The clean energy boom shows no signs of slowing down as countries and companies try, to reach “Net Zero” targets by 2050.
For investors, there are many ways to get exposure to this megatrend. One way is to look at electric vehicle (EV) companies, particularly in China. That’s because China is the largest car market in the world, a position it has held since 2010 when it overtook the US as the world’s largest market for auto sales.
With the majority of cars being sold still traditional petrol vehicles, the opportunity ahead for investors is clearly massive.
In this week’s edition of 4 Stocks This Week, we look at some of the leading Chinese EV companies (listed in Hong Kong) that are spearheading the country’s transition towards a carbon-free mobility fleet.
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BYD (HKEX: 1211) (SZSE: 2594)
Many people may have heard of BYD Co Ltd (HKEX: 1211) (SZSE: 2594) given its one of the largest battery and EV/hybrid vehicle makers in the world.
The company, which stands for “Build Your Dreams”, is headquartered in Shenzhen, China and listed its shares in a Hong Kong IPO all the way back in 2002. It then listed shares on China’s A-shares market via a secondary listing on the Shenzhen Stock Exchange in 2011.
BYD became more well-known when investing legend Warren Buffett – via his Berkshire Hathaway Inc (NYSE: BRK.B) conglomerate – purchased a stake in the company in 2008.
While its history originally was in the rechargeable-battery business, BYD has managed to expand into all types of EVs and hybrid automobiles (which use a combination of a rechargeable electric battery and a conventional petrol engine).
BYD’s business has had a phenomenal 2022 so far, as its recent Q3 2022 earnings show. For the third quarter, BYD reported revenue of RMB 117.1 billion (US$16.8 billion), up 115.6% from the same period a year earlier. Meanwhile, its net profit surged 350.3% year-on-year to RMB 5.7 billion.
The company has managed to avoid many of the supply chain issues of its EV competitors by producing its own batteries and semiconductors. That has benefitted its business, which is geared towards “new energy vehicles” – which include EVs and hybrids. Its latest production and sales volume numbers for November also saw strength.
BYD saw its production volume for November hit 230,000 vehicles, up around 150% year-on-year from the 91,800 vehicles produced in November 2021. With the company launching three of its models in Europe, as well as planning on building a manufacturing plant there, the company looks primed to grow both domestically and internationally.
In 2022, BYD’s share price dropped about 26% for the year and it’s currently trading at HKD 194.10.
NIO (HKEX: 9866) (SGX: NIO) (NYSE: NIO)
Another leading EV maker is NIO Inc (HKEX: 9866) (SGX: NIO) (NYSE: NIO), which is the only auto company to be listed on three separate stock exchanges.
After an IPO in New York in 2018, the company followed that up with two separate listings earlier this year – one in Hong Kong and the other in Singapore. Early backers of the company include Tencent Holdings Ltd (HKEX: 700).
While NIO was on the verge of bankruptcy in early 2020, as Covid-19 hammered car sales in China, it managed to secure a US$1.4 billion injection of liquidity from the municipal government of Hefei in China.
Since then, the company has bounced back. It has differentiated itself from other EV makers by offering consumers a Battery-as-a-Service (BaaS) when purchasing its vehicles. So, instead of paying more for the vehicle (given the battery is a large part of the overall cost), NIO offers buyers the option of leasing the battery monthly. They can then swap out their drained batteries for a fresh one at over 1,200 power swap stations across China.
Like BYD, NIO’s November delivery numbers were impressive. It managed to deliver just over 14,000 vehicles in November, up 30.3% year-on-year. For the whole of Q4 FY2022, NIO management expects vehicle deliveries to reach between 43,000-48,000.
NIO’s Q3 2022 earnings saw revenue of RMB 13.0 billion, up 32.6% year-on-year, while that number was also up 26.3% on a sequential basis from Q2 2022.
With an increasingly diversified product mix and ambitious production and delivery targets in FY2023, NIO appears well-positioned going forward.
Since being listed on the SGX in May 2022, NIO’s share price has declined about 34% and it’s currently trading at USD 11.33.
Xpeng (HKEX: 9868) (NYSE: XPEV)
Finally, there’s Xpeng Inc (HKEX: 9868) (NYSE: XPEV), which went public in 2020 in New York. Tech giant Alibaba Group Holding Ltd (HKEX: 9988) (NYSE: BABA) was an investor in the company in its earlier days.
It was founded in Guangzhou in 2014 and has since risen to become a large EV player in China. In the middle of 2021, Xpeng carried out a Hong Kong listing, raising around HK$14 billion (US$1.8 billion).
The company had a very strong 2021 business performance and saw its shares rise over 15% last year.
However, so far this year, in contrast to BYD and NIO, the EV maker has seen its vehicle deliveries drop sequentially over the past few quarters.
In Q3 2022, Xpeng saw vehicle deliveries of just under 30,000 – which was down from both Q1 and Q2 2022. Production issues – attributed to China’s Covid lockdowns – saw Xpeng’s October and November delivery numbers disappoint.
Vehicles deliveries for the company dropped to as low as 5,100 in October and saw only a slight uptick to 5,800 vehicle deliveries in November. Management does foresee that deliveries will increase significantly in December as production for its new G9 model ramps up and as Covid restrictions start to ease in China.
On the NYSE, Xpeng’s share price has declined by about 80% since the start of the year. Its shares are currently trading at USD 10.06.
Leading The Drive For China’s Clean Energy Fleet
Overall, given the size of China’s car market and its concerted efforts to move towards cleaner energy, EV companies will undoubtedly play a big role in this transition.
With BYD, NIO and Xpeng, investors have three key EV stocks that they should monitor if they want to gain exposure to the country’s EV sector in the future.
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