Weekly: PV Sales Growth Turned Negative In 27-31 Dec 21 On COVID-19 Outbreak

In 27-31 Dec 21, daily average PV retail sales dropped 9% yoy and grew 5% mom. The weak auto sales in the last week of December were due to the sustained outbreaks of COVID-19. However, except for NIO, most Chinese EV companies posted over 100% yoy and 3-13% mom sales growth in Dec 21. CPCA projects China’s EV sales to grow 76% to 6m units in 2022, above our estimate of 5m units. Maintain OVERWEIGHT. Top picks: BYD, CATL, EVE, Xusheng and Nexteer.


Daily average PV sales dropped 6% yoy and grew 19% mom in Dec 21. According to China Passenger Car Association (CPCA), daily average retail sales of passenger vehicles (PV) in China dropped by 6% yoy and grew 19% mom in Dec 21. On a weekly basis, the yoy growth in daily average retail sales volume reversed from negative in the first three week of December (1-19 Dec 21) to positive 6% in the fourth week of December (20-26 Dec 21) and then returned to negative 9% in the last week of December (27-31 Dec 21). In absolute terms, CPCA estimates PV retail sales volume (excluding minivans) at 2.05m units (-10.4% yoy/+12.8% mom) in Dec 21 and 20.09m units (+4.1% yoy) in 2021. The yoy drop in PV sales in the last week of December was due to the sustained outbreak of COVID-19 in some cities, eg Xi’an, which caused lockdowns and disrupted production and sales of automobiles.

Daily average wholesale shipment dipped 1% yoy and grew 6% mom in Dec 21. On a weekly basis, both yoy and mom growth in daily average wholesale shipment reversed from positive in the third to fourth weeks of December (13-26 Dec 21) to negative in the last week of December (27-31 Dec 21). In the last week of Dec 21, daily average wholesale shipment plummeted by 17% yoy and 16% mom. According to CPCA, the weak wholesale shipment in the last week of December was due to some OEMs holding back sales to dealers, as they had accomplished 2021 full-year sales targets. GAC, GWM and Geely saw a reversal in yoy wholesale shipment growth from negative to positive in Dec 21. DFM announced its 2022 sales target of 3.471m units (+25% yoy), outpacing the 5.4% growth in China’s auto sales as forecasted by China Association of Automobile Manufacturers (CAAM).

All Chinese EV companies posted upbeat 2021 sales. All of them recorded mom sales growth in Dec 21, except NIO. BYD remained the best-selling EV company in China with wholesale shipment growing 226% yoy and 3% mom to 93,945 units in Dec 21 and growing 218% yoy to 603,783 units in 2021. BYD’s Dec 21 sales slightly missed our estimate of 100,000 units, due to the lockdown in Xi’an as a result of the outbreak of COVID-19, which disrupted the production of its plant there. Aion saw a 137.5/98.5% yoy growth in deliveries and wholesale shipment to 16,675 units and 14,500 units in Dec 21, making it the bestselling Chinese EV startup. Voyah and Zeekr registered the strongest mom sales growth at 192% and 89% respectively in Dec 21, due to low bases.

Tesla’s 4Q21 deliveries reached record high of 308,600 units in 4Q21, up 71% yoy and 28% qoq, beating consensus estimate by 17%. Over 96% of Tesla’s 4Q21 deliveries were Model 3 and Model Y. For full-year 2021, Tesla delivered 936,172 vehicles globally, up 87% yoy, of which over 97% were Model 3 and Model Y. Giga Shanghai is the single largest sales contributor for Tesla, which made up over 167,000 units of deliveries in 4Q21 (+191% yoy) and over 462,000 units of deliveries in 2021 (+241% yoy). Giga Shanghai’s deliveries should have grown by 152% yoy and 13.5% mom to over 60,000 units in Dec 21.

Tesla on 31 Dec 21 raised prices of Model 3 and Model Y by 3.9% and 7.5% respectively in China market. On 31 Dec 21, Tesla China announced that it was raising the prices of Model 3 and Model Y by Rmb10,000 and Rmb21,088 to Rmb265,652 and Rmb301,840 respectively. The price hikes are aimed at offsetting the hikes in raw material costs. Tesla has cut and raised prices many times, and customers should have gotten used to it, and we don’t see a big impact from it. The price hikes of Tesla imply its strong pricing power, boding well for suppliers such as CATL (300750 CH/BUY/Target: Rmb1,000.00)
and Ningbo Xusheng (603305 CH/BUY/Target: Rmb60.00).

Tesla recalls nearly 200,000 cars in China, including the imported Model S and Model 3 and the made-in-China (MIC) Model 3. On 31 Dec 21, Tesla China announced that it will recall 19,697 imported Model S, 35,836 imported Model 3 and 144,208 domestically made Model 3, due to the defects at the front trunks. Despite the big number, we don’t see any big impact on future sales, as not many complaints were involved, and Tesla recalls the cars proactively. But that may hammer stock price of Tesla in the near term.

