On Monday, we discussed the U.S. and China’s positions in the global auto market. It’s pretty obvious that low-cost Chinese electric vehicles (EV) are taking market share from U.S. automakers in just about any market that doesn’t restrict China with import tariffs.
The political and economic necessity for effectively banning Chinese cars from the U.S. market is also pretty obvious. U.S. automakers cannot compete with Chinese carmakers on price. Allowing them into the U.S. market would devastate employment for American autoworkers, which is at a 34-year high. This would be bad news for either party…
So, if ya can’t beat ‘em, might as well invest in them – or at least see if there’s any opportunity…
There’s…How Many..?
Right now, there are 150 Chinese automakers.
It’s difficult to know just how much the Chinese government subsidizes its automakers — but if there are 150 of them with their hands out for government cheese, well, that’s ridiculous.
At some point, there will be “consolidation,” which may be a nice way of saying “massive bankruptcy.” Or it could mean an acquisition frenzy…
I suspect it will be the former — massive bankruptcy, or failure, however you want to say it.
China’s domestic auto market is the biggest in the world. In 2024, China made and sold more than 25 million cars for the second year in a row (this includes foreign automakers with factories in China). For comparison’s sake, the U.S. notched 15.9 million light vehicle sales, ie, 3 million passenger cars and 12.9 million light trucks and SUVs.
Chinese automakers accounted for just under 18 million cars. That was up 23% from 2023 and gives Chinese automakers a 65% share of the passenger car market. All of the growth comes from EVs — internal combustion engines (ICE) were down 17% to 11.5 million year over year.
The takeaway is that Chinese automakers are crushing foreign automakers. I would not want to own a non-China auto company that gets a lot of revenue from China (I’m looking at you, GM, and the $5 billion charge you took last year writing down part of your China business).
Three Chinese Auto Stocks
China’s BYD (BYDDF) is now the biggest EV maker in the world: Yesterday, it reported $107 billion in revenue over the last year. Better than Tesla’s (TSLA) $98 billion.
BYD shares have doubled since $25 lows a year ago:
BYD has a forward P/E of 23 and a PEG ratio just below 1, suggesting it is fairly valued or even a little undervalued, depending on how you rate its growth potential.
It recently raised $5.6 billion by selling shares in Hong Kong for its expansion plans. Raising that much money suggests that investors are bullish on the company.
As for expansion plans, the ability to move outside the Chinese market and open factories in foreign countries is critical. BYD has a factory up and running in Thailand.
Factories in Hungary, Indonesia, and Brazil are expected to be operational this year. Factories in Turkey and Mexico are expected in 2026.
BYD shares have ramped 25% in the last month. Some kind of pullback seems reasonable; $40-$45 would be a very nice entry.
Xiaomi (XIACY) isn’t just an automaker, it makes TVs and smartphones too. And it has been making them in India for the last 5 years. The stock is up 300% over the last year:
The forward P/E is 40, and the PEG ratio is 1.5. The stock is pretty expensive, but it also has excellent growth.
Xiaomi does not have car factories outside of China yet, however, it is a global leader in automated manufacturing. It sells one car right now, the $30,000 SU7, and its Beijing factory can make one every 97 seconds. It just launched a new model – the 1550(!) horsepower SU7 Ultra.
The level of automation suggests that Xiaomi’s ability to make an inexpensive car is not based on cheap Chinese labor, a factor that should make international expansion successful when it happens.
I’d sure love to see that stock price come down a little. However, like BYD, it just raised $5 billion in Hong Kong for expansion, which means investors think the price is attractive.
Li Auto (LI) makes vehicles with a hybrid system that it calls an “extended range electric vehicle” or EREV. It’s an EV first and the gasoline powered engine is what extends the range to as much as 864 miles before it runs out of both battery power and gasoline.
Li makes its own 800v electric drives in a fully automated process, which should make expansion easier. Last year, Li made its one-millionth car.
Li Auto shares trade on the Nasdaq. Unlike BYD and Xiaomi, the share price is down for the year. It also trades with a forward P/E of 16, a PEG ratio of 0.8, and just 1.4 times revenue. That’s not bad at all…
There you have it: three solid picks for the Chinese auto market.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
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