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2 high-potential stocks to buy for the electric car revolution!

A young black man makes the symbol of a peace sign with two fingers
A young black man makes the symbol of a peace sign with two fingers

I’m always on the lookout for stocks to buy for my portfolio. And right now, with markets largely depressed, there are plenty of enticing options. But today I’m looking a two Chinese EV stocks.

There’s clearly a lot of potential in the Chinese EV market. The cars being produced are very innovative, and there is a huge domestic market. But amid concerns about the Chinese economy, the top three automakers NIO (NYSE:NIO), Li Auto (NASDAQ:LI) and XPeng have seen their share prices tank in recent months.

NIO

NIO shares have slumped since the summer. And despite a rally in late spring, the stock is down a huge 76% over the course of 12 months. Clearly investors won’t be happy.

There are several reasons behind the more recent collapse. One is the health of the Chinese economy and the impact of regular Covid-induced lockdowns.

Supply chain disruption continues to hamper production and despite expectations for a big end-of-year surge, only 10,059 vehicles were delivered in October. That does represent more than 174% growth over last year’s period, but not considerably above figures from earlier this year.

But I’m taking a longer-term outlook with NIO. It has an exceptional range of vehicles, utilising the latest technology and priced competitively versus American or European counterparts. The company also uses battery-swapping technology that allows users to change their empty batteries for full ones in a matter of minutes.

But looking at the financials, I think the risks are well and truly priced in, and with a price-to-sales (P/S) ratio of around 2.9, it’s far cheaper than its US peers — Lucid and Rivian have P/S ratios of 125 and 45, respectively.

Yes, there are challenges and risks, but trading at its lowest point since 2019, I’m buying more NIO stock.

Li Auto

The Li Auto share price soared after the long-awaited L9 was launched in the summer. But like NIO, the last three months have seen more than 50% wiped off the share price — it’s currently down 28% over the year.

Li Auto’s delivery growth cratered in 2022, delivering just 4,571 electric vehicles in the month of August — the largest month-on-month drop-off in deliveries of all three EV manufacturers at a rate of 56.1%. But once again, this is due to short-term challenges including the impact of Covid lockdowns and the impact of inflation on customer spending.

In the long run, Li Auto’s prospects look positive. Firstly, EPS predictions suggest the company will achieve its first small profit in FY 2022 — making it the first of the three automakers to turn a profit. It’s also looking slightly cheaper than NIO right now with a P/S of 2.85.

Its vehicles are also being well-received. The L9 has an outstanding offering and the group claims it’s the best SUV on the market — it costs $70,000.

I’m buying Li Auto shares for the rebound as I see the current, and sizeable, discount as a great time to buy this high-potential EV maker.

The post 2 high-potential stocks to buy for the electric car revolution! appeared first on The Motley Fool UK.

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James Fox has positions in Nio Inc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2022