Stocks of Chinese electric and solar vehicles rose this week

There is great news for China-based companies, with the electric vehicle and renewable energy sectors reacting strongly this week. According to data provided by S&P Global Market Intelligence, Li Auto (NASDAQ:LI) turnover increased this week by as much as 14.9%, Zeekr intelligent technology (NYSE: ZK) increased by 30.3%, a Daqo New Energy (NYSE:DQ) increased by 19.8%.

Not only did China’s stimulus plans prove to be a tailwind, but Li and Zeekr also announced deliveries for September 2024 and they weren’t as bad as feared. The good times may not last if China’s economy doesn’t improve, but for now, these stocks are riding high.

Image source: Getty Images.

China’s stimulus is getting bigger

After the initial announcement a week ago, more details about China’s stimulus plans were revealed last week, meaning a significant amount of money has been pumped into the economy. According to Deutsche Bankthe stimulus could amount to $1.07 trillion, or about 6% of China’s GDP.

Investors saw this as a great sign for the Chinese economy and domestic demand for cars. Part of this may be economic growth, but the other part is lower interest rates that will lower borrowing costs for consumers.

Electric vehicle companies are growing

We have production and delivery numbers from Zeekr and Li Auto. Zeekr said it delivered 21,333 vehicles in September 2024, up 77% from the previous year, and in 2024 deliveries totaled 142,873, up 71%.

Li Auto delivered 53,709 vehicles in September, an increase of 48.9% compared to the previous year and 11.6% compared to the month before.

There were many fears that China’s electric vehicle market would go into a downward spiral as prices fell and companies struggled to make money. Market pressure may remain, but deliveries are strong and that’s exactly what investors have been cheering this week.

Solar energy supplies are growing

Daqo New Energy is a supplier of polysilicon to the photovoltaic industry and has obtained an upgrade from HSBC this week. The bank upgraded the stock from hold to buy and set a target price of $29.30 per share.

That represented a significant upside from the stock’s $20-a-share price earlier in the week, but after the rally, some of the potential improvement has already been factored into the valuation.

Is China’s economic growth temporary or will it be here to stay?

The basic question investors must ask themselves is the durability of the recent boom in China. The economy is struggling as domestic demand is not enough to support China’s industrial base and exports are hampered by rising tariffs around the world.

Stimulus may temporarily overshadow some of these struggles, but it does not change the underlying dynamics in the market. It may be easier for electric vehicle makers to sell cars in China if rates are lower, but they don’t change rates in the U.S. and Europe, and rising supply will ultimately lead to an unsustainable glut.

The photovoltaic industry has faced similar challenges in both supply and trade. For this reason, I don’t buy this rebound because I don’t see a fundamental change in the way China’s position in the world has changed in the electric vehicle sector or the solar industry.

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HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Travis Hoium has no position in any of the companies mentioned. The Motley Fool recommends HSBC Holdings. The Motley Fool has a disclosure policy.