The global electric vehicle (EV) industry has achieved significant growth thanks to favorable government policies to address increasing climate change concerns. According to a Fortune Business Insights report, the global EV market is expected to grow at a 24.3% CAGR over the next seven years. In addition, China’s central government would like 20% of new cars sold by 2025 to be electrically powered.
However, most Chinese EV stocks declined in price recently after Chinese Industry and Information Technology Minister Xiao Yaqing said consolidation in the sector is needed because there are “too many” EV makers in China. Furthermore, the EV industry is being negatively affected by the current, global, semiconductor shortage, which is expected to persist for some time.
Against this backdrop, we think it could be wise to avoid Chinese EV stocks BYD Company Limited (BYDDY), XPeng Inc. (XPEV), and Kandi Technologies Group, Inc. (KNDI). Their current valuations are not in sync with their growth prospects.
BYD Company Limited (BYDDY)
Based in Shenzhen, China, BYDDY is developing, manufacturing, and selling automobiles and related products worldwide. It operates through three segments: Rechargeable Battery and Photovoltaic Products; Mobile Handset Components and Assembly Service; and Automobiles and Related Products.
On September 8, BYDDY launched its e-Platform 3.0 for pure EVs to promote neighborhood electric vehicles’ (NEVs) safe performance and low-temperature driving and to build safer and new intelligent EVs. However, it’s uncertain if the company will generate significant demand for this service amid the intensely competitive environment.
BYDDY’s total operating revenue for the six months ended June 30, 2021, came in at RMB89.13 billion ($13.80 billion), up 53.6% year-over-year. However, its gross profit decreased 5.3% year-over-year to RMB 9.92 billion ($1.54 billion). Its total comprehensive income decreased 25.7% year-over-year to RMB 1.63 billion ($252.11 million). Also, its EPS came in at RMB 0.41, down 26.8% year-over-year.
In terms of forward EV/S, BYDDY’s 2.25x is 53.6% higher than the 1.46x industry average. Furthermore, its 1.70x forward P/S is also 38.2% higher than the 1.23x industry average.
BYDDY’s revenue is expected to decrease 13.9% year-over-year to $6.76 billion for the quarter ending December 31, 2021. Also, the stock has declined 10.3% in price over the past month to close Friday’s trading session at $61.70.
BYDDY’s POWR Ratings reflect its poor prospects. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting. The stock has a D grade for Growth, Value, and Sentiment.
XPeng Inc. (XPEV)
XPEV designs, develops, manufactures, and markets smart EVs globally. The China-based company’s offerings include SUVs under the G3 name and four-door sports sedans under the P7 name. In addition, it provides supercharging services, maintenance services, ride-hailing services, and vehicle leasing services.
August 18 XPEV signed an agreement with the Zhaoqing Municipal Government and the Zhaoqing High Technology Industry Development Zone to build the Phase Two expansion project of the XPeng Zhaoqing Smart EV Manufacturing Base. However, it’s uncertain if XPEV will reach its production target due to the ongoing semiconductor shortage.
For the second quarter, ended June 30, 2021, XPEV’s revenue increased 536.7% year-over-year to RMB 3.76 billion ($582.55 million). However, its total operating expenses increased 137.7% year-over-year to RMB 1.89 billion ($293.39 million). In addition, its net loss came in at RMB 1.19 billion ($185.01 million) compared to RMB 1.14 billion ($176.73 million) in the prior-year quarter.
In terms of forward EV/Sales, XPEV’s 9.18x is 527.3% higher than the 1.46x industry average. Also, its 10.54x forward P/S is 755.5% higher than the 1.23x industry average.
Analysts expect XPEV’s EPS to remain negative in its fiscal years 2021 and 2022. Moreover, its EPS is expected to decline at a 5.8% rate per annum over the next five years. Over the past nine months, the stock has lost 15.6% in price to close Friday’s trading session at $35.34.
XPEV’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
In addition, the stock has an F grade for Stability, and a D grade for Value and Quality. We also have graded XPEV for Growth, Sentiment, and Momentum. Click here to access all the XPEV ratings. XPEV is ranked #49 in the Auto & Vehicle Manufacturers industry.
Kandi Technologies Group, Inc. (KNDI)
Headquartered in Jinhua, China, KNDI mainly develops, produces, and distributes EV products, parts, and off-road vehicles. The company’s offerings also include electric scooters, EV drive motors, EV controllers, air conditioners, and other auto parts.
KNDI acquired Jiangxi Province Huiyi New Energy Co., Ltd. in July 2021 to expand its battery cell business. However, this move could take a toll on the company’s already weak financials.
KNDI’s net revenues increased 53.7% year-over-year to $29.88 million for the second quarter, ended June 30, 2021. Its net income also increased 909.3% year-over-year to $40.93 million. However, its EV part sales were $6.70 million versus $12.50 million in the year-ago period. Also, its off-road vehicle sales decreased 16.7% year-over-year to $5.50 million.
In terms of forward P/S, KNDI’s 2.77x is 124.8% higher than the 1.23x industry average. KNDI’s EPS is expected to remain negative in the current year. Over the past nine months, the stock has lost 38.9% in price to close Friday’s trading session at $4.4000.
KNDI’s POWR Ratings reflect its poor prospects. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
In addition, it has an F rating for Stability, and a D for Sentiment and Quality. We’ve also rated it for Growth, Value, and Momentum. Click here to access all the KNDI ratings. KNDI is ranked #44 in the Auto & Vehicle Manufacturers industry.
BYDDY shares were trading at $62.18 per share on Monday morning, up $0.48 (+0.78%). Year-to-date, BYDDY has gained 17.92%, versus a 19.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.3 Chinese Electric Vehicle Stocks to Avoid in October appeared first on StockNews.com