Is now a good time to buy Chinese EV stocks as economic growth slows?


Close up of Electric Car charging view and field background

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Chinese electric vehicle stock NIO (NYSE:NIO), Xpeng (NYSE:XPEV), and Auto Li (LSE:LI), has seen a slight increase in recent months. They were dragged along with other tech stocks earlier in the year, but the decline was extended as China imposed lockdowns to contain the Covid-19 outbreak.

So let’s take a closer look at these stocks and see if now is a good time for me to buy.

Chinese EVs

Li Auto shares surged in May and June as Covid-19 restrictions were eased. The company also announced the launch of the long-awaited L9 model – a six-seater full-size flagship SUV. Li claims that the SUV is the best family SUV available for less than $750,000. That’s a very bold claim when you consider the L9 only costs $70,000.

NIO is probably my favorite Chinese EV stock. The company has a variety of models on offer, which will help with revenue growth. Already in Tesla-esque growth curve in recent years and I think the technology could be a real winner in the years to come. This battery swapping technology allows drivers to change from empty batteries to full ones at NIO charging stations in just minutes. NIO also wants to open a second factory this year, but unlike its peers, NIO is not the owner of the factory.

Xpeng offers a variety of vehicles that are cheaper than its counterparts. But the shipping volume is the highest. Xpeng reported 34,422 EV shipments during the second quarter of 2022 and topped the list of related Chinese brands for the fourth straight quarter. XPG also took over Tesla in Europe and belittled the US brand with its P5, which retails for around $57,000.

Is now the time to buy?

One problem is that I can only buy these shares through their current US listing. And with the pound weakening, now is not the best time to buy dollar-denominated stocks. Eventually, I believe that the pound will become stronger and therefore the appreciation of the currency may wipe out my gains.

However, I see China’s EV stocks have great growth potential and therefore I am willing to ignore my concerns about the currency.

I also believe that now seems like a good time to buy. To be honest, there isn’t a huge amount between these three companies in terms of ratings. They all trade at a low price-to-sales (P/S) ratio (Xpeng 4.9, NIO six, Li Auto eight).

Xpeng is down 40% over the past 12 months, while NIO is down 47%. Li Auto is the only manufacturer to rise (7%) this time last year.

I have some concerns about the impact of slowing economic growth globally, and more of China’s lockdowns, on sales, but I see it’s been factored in. China’s growth concerns are one reason why these three companies have P/S ratios that are only a fraction of Rivian (222) and Clear (160).

While I’m positive on all three companies, my personal favorite is at NIO. I think this brand is offering something really unique and I think the swappable battery will be a big plus in the years to come.