numbers were likely on the back of competition and macroeconomic headwinds.
It’s, however, worth noting that Li ended the quarter with a cash buffer of $13.7 billion. Fundamentals are, therefore, strong, and with ample financial flexibility, Li can invest in aggressive expansion within China. It’s also worth noting that Li MEGA was launched in March 2024. Further, the deliveries of Li L6 commenced in April. Now models will help in boosting deliveries growth in the coming quarters.
ZEEKR Intelligent Technology (ZK)
ZEEKR Intelligent Technology (NYSE:ZK) is a recently listed electric vehicle company in China that looks attractive in the long term. Against an IPO price of $21, ZK stock currently trades at $27. The upside has not been meaningful, but it’s a good opportunity to accumulate.
It’s worth noting that ZEEKR was incorporated in March 2021. The company currently has five EV models in the market. The initial numbers have been encouraging, with ZEEKR cumulatively delivering 196,633 cars. In January, ZEEKR commenced delivery of its upscale sedan model. The new car is likely to have a positive impact on deliveries growth.
While there are many upcoming EV companies, there are two reasons to be bullish on ZEEKR.
First, the ZEEKR brand has been incubated by the Geely Group. Therefore, the company is now, but the expertise comes from years of execution experience. Additionally, Geely Group also provides strong financial backing.
Further, ZEEKR is investing heavily in the technology front. That’s one factor that will differentiate EVs in the coming years. ZEEKR has partnered with Mobileye and Waymo to develop autonomous driving technology. This will also support expansion into future mobility products, including robotaxis and logistics vehicles.
On the date of publication, Faisal Humayun did not hold (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.
