Weekly: PV Sales Surged Over 50% mom Over 13-19 Jun 22
China’s PV retail sales surged by more than 50% mom over 6-12 Jun 22, beating
estimates. Auto dealers turn optimistic on 2H22 outlook. The state reiterates its support
for the EV industry with the roll-over of purchase tax exemption. In June, two electric
SUVs hit the market, and the market seems to prefer Li Auto L9 to Nio ES7. Maintain
OVERWEIGHT. Top picks: BYD, GWM, Minth and Zhongsheng. Downgrade Geely from
BUY to HOLD, as stock price almost hit our target.
WHAT’S NEW
• CPCA: Daily average PV sales surged by over 50% mom in the third week of June,
beating expectations. According to China Passenger Car Association (CPCA), daily
average retail sales volume and wholesale shipment of passenger vehicles (PV) in China
spiked by 55%/63% mom and 19%/24% wow respectively over 13-19 Jun 22, and yoy
growth for the two figures accelerated to 39%/70% during the week after turning positive in
the previous week. In 1-19 Jun 22, daily average retail sales volume and wholesale shipment
of PVs grew 43%/52% mom and 24%/34% yoy respectively.
• Local stimulus schemes boost last-minute purchases. In addition to the halving of
purchase tax rate for most PVs from 10% to 5% from 1 Jun 22 to 31 Dec 22, at least five
provinces (Guangdong, Shandong, Shanxi, Hubei and Jiangxi) and 24 cities (including Tier 1
cities like Shenzhen, Guangzhou and Shanghai and Tier 2/Tier 3 cities) have launched their
own stimulus packages, which include giving subsidies of Rmb2,000-15,000/vehicle for car
purchases and trade-in as well as increasing new car plate quota. For some provinces (eg
Guangdong, Shandong and Jiangxi) and cities (Nanjing, Yiwu, Zhengzhou, Qingdao,
Taiyuan, Yuncheng, Fuzhou, Jinjiang, Shantou and Haikou), the stimulus schemes will
expire by end-June to end-October, earlier than the expiry date of the nation-wide cut on
purchase tax at end-December. That prompted potential car buyers rushing to buy cars
before the expiry dates of the stimulus schemes.
• Channel checks: Auto dealers turn optimistic on sales outlook from June. This week,
we talked with Yongda and Meidong, and both expressed optimism towards 2H22 outlook.
Yongda, the largest BMW dealer in eastern China, saw a 58% mom spike in new car sales
volume in May 22 and over 30% yoy growth in order intakes in the first two weeks of June.
After-sales service revenue also surged by 50% mom in May. Yongda’s inventory days
soared from 22-23 days in January-March to around 30 days as of end-May (BMW: 27 days;
Porsche: 35 days), and it expects it to drop to 20 days by end-June, due to sales recovery. In
regard to pricing and profitability, Yongda’s realised ASP and new car sales gross margin
remained flat at 3-4% ytd, and it expects it to remain steady in 2H22.
Meidong saw a 10%/25% yoy drop in new car sales volume in 1Q22 and March-April, and it
staged a modest sales recovery in May-June. Based on the sales drop in March-April and
recovery in May-June, Meidong targets to attain a yoy flat new car sales volume in 2H22.
Inventory days declined from a peak of 40 days as of end-April to 10 days currently. Looking
into 2H22, Meidong is cautiously optimistic on the sales outlook. However, Meidong showed
more concern on the supplies, especially for the imported cars like Lexus and Porsche.
• The state reiterates support for the EV industry with the roll-over of purchase tax
exemption. Chinese premier Li Keqiang hosted an executive meeting of the State
Council on 22 Jun 22, saying the country would support EV purchases. During the
meeting, the extension of purchase tax exemption for EVs was mentioned. In China, all
EVs have been exempted from purchase tax since 2014, and the state keeps rolling over
this policy. Thus the extension of the policy this time is basically in line with expectations.
• The market prefers Li Auto L9 to Nio ES7; XPeng’s G9 will be a major challenger. In
June, both Li Auto and Nio rolled out their long-awaited new electric SUV models – L9
and ES7 respectively. From the market feedbacks and stock prices, it is known that Li
Auto L9 is preferred over Nio ES7. And the market is looking for XPeng’s G9.
