Chinese Electric Vehicle Earnings Put These ETFs in Focus

May 24, 2024

26 3 minutes read

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The electric vehicle (EV) industry is dwindling between perils and possibilities. The EV market has experienced a deceleration in its previously rapid growth. Falling sales and a slump in prices have led to this “EV winter.”

However, the ailing trend may shift for the better. Some Chinese EV makers have been delivering upbeat earnings or vehicle delivery numbers. Activities are ramping up in China. In the first quarter of this year, nearly 1.9 million electric cars were sold in China, marking an almost 35% year-over-year increase. However, the electric vehicle sales growth slowed in the United States.

To weather the industry storm that originated from slowing sales and cutthroat competition, these companies are implementing various cost-cutting measures. These include job cuts, production adjustments, renegotiating supplier contracts, and reprioritizing initiatives to optimize spending.

In fact, Nio NIO, Xpeng XPEV and Tesla TSLA were among the most actively traded stocks on May 21, 2024. While upbeat earnings from Xpeng boosted the stock, increased activities in the industry probably put the spotlight on other EV makers.

Inside Recent Earnings of Chinese EV Makers

XPeng has surged more than 5.9% on Tuesday after the Chinese electric vehicle maker reported better-than-expected first-quarter numbers. Xpeng’s first-quarter revenues beat Wall Street estimates, and gross margin bounced back to a new high since the third quarter of 2022, despite conservative guidance for second-quarter deliveries. Xpeng’s gross margin jumped to 12.9% compared with 1.7% a year earlier and 6.2% for the fourth quarter.

The company reported revenues of RMB 6.55 billion ($910 million) in the first quarter, beating analysts’ estimates of RMB 6.11 billion in a Bloomberg survey. Revenues also topped the upper end of its previous guidance range of between RMB 5.8 billion and RMB 6.2 billion, and were up 62.3% from the same period in 2023, though down 49.8% sequentially as vehicle deliveries fell.

Li Auto LI, however, reported weaker-than-expected first-quarter earnings and guided low on the current quarter, as the once-hot China electric vehicle maker is striving with increased competition. The LI stock plunged about 3.5% on Tuesday.

Li Auto earned 17 cents per U.S. ADR, down 10.5% year over year. Wall Street had expected 24 cents. Revenues grew 36% year over year to $3.6 billion, modestly meeting analysts’ expectations. Li Auto delivered 80,400 vehicles in Q1, up 53% year over year but down 39% sequentially. The company expects Q2 deliveries of 105,000-110,000 vehicles, up 21-27% year over year, but below analyst estimates.

Inside Delivery Data of Chinese EV Makers

Meanwhile, Nio has jumped about 30% past month mainly due to considerable delivery growth and the launch of upgraded sedan in April. Nio reported deliveries of 15,620 EVs in April, marking a year-over-year increase of 135%. Competitors XPeng and Li Auto fell short in this regard. They reported year-over-year April shipment growth of just 33% and 0.4%, respectively.

Based on short-term price targets offered by 14 analysts, the average price target for NIO Inc. comes to $7.56. The forecasts range from a low of $4.00 to a high of $16.00. The average price target represents an increase of about 45% from the last closing price.

Increasing EV-AI Association

Foreign carmakers are flocking to join Chinese counterparts in artificial intelligence and other smart car technology. Japan’s Toyota Motor TM would team up with Chinese gaming and social media giant Tencent on AI and big data. German auto giant Volkswagen was also seen promoting its partnership with Chinese EV startup XPeng.

Renault lately mentioned engaging in “pivotal conversations” with Li Auto and Xiaomi to delve into EV and smart-vehicle technologies. Xiaomi, renowned for its smartphones, recently unveiled its inaugural electric car, positioning it as a competitor to Porsche and Tesla.

ETFs in Focus

This scenario puts focus on Global X Autonomous & Electric Vehicles ETF DRIV, KraneShares Electric Vehicles & Future Mobility Index ETF KARS, iShares Self-driving EV & Tech ETF IDRV and First Trust S-Network Future Vehicles & Technology ETF CARZ. Interested investors may keep a close track of industry news and look for better entry points in these ETFs.

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Toyota Motor Corporation (TM) : Free Stock Analysis Report

Global X Autonomous & Electric Vehicles ETF (DRIV): ETF Research Reports

Tesla, Inc. (TSLA) : Free Stock Analysis Report

First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports

KraneShares Electric Vehicles and Future Mobility Index ETF (KARS): ETF Research Reports