EM Equities: How Chinese EVs herald a shift in global manufacturing’s balance of power
Research Analyst Douglas Turnbull, who works within Daniel Grana’s Emerging Market Equities Team, outlines how Chinese electrical vehicle manufacturers promise to redefine global mobility, signalling China's rising dominance in key technological and industrial sectors.
4 minute read
Key takeaways:
- China is quietly surging ahead in key industrial and technological battlegrounds, with electric vehicle (EV) manufacturing a testament to this trend, with EV penetration levels exceeding 50% in major Chinese cities, and exports are swiftly escalating.
- The triumphs of Chinese EV makers embody the country’s broader dynamism, offering compelling reasons to invest amid prevailing pessimism focused on areas like the property market’s downturn.
- Investors eyeing Chinese stocks should apply a critical lens, prioritising rigorous governance and fundamental analysis to pinpoint firms poised for robust growth while navigating risks effectively.
A glimpse into the future
It was a typical damp autumnal evening in London, but there was something distinctly atypical about the sleek if sensible vehicle parked in front of my house. It was marked distinctly with three letters above its grill: B, Y, D. My encounter with this marque not only transported me back to Shenzhen where these cars seemed ubiquitous when I visited the city earlier in 2024 but also offered a glimpse into a future where Chinese electric vehicles (EVs) may redefine global mobility.
Pioneering the electric dream
Chinese EV manufacturers like BYD, SAIC Motor, and NIO, among others have surged to prominence through significant capacity ramp-ups, cost reductions, and the launch of increasingly attractive models, with EV penetration levels reaching up to 67.9% in Shenzhen in 2023, nearly double the national average of 35.7%.1
The sight of a Chinese EV in London may, for now, be rare, but it is a testament to the shifting gears of global automotive dominance.
China takes the lead in industrial, technological innovation
Amidst a landscape where artificial intelligence (AI) and high-performance computing chips often steal the spotlight, it is vital to acknowledge that US dominance in these sectors is more the exception than the rule. In many other areas China is quietly but decisively taking the lead.
According to the Australian Strategic Policy Institute’s critical technology tracker, China is ahead in 37 out of 44 key technologies.2 China’s dominance of the solar supply chain is already well known, but its rising supremacy in EV manufacturing is becoming increasingly clear.
This trend is underscored by the western world’s erection of a tariff wall to shelter its auto industry, reflecting its defensive stance against China’s industrial and technological ascendancy. Today’s proclivity for protective measures signifies a reversal of fortunes in the global technological race.
The resilience and ambition of the Chinese economy
Despite prevailing pessimism, segments of the Chinese economy are thriving. Challenges in areas like the property market are by no means insignificant, but other parts of the economy are motoring. These flourishing industries embody President Xi Jinping’s vision of transforming China into an industrial and technological powerhouse, leading the world in key technologies, with strong state support behind it (think Germany on steroids), ultimately ensuring both China’s strength and security. EV manufacturers success stories, encapsulated in slogans like BYD’s “Build Your Dreams”, epitomises the ambitious journey towards this vision.
Navigating Chinese equities – a balanced view
Of course, the remarkable rise of Chinese enterprises like BYD and other EV manufacturers should not lead to an uncritical embrace of all Chinese equities. Rigorous fundamental analysis remains crucial, particularly as many will fall foul of our stringent governance lens, given the prioritisation of national interests over shareholder returns.
Nonetheless, the landscape is ripe with promising opportunities for discerning investors willing to explore the dynamism of China’s market. Further, it feels timely for us to remind ourselves of the ‘positive’ case for owning China, rather than just the case for not owning it, even if that has – rightly – been the swing factor more recently.
Looking ahead – the global implications of China’s rise
London’s streets were once heavily populated with cars sporting the same sticker across the back window wittily telling us: “The car in front is a Toyota”. But the waning popularity of this once omnipresent marque is symbolic of a broader shift.
The EV evolution is not just about a changing guard in automotive leadership, but also signifies a wider technological and economic shift that is shaping our world. A shift that, by investing in emerging markets, one stands to benefit from.
1Think China, ‘China’s EV market: Rapid development amid slowing sales’ (18 April 2024)
2Australian Strategic Policy Institute, ‘Critical Technology Tracker’ (1 March 2023)
Fundamental analysis: The analysis of information that contributes to the valuation of a security, such as a company’s earnings or the evaluation of its management team, as well as wider economic factors. This contrasts with technical analysis, which is centred on idiosyncrasies within financial markets, such as detecting seasonal patterns.
Emerging market: The economy of a developing country that is transitioning to become more integrated with the global economy. This can include making progress in areas such as depth and access to bond and equity markets and development of modern financial and regulatory institutions.
Equity: A security representing ownership, typically listed on a stock exchange. ‘Equities’ as an asset class means investments in shares, as opposed to, for instance, bonds. To have ‘equity’ in a company means to hold shares in that company and therefore have part ownership.
These are the views of the author at the time of publication and may differ from the views of other individuals/teams at Janus Henderson Investors. References made to individual securities do not constitute a recommendation to buy, sell or hold any security, investment strategy or market sector, and should not be assumed to be profitable. Janus Henderson Investors, its affiliated advisor, or its employees, may have a position in the securities mentioned.
Past performance does not predict future returns. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
There is no guarantee that past trends will continue, or forecasts will be realised.
Marketing Communication.
4 minute read
Key takeaways:
- China is quietly surging ahead in key industrial and technological battlegrounds, with electric vehicle (EV) manufacturing a testament to this trend, with EV penetration levels exceeding 50% in major Chinese cities, and exports are swiftly escalating.
- The triumphs of Chinese EV makers embody the country’s broader dynamism, offering compelling reasons to invest amid prevailing pessimism focused on areas like the property market’s downturn.
- Investors eyeing Chinese stocks should apply a critical lens, prioritising rigorous governance and fundamental analysis to pinpoint firms poised for robust growth while navigating risks effectively.