Chinese EV and solar stocks rose this week

It was great news for China-based companies, and the electric vehicle and renewable energy sectors reacted strongly this week. According to data provided by S&P Global Market Intelligence, Li Auto (LI 1.61%) rose 14.9% in trading this week, Zeekr Smart Technology (ZK 0.39%) increased by 30.3% and The new energy Daqo (DQ 11.88%) increased by 19.8%.

Not only was China’s stimulus plans a tailwind, Li and Zeekr also announced their deliveries for September 2024, and they weren’t as bad as feared. The pop may not last unless China’s economy improves, but for now these stocks are flying high.

Image source: Getty Images.

China’s stimulus is getting bigger

After initially being announced a week ago, more details about China’s stimulus plans have emerged over the past week, and it’s a considerable amount of money being poured into the economy. Conformable Deutsche Bankthe stimulus could be $1.07 trillion, or about 6 percent of China’s GDP.

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

Electric vehicle companies are on the rise

We have production and delivery numbers from Zeekr and Li Auto. Zeekr said it delivered 21,333 vehicles in September 2024, up 77 percent from a year ago, and deliveries were 142,873 in 2024, up 71 percent.

Li Auto delivered 53,709 vehicles in September, up 48.9 percent from a year ago and up 11.6 percent from a month earlier.

There was a lot of fear that China’s electric vehicle market would be in a downward spiral as prices fell and companies struggled to make money. Market pressure may still be there, but supplies are strong and that’s what investors were cheering for this week.

Solar stocks are growing

Daqo New Energy is a supplier of polysilicon for the solar industry and has received an upgrade from HSBC this week. The bank upgraded the stock from a hold rating to a buy rating and set a $29.30 price target on the stock.

That was a significant upside from the $20 per share price the stock was at earlier this week, but after the rally, some of the potential upside has already been priced in.

Is China’s rise temporary or here to stay?

The fundamental question investors must ask is the sustainability of China’s recent rally. The economy is struggling because domestic demand is not enough to support China’s industrial base and exports are being hampered by rising tariffs around the world.

Stimulus may temporarily mask some of these struggles, but they do not change fundamental market dynamics. EV makers may find it easier to sell cars in China if tariffs are lower, but they don’t change tariffs in the US and Europe, and the increased supply will eventually lead to an unsustainable glut.

The solar industry has gone through similar challenges in both supply and commerce. For that reason, this is a rejection that I don’t buy, because I don’t see a fundamental change in how China’s position in the world has changed in electric vehicles or in the solar industry.