Li Auto L9. Li Auto unveiled the long-awaited Li L9 and kickstarted pre-sales on 21 Jun 22. L9 is a full-sized SUV with a size almost identical to that of Mercedes Benz GLS and
Tesla Model X with a price tag of Rmb459,800, half of GLS’ and Tesla Model X. L9 is an
extended range electric vehicle (EREV) installed with a 1.5L four-cylinder turbo engine as
range extender, a 39kWh battery pack and two electric motors with combined power of
330kW. On a single charge and refuelling, L9 can run up to 1,100km. The feature of Li L9
that impressed us the most is the design of the intelligent cockpit, which includes the
head-up display (HUD), the two 15.7-inch Samsung touch-screen OLED displays
stretching across the instrument panel, as well as the huge storage space under the
console. The gesture recognition system and voice system of L9 are also upgraded from
Li ONE’s such that the user can open or close the sunroof by simply pointing to it and
ordering it vocally. With all these features, we believe L9 will be another blockbuster for Li
Auto. Li Auto has booked over 10,000 units of orders for L9 in two days, and people lined
up outside Li Auto store to see the L9.
Nio ES7. The ES7 is a pure electric C-segment four-wheel-drive (4WD) SUV installed
with two motors (653kW of power in total) and a 75-100kWh battery pack, and it delivers
485-620km in range on a single charge with electric consumption of 17.6-
19.1kWh/100km, not impressive enough vs Nio’s existing models, ES8 and ES7. It is said
that Nio ES7 does not stand out from ES8 and ES6 in regards to specifications, but the
debut of ES7 would cause sales cannibalisation of ES8 and ES6.
XPeng G9. XPeng is planning to launch its fourth smart EV model G9 by 3Q22 with a
price tag of Rmb300,000-400,000. G9 is a mid- to large-sized (C-segment) SUV that
features: a) an advanced AD system installed with LIDAR and XPILOT 3.5/4.0; b) rapid
charging capability (it can be charged up to 200km in range for only five minutes) based
on XPower 3.0 powertrain and China’s first 800V high-voltage silicon carbide (SiC) fast
charging platform (which enables the EV to be charged from 10% to 80% in 12 minutes at
a power of 480kW or to get 200km in range in 5 minutes); c) intelligent cockpit, intelligent
chassis and intelligent air suspension systems based on the fast and massive data
transmission systems (X-EEA 3.0 electronic architecture); and d) more consolidated
domain control units for enhanced (over-the-air) OTA update capability. G9 will be
installed with XPILOT 3.5 initially, and then the system will be able to be upgraded to
XPOLOT 4.0 via OTA by 1H23.
• Tesla will halt production at Giga Shanghai for two weeks in July to expand
capacity by 29% by August. Tesla is expanding in China. Though Tesla China will
reportedly lay off 10% of its workforce, it does not involve production positions. And it is
worth noting that on 22 May 22, Tesla posted recruitment information for more than 100
positions in its Shanghai R&D centre, involving software, hardware design engineering,
and power and energy engineering.
• CATL unveils Qilin Battery which it claims to deliver 1,000km in range on a single
charge. Li Auto hints that it will use CATL’s Qilin Battery in a new pure EV model by
2023, which it claims can be charged to 400km in 10 minutes. CATL has been keeping its
technological leadership by churning out cutting-edge battery technologies.
ACTION
• Maintain OVERWEIGHT based on the prospective gradual recovery of auto sales along
with the opening up of the economy. BYD, GWM, Minth and Zhongsheng remain our top
picks. Our BUY calls are in the following order of preference: BYD, GWM, Minth,
Zhongsheng, Meidong, GAC, CATL, EVE Energy, Ganfeng, Tinci, Nexteer, GEM.
• Downgrade Geely (175 HK/HOLD/Target: HK$18.00) from BUY to HOLD with an
unchanged target price, as the stock price has almost hit our target.
RISKS
• China’s zero-COVID policy, if enforced thoroughly, could cause frequent on-and-off
disruptions to the auto supply chain, as it is hard to contain the highly-transmissible
Omicron variant. It is the lack of an exit plan that constitutes the biggest risk.