Carmakers Evolution: Auto or Tech Stocks?

EV makers are integrating AI technology to boost competitiveness, emerging as rapidly rising AI concept stocks
Chinese EV makers plan to introduce DeepSeek into automotive systems to enhance autonomous driving capabilities in a reduced cost
The penetration rate of EVs remains in a growth phase, offering substantial growth potential

When one mentions AI stocks, tech companies are often the first to come to mind. However, the reality is that AI investing is no longer confined to the tech sector. One of the fast-emerging areas powered by AI is the automotive industry, with Asia's electric vehicle (EV) market standing out as a particularly bright spot.

In the past, tech and auto stocks were completely unrelated. Today, however, some auto stocks have become proxies for AI investing. In the realm of autonomous driving, technology, AI in particular, becomes the lifeblood of EVs. Companies that fail to embrace this transformation risk being left behind. China, Japan and South Korea, especially China, are experiencing rapid advancements in the EV space. Competition among Chinese EV makers is fierce. To stay ahead in this rapidly-evolving market, companies must persistently invest in R&D to enhance automated driving capabilities while keeping prices affordable for the mass market. Last month, China's largest EV maker, and the world's largest, announced plans to integrate its automated driving assistance system (ADAS) into nearly all of its cars this year, including the lower models, without raising prices. This means that for just US$10,000, consumers can now access an autopilot system that would have cost US$30,000 in 2023, a more affordable option compared to similar systems fitted in vehicles with price tags of over US$30,000 sold by the US EV leader. This explains why, in only one to two years' time, Chinese EVs managed to gain substantial market share from their US counterparts, whose sales have been dwindling across the US, China, and Europe.

For instance, in January, annual sales of the leading US EV maker declined 11% in China, while the world's largest Chinese EV producer saw year-on-year sales surging 47.5%, while a Hangzhou-based EV maker saw sales skyrocket by nearly 84% on year. A prominent Chinese smartphone and IoT manufacturer tapped into the EV market last year and produced 100,000 EVs within just 230 days. Supported by cost optimisation in parts, this new entrant enjoys gross profit margins higher than the market average. The firm strengthens its competitive edge by integrating AI technology from its personal consumer products - such as smartphones and IoT devices, improving synergy within its ecosystem and boosting profitability.

Automakers racing to integrate DeepSeek to improve automated driving capabilities

AI is advancing rapidly in China, with global attention drawn to the launch of DeepSeek, which managed to keep a lid on the two major AI-related costs - training and inference, while still delivering strong performance. This is expected to enable the widespread adoption and monetisation of AI. Many Chinese EV makers, for example, have already announced plans to incorporate DeepSeek into their vehicles to enhance automated driving capabilities, including real-time decision-making and object recognition. According to estimates from a US investment bank, China is poised to lead the world in EV adoption, with a projected penetration rate for EVs equipped with ADAS L3 or higher reaching 90% by 2040. (EV ADAS are classified into six levels, with L3 being the system that can automate driving under certain conditions, such as on highways or during clear weather.)

As carmakers race to integrate AI technology to enhance their brand profiles, we are witnessing the infinite possibilities created by the convergence of technology and tradition, subsequently generating new investment opportunities. Meanwhile, EVs are still in the infant stage of market penetration, leaving ample room for growth. For investors seeking long-term capital gains, this sector presents a promising area for further exploration. To capture future growth potential, equity strategies that integrate macroeconomic analysis with stock picking can help identify opportunities across global markets, including the tech sector, while mitigating risks through diversification.