China Lifts COVID Lockdowns
On June 1st, China officially relaxed some of its COVID imposed lockdowns, specifically in Shanghai. Why is this so significant for businesses? Shanghai and its surrounding region is a major hub for manufacturing and commerce. EV makers like Nio (NYSE:NIO) and Tesla (NASDAQ:TSLA) were directly affected by the lockdowns as production at their factories was forced to stop.
Earlier this week, Chinese EV makers reported their May delivery figures, and numbers were up on both a year over year and sequential monthly basis. It was encouraging for investors while at the same time, provided a stark realization of how quickly China could be shut down once again if any further outbreak of COVID hits the country.
Can EV Companies Make Up For Lost Time?
For companies like Tesla, it has paid dividends to be a global company with GigaFactories across North America, and now in Europe. Nio and its domestic rivals XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) have provided encouraging guidance for the rest of the year, providing the assumption that as long as China stays out of lockdown, production will be able to continue at a normal pace.
Some companies, like Warren Buffett-backed BYD, didn’t feel the effects of the lockdown as much because it has its production facilities outside of the locked down areas. BYD reported delivering more than 100,00 vehicles for the third consecutive month in May.
China Extends EV Subsidies
Perhaps the most bullish thing for EV Makers is that the Chinese government extended subsidies to consumers who buy a domestically-made election vehicle. This means that for every new electric vehicle sold, Chinese citizens will receive a cash subsidy that is believed to be up to $1,500 per car.
In my opinion, this puts EV makers squarely back on our radars. With companies like Nio providing growth forecasts that seemed to point towards a return to normalcy, the extension of subsidies is music to investor ears. Even as the total number of deliveries falls by about 20% on a year over year basis, This is still an improvement for April’s figures which showed a 35% year over year decline from this time last year.
EV Stocks are a Strong Buy
Nio’s stock celebrated the news by reclaiming its 50-day moving average price, a bullish sign that the worst is over for the stock. In fact, Nio rattled off seven straight positive sessions heading into Friday’s trading. According to TipRanks, Nio has a Strong Buy rating with 13 Buy Ratings and a median price target of $41.48.
While any stock connected with China is at least a little risky, EV makers have chosen to be in the favor of the Chinese government. If the subsidies extend to Tesla, which is technically a domestically made EV, then look out. Most of these stocks are still beaten down right now, but China-based EV makers are probably ripe for a turnaround in the second half of 2022.
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