To The Moon

Famous author Ernest Hemmingway once wrote, “How did you go bankrupt? Two ways. Gradually, then suddenly.” Though the quote refers to bankruptcy, the second part of the quote may soon be used by investors to describe the global electric vehicle (EV) market. According to Bloomberg, “The fast part of the technology adoption curve is happening now with electric vehicles.” The critical tipping point for new technology to begin the mass adoption phase is 5% - currently, new EV car sales reached the milestone in 24 countries.

Tesla $Tesla Motors(TSLA)$ is the trailblazer in the space – it’s the one EV maker that has already shown that it can reach parabolic growth. For the past five years, TSLA grew EPS year-over-year, achieving record results earlier this year and catapulting Elon Musk to the top of the Forbes Billionaires List.

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Though Tesla rightfully gets much of the credit for making EVs a reality, many investors would be shocked to hear that the worldwide leader in EVs is China – by a lot. Despite economic woes and a plethora of new entrants worldwide, China sold 27 million cars in 2022, nearly double what the US sold and more than the EU and US sold combined.

Below are 3 Chinese EV Makers to Consider Buying:

Li Auto $Li Auto(LI)$

Li Autois an electric vehicle (EV) maker that manufactures, engineers, and designs SUVs.  The company focuses on designing and producing electric SUVs with extended-range capabilities, integrating electric propulsion with a small gasoline engine to recharge the battery. The approach addresses the challenges of limited EV charging infrastructure by offering a more extended driving range.

Earnings and Sales Growth

After losing money in the third quarter of 2022, LI swung to a profit over the past three quarters. Last quarter, revenue grew by an impressive 203% year-over-year.

EPS Surprise History

Since going public in 2020, LI has delivered positive EPS surprises for every quarter except one. Last quarter, the company beat Consensus Estimates by 121%.

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Relative Strength

The most intriguing reason to buy Li Auto is its relative strength versus the Chinese market. The iShares China ETF $iShares China Large-Cap ETF(FXI)$ is down 3% year-to-date, while Li Auto is up a staggering 95.2%.

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XPeng Inc $XPeng Inc.(XPEV)$

XPeng is a Chinese EV manufacturer known for its smart EVs. Xpeng integrates advanced technologies such as AI, autonomous driving features, and connectivity solutions into its vehicles.

Valuation Improving as Profitability Nears

Though Xpeng has yet to turn a profit, sales have been increasing, and the stock currently has a price-to-sales ratio approaching all-time lows.

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Strong Technicals

Investors are starting to take note. Like Li, XPEV has outperformed all year and recently attracted buyers as it pulled into its rising 50-day moving average – a sign of strength.

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NIO $NIO Inc.(NIO)$

NIO is a pioneer in China’s EV market and is often touted as the “Tesla of China.” NIO aims to provide quality EVs at competitive price points. The company also has a solid relationship with the government – vital if you want to do business and take advantage of the massive Chinese market.

Strategic Partnership with Mobileye

In the EV market, it is no longer enough to provide a quality car with high range. Customers are now looking for vehicles to be equipped with autonomous driving capabilities. NIO’s collaboration bodes well for the company’s future autonomous vehicle aspirations moving forward.

Price Action Detach from Earnings

Shares of Nio have been in a massive bear market since they topped above $60 in early 2021 (NIO trades ~$10 currently). However, despite the poor price action, analysts believe the company will return to delivering record earnings by early 2025. The massive spread between price and earnings is a potential opportunity for investors.

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Bottom Line

Unbeknownst to many investors, China is the leading EV producer in the world by a long shot. As the EV market enters its exponential growth phase, Chinese EV makers stand to benefit and grow the most.

Source: Zavks