These 3 charts show why you might want exposure to China's EV makers

China and Europe look to be the leading regional EV markets over the next decade.

| More on:
Woman And Child Charging Electric Car.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stocks in the electric vehicle (EV) sector have attracted loads of attention following the success of Tesla's (NASDAQ: TSLA) stock and now its business. Tesla reported net income of more than $5.5 billion in 2021. That helped confirm the company could profitably grow as the EV sector matures, which many supporters and shareholders have preached for several years.

That has attracted speculative investors looking for "the next Tesla" and has driven valuations to astronomical levels for several companies, like Rivian Automotive, that have barely begun delivering vehicles. But several of China's EV companies have already proven they can manufacture at scale. Although there are unique risks associated with these businesses, there are also concrete reasons why those who want exposure to the sector should consider investing in them now. 

Targeting the right markets

There's a reason why Tesla's first manufacturing facility outside the United States was built in China -- it's the largest automotive market in the world. Chinese EV makers have been working to take advantage of that, too. Nio (NYSE: NIO), XPeng (NYSE: XPEV), and Li Auto (NYSE: LI) have each been increasing sales quickly over the past two years. 

bar graph showing vehicle deliveries for Nio, XPeng, and Li Auto over the past two years.

 

Data source: Company releases. Chart by author.

Although they're building off of a much smaller base than Tesla, these three Chinese EV makers increased vehicle sales between 109% and 263% in 2021 compared to 2020 levels. And though Nio, XPeng, and Li are completely focused on electrified vehicles, Chinese internal combustion and EV automotive giant BYD (OTC: BYDDY) is producing many more new energy vehicles (NEVs), which are defined as both electric and plug-in hybrid models. Sales volume for BYD new energy vehicles soared 218% to more than 600,000 in 2021. It also told investors it expects to potentially double that in 2022 to 1.2 million, reports industry follower CnEVPost.

Though focused mostly on China to this point, these companies also plan to expand beyond those borders. BYD is a global company already, and Nio has established a presence in Norway. Nio has also said it plans to move into Germany, the Netherlands, Sweden, and Denmark in 2022. The International Energy Agency (IEA) predicts China and Europe will continue to dominate EV sales over the next decade, as shown below. 

pie chart showing estimated global EV sales by region in 2030.

 

Date source: International Energy Agency Global EV Outlook 2021 report. Chart by author.

Competition and other risks

The IEA Global EV Outlook for 2021 predicts two scenarios for EV sales over the next decade. The first, more conservative, view is based on stated governmental policy objectives. The second assumes a more aggressive sustainable development push that results in EV sales obtaining a 34% share of the automotive market by 2030 -- more than double what the stated policy is expected to achieve. 

Bar chart showing expected EV sales growth for two stated scenarios by the International Energy Agency through 2030.

 

Data source: International Energy Agency. Chart by author.

Though competition is ramping up from both start-up companies and established legacy automakers, both scenarios provide ample opportunity for the Chinese EV companies to continue growing sales. 

To be sure, Chinese EV companies and their respective shares carry added geopolitical risks. For this reason, investors should size allocations appropriately. But based on businesses that have already shown they can be successful, and markets that provide ample opportunities, investors wanting exposure in the sector shouldn't overlook these companies. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Howard Smith owns BYD, NIO Inc., and XPeng Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and recommends BYD, NIO Inc., and Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
International Stock News

If you invested $10,000 in Nvidia stock the day ChatGPT came out, this is how much you'd have today

Buying Nvidia when the disruptive AI chatbot launched would have been a smart move.

Read more »

A Tesla car driving along a road at sunset
International Stock News

Why Tesla stock was climbing today

Investors were encouraged by news of a price hike on the Model Y.

Read more »

Plate with coloured wedges being parcelled out like a slice of pie representing a share split
International Stock News

Stock-split watch: Is Nvidia next?

Nvidia last split its stock when it traded for a pre-split $744 in 2021.

Read more »

A woman in jeans and a casual jumper leans on her car and looks seriously at her mobile phone while her vehicle is charged at an electic vehicle recharging station.
International Stock News

1 Wall Street analyst thinks Tesla stock is going to $125. Is it a sell?

Tesla is no longer a magnificent stock, according to a Wells Fargo analyst.

Read more »

A young man goes over his finances and investment portfolio at home.
International Stock News

Is Nvidia stock a buy?

The company's stock could rise 40% over the next two years and outperform the S&P 500.

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Is Nvidia headed for a stock split?

Nvidia stock has split five previous times in the company's history.

Read more »

Digital rocket on a laptop.
International Stock News

Nvidia shares surged (again) today. Is it too late to buy the red-hot artificial intelligence (AI) growth stock?

Nvidia stock has gained nearly 300% over the past year. Can investors still profit from this AI stock?

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Can you buy Nvidia shares on the ASX?

This stock has rocketed higher. How do we get access to it?

Read more »