ZEEKR Is the Chinese EV Stock to Put on Your Watchlist

Key Points

• ZEEKR is a Chinese battery electric vehicle (BEV) maker on the rise, with triple-digit delivery numbers and double-digit growth.
• ZEEKR models are cutting-edge designs, and many are outfitted with Mobileye's next-gen Supervision advanced driver assistance systems (ADAS).
• ZEEKR's revenue increased 59% year over year in Q2 2024, and deliveries increased 100% year over year to 58,411 BEVs.

ZEEKR Intelligent Technology Holding Ltd. NYSE: ZK is a subsidiary of Geely Automotive Holdings Ltd. OTCMKTS: GELYY based in China. It sells luxury battery electric vehicles (BEVs) and sports utility vehicles (SUVs) throughout China and Europe. The company leverages Geely Automotive's manufacturing capabilities, global network, and resources, enabling it to access a broader customer base and cutting-edge technology and grow operational and cost efficiencies. While they don't sell BEVs in the United States, they are gaining traction throughout Europe as they are sold in Sweden, Germany, Denmark, Norway, and the Netherlands. ZEEKR currently sells its BEVs in 30 foreign markets and plans to expand to more than 50 by 2026.

ZEEKR operates in the auto/tires/trucks sector, competing with Chinese electric vehicles (EV) makers, including BYD Co. Ltd. OTCMKTS: BYDDY, NIO Inc. NYSE: NIO and Xpeng Inc. NASDAQ: XPEV.

Taking Aim at Tesla: Challenging the Tesla Model Y

The Tesla Model Y is the top-selling EV in the world, and it also puts a big target on its back. The ZEEKR 7X challenges the Model Y. It will launch in China and spread to Europe at a lower price than the Model Y, packed with features. The 7X is a 5-seater SUV with an enhanced 800V system. Customers can select between the 375-mile range 75 kWh battery or the 484-mile range 100 kWh battery. The SUV features 32 storage compartments, electric sun shades, a 6-screen intelligent interactive system, LiDAR, and high-performance silicon carbide e-motors powering each wheel with a zero to 62 mph done in 3.8 seconds.

ZEEKR also integrated the Mobileye Global Inc. NASDAQ: MBLY next-gen advanced driver assistance system (ADAS) Supervision systems in over 240,000 ZEEKR 001 and ZEEKR 009 models.

High Tariffs Keep Chinese EVs Out of U.S. and Europe

ZEEKR, along with most Chinese EV makers, are being kept out of the United States due to the 100% tariffs. With those tariffs, it's assumed they wouldn't sell enough cars to make it worthwhile. The lack of infrastructure is also another deterring factor for a company like NIO that offers automated battery swapping stations that can swap the electric battery with a 90% charged battery in 10 minutes while you wait. This is less time than actually sitting at a charging station to charge the battery.

While Europe has 10% tariffs on Chinese EV imports, it is considering location production to avoid them. The European Union (EU) has imposed provisional tariffs ranging from 17.4% for BYD to 19.9% for Geely, up to $37.6% for SAIC, and 10% import tariffs on Chinese EVs. Canada is joining the bandwagon with 100% tariffs on Chinese EV imports starting Oct. 1, 2024.

Loopholes and Workarounds Are Getting Blocked

The loophole of joint ventures between Geely Automotive and Volkswagen AG OTCMKTS: VWAGY Polestar Automotive Holding UK Ltd. NASDAQ: PSNY won’t work. After applying for a tax credit in Canada, a $74,000 Polestar 2 EV would soar in price to $160,000 on Oct. 1, 2024. Chinese EV imports to Mexico hit $4.6 billion in 2023. A prime value proposition is their EVs are priced nearly 50% less than Tesla’s models.

Mexico Could Be a Potential Backdoor Into the United States for Chinese EVs

China may attempt to circumvent U.S. tariffs by way of Mexico. However, pressure from the U.S. is causing the Mexican government to squash any economic incentives to set up manufacturing there. Under the North American Free Trade Agreement (NAFTA) and the United States-Mexico-Canada Agreement (USMCA), China could technically set up factories in Mexico and source the building materials locally to export to the U.S., avoiding most tariffs and duties. 

Triple-Digit Deliveries and Double-Digit Metrics Growth

• On Aug. 21, 2024, ZEEKR reported Q2 2024 vehicle deliveries of 54,811 units, up 100% YoY.
• Total revenues jumped 58.4% YoY to $2.76 billion.
• Vehicle sales revenues rose 59% YoY to $1.843 billion. Vehicle margin improved to 14.6%, up from 13.6% in the year-ago period.
• Gross profit rose 122.5% YoY to $474.4 million. Gross margin improved to 17.2%, up from 12.3% in the year-ago period.
• Net Losses were $248.9 million, up 28.7% YoY from Q2 2023. Backing out stock compensation, the adjusted net loss was $119 million, which was a decrease of 36.8% YoY.

ZK Stock Attempts to Fend Off a Bear Flag Breakdown

A bear flag pattern is preceded by a steep downtrend, which forms the flagpole. A reversal bounce forms with parallel upper and lower trendlines form the flag. If the stock falls under the lower trendline, then a bear flag can trigger another leg down.

ZK is forming a potential bear flag as shares fall back under the lower trendline. The market structure low (MSL) buy trigger forms a breakout through $18.71. The daily relative strength index (RSI) has been stalled around the 48-band. This engine needs to rise for ZK to avoid the bear flag and trigger the MSL trigger. Fibonacci (fib) pullback support levels are at $14.75, $13.37, $12.63 and $11.59.

ZEEKR’s average consensus price target is $31.85, and its highest analyst price target sits at $35.00. The daily anchored VWAP is a medium-range target at $23.02.

The trend towards more import tariffs for Chinese EVs is a material overhang on the business, which can cap the upside. While China is the world's largest EV market, international expansion is the key to multiple expansion. Bullish investors should opt to wait for pullbacks to fib levels. This can be done using cash-secured puts at the lower fib support levels to enter deep pullbacks. A wheel strategy can be implemented upon being assigned shares and writing covered calls to generate income. However, it's also prudent to keep stop-losses on this speculative stock.