There has been great news for companies based in China, and the EV and renewable energy sector reacted strongly this week. According to data provided by S&P Global Market Intelligence, Li Auto (LI 0.67%) jumped as much as 14.9% in trading this week, Zeekr Intelligent Technology (ZK -9.60%) rose 30.3%, and Daqo New Energy (DQ -0.52%) jumped 19.8%.
Not only have the Chinese stimulus plans been 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 if China's economy doesn't improve, but for now, these stocks are flying high.
Image source: Getty Images.
China's stimulus gets bigger and bigger
After initially being announced a week ago, more details about China's stimulus plans have come out over the past week, and it's a sizable amount of money being poured into the economy. According to Deutsche Bank, the stimulus could be $1.07 trillion, or about 6% of China's GDP.
Investors took that as a great sign for the Chinese economy and domestic demand for automobiles. Part of that could be economic growth, but the other piece is lower interest rates, which will make borrowing costs lower for consumers.
EV companies are growing
We got production and delivery numbers from Zeekr and Li Auto. Zeekr said it delivered 21,333 vehicles in September 2024, up 77% from a year ago, and deliveries were 142,873 in 2024, up 71%.
Li Auto delivered 53,709 vehicles in September, up 48.9% from a year ago and 11.6% from a month earlier.
There was a lot of fear that the Chinese EV market would be in a downward spiral as prices dropped and companies struggled to make money. The market pressure may still be there, but the deliveries are strong, and that's what investors were cheering this week.
Solar stocks surge
Daqo New Energy is a polysilicon provider to the solar industry, and it got an upgrade from HSBC this week. The bank upgraded the stock from a hold to a buy rating and put a price target of $29.30 per share on the stock.
That was a significant upside from the $20 per-share price the stock had earlier this week, but after the rally, some of the potential upside has already been priced in.
Is China's surge temporary or here to stay?
The fundamental question investors have to ask is about the durability of China's recent rally. The economy has been struggling because domestic demand isn't enough to support China's industrial base, and exports are being hampered by increasing tariffs around the world.
Stimulus could paper over some of those struggles temporarily, but they don't change the fundamental dynamics in the market. EV makers may find it easier to sell automobiles in China if rates are lower, but they don't change tariffs in the U.S. and Europe and increasing supply will eventually lead to an unsustainable glut.
The solar industry has gone through similar challenges in both supply and trade. For that reason, this is a bounce I'm not buying, because I don't see a fundamental change in how China's position in the world has changed in EVs or the solar industry.