GAC on 5 Jan 22 launched Aion LX Plus with 1,008km in single-charge range and a price tag of Rmb459,600. Equipped with a 144.4kWh battery pack, Aion LX Plus is the first battery electric vehicle (BEV) model that delivers over 1,000km of drive range on a single charge. The stated drive range of over 1,000km of Aion LX Plus is measured based on New European Driving Circle (NEDC). We think it is a lot shorter range than 1,008km, but even so, Aion LX Plus should have longer range than the exiting BEV models (400-700km). Other OEMs will follow suit rolling out BEVs with over 1,000km of drive range, eg NIO ET7. That would ease the range anxiety of EVs.

China’s EV subsidy would be cut by 30% from 1 Jan 22 and totally cancelled by 1 Jan 23, as scheduled in 2020. China has cut subsidies on new energy vehicles (NEVs), such as electric cars, by 30% since 1 Jan 22 and will withdraw them altogether at the end of the year, the Finance Ministry said on its website on Friday. The market has well factored in this event. EV subsidy accounts for roughly 5-10% of total car price, and we don’t think the cut would impact EV sales much.

CPCA head expects China’s EV sales to top 6m in 2022. Cui Dongshu, secretary-general of the CPCA, said in an article on 31 Dec 21 that sales of EVs in China are expected to top 6m units in 2022, implying a yoy growth of 76% and penetration rate of about 22%. He said he previously expected China to sell 4.8m passenger EVs in 2022, which now needs to be adjusted to 5.5m units, corresponding to a penetration rate of about 25 percent. CPCA’s estimate on 2022 China’s EV sales volume is well above our estimate of about 5m units, as they factor in a bigger impact from the last-minute purchases before the cancellation of EV purchase subsidies by 1 Jan 23. We expect China’s 2022 EV sales to be at 5m units, up 47% yoy.

CATL on 30 Dec 21 announced that it will build 72-80Gwh in new capacity at the Sichuan plant, raising the total capacity of the plant to 200Gwh. Now, CATL has a planned capacity of 700Gwh worldwide. Meanwhile, CATL announced that it has signed 57Gwh in new orders from Geely for 2022-26. It is growing capacity aggressively driven by the strong order flows. We believe the recent stock correction on worries of market share loss represents a good buying opportunity.

CATL forays into mining. CATL on 31 Dec 21 set up two subsidiaries – Guizhou Shidai Mining Co., Ltd. and CATL (Guizhou) New Energy Materials Co., Ltd. with registered capital of Rmb800m and Rmb100m respectively. The two subsidiaries are aimed at engaging the mining business in Guizhou, including phosphate compound for cathode materials. This enhances the vertical integration of CATL in upstream.

Battery material prices soared to record high in Jan 22. Prices of cathode materials have rallied by 6-14% from the beginning of Dec 21 till now, hitting record highs (see the chart on the right). This is driven by the spikes in the prices of lithium compounds. Lithium carbonate, for example, saw price spiking by 35% from Rmb200,000/tonne at the beginning of Dec 21 to Rmb270,000/tonne now. The primary beneficiaries are upstream companies such as Ganfeng Lithium (1772 HK/BUY/Target: HK$200.00). The big battery manufacturers like CATL (300750 CH/BUY/Target: Rmb1,000.00) and EVE Energy (300014 CH/BUY/Target: Rmb210.00) are going to raise battery prices in Jan 22 to pass on the material cost hikes.

Meidong issues HK$2.75b CBs to fund StarChase acquisition. Meidong on 6 Jan 22 announced the issuance of HK$2.75b in convertible bonds (CB) with a conversion price of HK$46.75, yield of 2.25% and maturity date at 13 Jan 27. The CBs can be converted into 58,823,529 new shares (4.7% of the total number of shares). We envisage the deal as positive for Meidong, as the yield of the CBs is low at 2.25% and conversion price of HK$46.75 is only 18.8% above the closing price as of 5 Jan 22, which we think will be attainable before the maturity date. The issuance of the CBs is aimed at funding the Rmb3.7b acquisition of StarChase Motorsports Ltd. (StarChase) signed in Dec 21, which we expect to generate at least 8-9% of ROIC. After announcing the CB issuance, Meidong’s stock price plunged 17% on 6 Jan 22. We see it a buying opportunity.


Maintain OVERWEIGHT based on the prospective recovery in chip supplies, easing of logistic bottlenecks and flattening of commodities prices. China’s auto stocks have fallen by 18% over the last month along with the overall market. After the stock price correction, many auto stocks have become more attractive in valuations, especially the auto parts companies. We prefer EV companies and auto parts companies, which benefit more from the easing of the chip shortage. Among them, auto parts companies will probably have bigger upside in the next 12 months, due to their cheaper valuations vs historical means. Our following BUY calls are in order of preference: BYD, CATL, EVE Energy, Ningbo Xusheng, Nexteer, Minth, Fuyao Glass, Geely, GWM, GAC, DFM, Weichai, Sinotruk, Zhongsheng, Meidong and Yongda.


Chip shortage. If the impact of the chip shortage turns out to be bigger than expected, 2021 earnings would be lower than our estimates.
The possible resurgence of COVID-19 cases in China would dampen consumption.