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Weekly: Cut 2021F EPS By 2-10% On Power Shortage

Auto OEMs and auto parts companies said the recent power shortage in China is not impacting the production and supply chain, as end-demand remains resilient and they are not fully utilising their capacity given the chip shortage. However, power shortage is dragging down the output of steel and aluminium. To factor in higher raw material costs, we cut 2021F EPS for auto companies by 2-10%. Maintain MARKET WEIGHT. Top picks: BYD, CATL, Zhongsheng and Yongda.

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WHAT’S NEW

  • Auto companies indicated limited impact from power shortage. We recently called up OEMs (including BYD, DFM, Geely, GWM and GAC) and auto parts companies (including Fuyao Glass, Nexteer, Minth and Ningbo Xusheng) to check the impacts of China’s recent power shortage on the sector. Overall, they said the impact of the power shortage on the production has been insignificant thus far, as most of them are key companies in their cities and provinces, and the production volume is still being reined in by the chip shortage. However, some of them admitted that their production would be affected if the power shortage deteriorates going forward. The feedbacks from these companies are summarised as follows.
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  • BYD. The company stated that they and their suppliers have not seen too much impact from the power shortage without disclosing further details. And the recharging of EVs is not impacted as well.

  • Geely. The impact of the power shortage thus far is insignificant, but the impact going forward will pretty much depend on how the state handles the problem.

  • Great Wall Motor. The company’s production capacity is concentrated in Hebei (Baoding and Xushui), Tianjin, Hubei (Jingmen), Shandong (Rizhao) and Zhejiang (Pinghu). In response to the restrictions on power supply, GWM has adjusted the production schedule, and thus the impact on production volume is limited.
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  • GAC. Power shortage has some impacts on production. However, the company’s production is being restricted by the chip shortage, and thus the impact of the power shortage is negligible. They managed to deal with the power shortage by rearranging their production schedule. Toyota, GAC’s JV partner, also indicated that their operations in China are being impacted by the chip shortage without giving details.

  • DFM. They said that they are not impacted by the power shortage at all without giving details.

  • Fuyao Glass. The company stated they have not seen any impacts from the power shortage at all.

  • Nexteer. They are not being impacted by the power shortage, as the power restrictions only targets the energy-intensive industry. They have not seen disruption of their supply chain.