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Are These Chinese EV Stocks Ready to Take Off?
Stock Analysis & Ideas

Are These Chinese EV Stocks Ready to Take Off?

Story Highlights

Chinese stocks listed on U.S. stock exchanges have seen their stocks tank this year due to a combination of stricter government regulations and lockdowns, as well as supply chain constraints. As COVID cases drop and lockdowns are lifted, will Chinese EV makers finally be able to ramp up production?

Shares of Chinese companies listed on U.S. stock exchanges have seen deep drawdowns this year. This has been due to a combination of rising COVID cases in China, which have resulted in stringent lockdowns, stricter government regulation in the technology sector, and supply chain issues.

In this scenario, however, shares of Chinese electric vehicle (EV) manufacturers like NIO, Li Auto, and XPeng are up by around 11.7%, 14.2%, and 10.6% in the last five days, respectively, as there are signs that the supply chain woes in China could be easing up.

According to a CNBC report from June 6, China was showing signs of recovery after months of strict lockdowns as China’s official data suggested that the COVID case count had dropped to below 50.

The report also cited Goldman Sachs China Economist Lisheng Wang, who commented, “Our high-frequency trackers suggest that barring another severe Covid resurgence and related lockdowns, mobility, construction and ports operation could recover to pre-lockdown levels in around one month.”

The strict lockdowns in China had adversely impacted Chinese EV manufacturers as their production capacity was deeply impacted. It seems that the rise in the stock prices of Chinese EV manufacturers is reflecting investors’ optimism regarding the easing of supply logjams.

Using the TipRanks stock comparison tool, let us look at three such Chinese EV manufacturers, NIO, Li Auto, and XPeng. We will also examine what Wall Street analysts are saying about these stocks. 

NIO (NYSE: NIO)

NIO, founded in 2014, is an EV maker that caters to the premium smart EV market. The EV manufacturer sells premium smart EVs, including the ES8 and ES6, EC6, an electric coupe SUV, and ET7, a smart electric sedan.

NIO is expected to report its Q1 results on June 9. Last week, the company gave a delivery update regarding the month of May. The EV maker delivered 7,024 vehicles in May and has delivered 37,866 vehicles year-to-date, up by 11.8% year-over-year.

The company stated in its press release that its “vehicle production had been gradually recovering from the impact of COVID-19 outbreaks in certain regions in China while vehicle deliveries were still constrained to a certain extent by the corresponding preventive measures.”

NIO added that it plans to increase its production capacity “to a higher level by working closely with supply chain partners and to accelerate the delivery recovery starting from June, in light of the recent supportive developments in the COVID-19 situation and the strong order inflow.”

In this scenario, Deutsche Bank analyst Edison Yu remains optimistic about the stock and commented that with the lockdown being lifted up from Shanghai last week, he thinks “NIO can finally get back on track with its product super cycle this year.”

By the analyst’s estimate, the Chinese EV maker has delivered 101 vehicles in Shanghai since June 2 and has begun deliveries of ET7. Yu expects “material MoM [month-over-month] volume improvement in June and the ES7/ET5 to both begun production in August.”

While Yu has kept a Buy rating on the stock, the analyst lowered the price target to $45 from $50 to reflect the “broader de-rating in growth stocks.” Yu’s price target implies an upside potential of 129% at current levels.

Other analysts on the Street continue to be bullish about NIO with a Strong Buy consensus rating based on a unanimous 13 Buys. The average NIO price target of $41.09 implies an upside potential of 109.1% at current levels.

Li Auto (NASDAQ: LI)

Li Auto, another Chinese EV automaker, also caters to the premium smart EV market. The company’s flagship EV model is Li ONE, a large premium electric SUV. Li Auto intends to expand its product line with new vehicles in the near future.

Earlier this month, the EV maker provided an update on vehicle deliveries for the month of May. Li delivered 11,496 Li ONEs in May, a jump of 165.9% year-over-year.

However, Yanan Shen, Co-Founder and President of Li Auto commented that while its auto parts supplier in the Yangtze Delta region in China had resumed production, “they have not yet fully recovered and we continue to encounter challenges due to parts supply shortages.”

Shen pointed out that its “Changzhou manufacturing base has not yet reverted to its normal production level, resulting in delayed deliveries for some of our users.” However, the company is actively looking at restoring its production capacity by collaborating with its supply chain partners to reduce the delivery time for Li ONE.

Barring these hiccups, US Tiger Securities analyst Bo Pei remained “encouraged by Li Auto’s gross margin improvement [in Q1]. With supply chain restoration and new models, growth should reaccelerate” in the second half of the year.

Pei was referring to Li’s outstanding results in the first quarter. The analyst reiterated a Buy rating and a price target of $40 on the stock, implying an upside potential of 34.6% at current levels.

Besides Pei, five other analysts are also bullish on Li with a Strong Buy consensus rating based on six unanimous Buys. The average LI price target of $38.33 implies an upside potential of 28.9% at current levels.

XPeng (NYSE: XPEV)

XPeng, a Chinese EV company, designs and manufactures smart EVs, including the G3 SUV and the P7 sports sedan.

Earlier this month, the company gave a vehicle delivery update for the month of May. Even amid supply chain constraints, XPEV delivered 10,125 vehicles in May, an increase of 78% year-over-year.

XPeng stated in its press release that it had resumed “double-shift production at its Zhaoqing plant beginning in mid-May as supply chains and key manufacturing areas in China started to gradually recover.”

However, J.P. Morgan analyst Nick Lai remained concerned about XPEV’s mixed Q1 results and more specifically, its higher operating expenses. The analyst was also disappointed by the management’s guidance of a shortfall in vehicle deliveries ranging from 2% to 10% quarter-over-quarter “due to production or supply chain disruption from Covid-related lockdowns.”

Lai expects that vehicles with higher Manufacturer’s Suggested Retail Price (MSRP) are “unlikely to reflect in revenue until late June, suggest [ing] that 2Q22 will mark the bottom in terms of profitability and quarterly sales this year, in our view.”

While the analyst continued to be optimistic about XPEV, he lowered the price target to $35 from $42, implying an upside potential of 34% at current levels.

XPEV scores a Strong Buy from other analysts on Wall Street, too, based on 10 Buys and one Hold. The average XPEV price target of $39.41 implies an upside potential of 50.8% at current levels.

Bottom Line

As China relaxes its restrictions, it seems that Chinese EV makers could see their supply chain woes ease in the second half of the year. In this scenario, Wall Street analysts continue to be optimistic about Chinese EV makers.

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