<News Alert> China July vehicle sales marching strongly ahead
- Several Chinese automakers have released their July vehicle sales number, with growth ranging 20-170% y-o-y
- Passenger vehicle tax cut and local government supports are seeing strong impact on the vehicle market. We are maintaining our positive 2H22 view of PV sales growth of 8% y-o-y vs 1H’s 3.5%
- Further extension of the NEV tax exemption policy is a strong catalyst to the NEV market going forward
- Anticipate NEV proxies such as Guangzhou Auto (2238 HK), Geely (175 HK) and Great Wall Motor (2333 HK) to trend along with the robust NEV market outlook, which is positive on their valuations
Several Chinese EV makers (refer to table below) have reported robust July NEV deliveries of 20-170% expansion. For instance, Geely Zeekr is ramping up its NEV production since Oct-21 and has reached 5,000 units last month, compared to 4,300 units in Jun.
NEV segment remain a bright spot. We recently raised 2022 volume sales to 5.6m units after the 1H sterling performance. Local governments’ measures such as providing up to Rmb10k subsidy has lifted the NEV market, especially with the central government setting the stage for low carbon mobility in the long-term. We believe the possible extension of the NEV tax exemption policy should support the NEV market orderly growth.
The passenger vehicle market is standing on firmer grounds, especially with the cut in vehicle tax in 2H which covers a broad market segment. Hence, we keep our positive 2H outlook and estimate volume sales growth of 8% y-o-y vs 3.5% in 1H. Besides, raw materials and logistics costs have corrected by 25-40% from peak levels and is positive on the manufacturers.
We reiterate our preferred segment of NEV proxies, given their strong NEV deliveries, attractive valuation (7-15x FY22F PE) and decent FY21-23F earnings CAGR of 20-40%. Our preferred picks are Guangzhou Auto (BUY; TP HK$9), Geely (BUY; TP HK$20); Great Wall Motor (BUY; TP HK$24).