Weekly: EV Sales Expected To Grow 15.5% mom In June, Beating Estimates
CPCA estimates China’s June retail sales of PVs and passenger EVs at 1.83m units (- 5.9% yoy/+5.2% mom) and 670,000 units (+26% yoy/+15.5% mom) respectively, beating estimates, with the 618 promotions and local stimulus boosting sales in the second half of June. We keep our growth estimates for China’s PV sales and EV sales at 1%/30% respectively, based on the new round of stimuli. Maintain UNDERWEIGHT on China’s auto sector, with a preference for the EV segment. Top BUYs: BYD, CATL and Li Auto.
WHAT’S NEW
• CPCA: China’s PV and passenger EV retail sales up 5.2% and 15.5% mom, beating expectations. China Passenger Car Association (CPCA) estimates China’s retail sales volume of passenger vehicles (PV) and passenger electric vehicles (EV) at 1.83m units (- 5.9% yoy/+5.2% mom) and 670,000 units (+26% yoy/+15.5% mom) respectively, beating expectations when compared with the numbers for 1-18 Jun 23 of 828,000 units (-6% yoy/- 8% mom) and 320,000 units (+1% yoy/+5% mom) respectively. This implies Jun 23 ICE-car retail sales volume of 1.16m units (-17.9% yoy/-0.2% mom) and EVs’ market share of 36.6% (+9.3ppt yoy/+3.3ppt mom). For 1H23, CPCA estimates China’s retail sales volume of PVs and passenger EVs at 9.47m units (+2% yoy) and 3.09m units (+32% yoy) respectively, vs our full-year 2023 estimates of 23.8m units (+1% yoy) and 8.5m units (+30% yoy).
• PV and passenger EV retail sales spiked 54% yoy and 38% mom during 19-25 Jun 23. According to CPCA, retail sales volume of PVs in China surged 8% yoy and 54% mom to 526,000 units during 19-25 Jun 23, including 180,000 passenger EVs (+43% yoy/+38% mom) and 346,000 ICE-cars (-4% yoy/+63% mom). The sales rebound in the second half of June was mainly due to the kick-start of promotions for 618 consumption festival, the launch of car purchase subsidies by local governments and the Dragon Boat Festival holiday.
• We keep our growth estimates on China’s 2023 PV sales and passenger EV sales at 1% and 30% respectively. We expect ICE-car sales to decline in 2H23, as the local stimulus measures will expire today, which pulls forward sales to 1H23. We expect China’s EV sales to be driven by: a) the country’s “EVs Going Rural” scheme, b) plug-in hybrid electric vehicles (PHEV) continuously taking market share from ICE-cars, and c) the burgeoning export. We maintain our estimate on China’s 2023 passenger EV wholesale shipment at 8.5m units (+30% yoy), which implies a 35.7% share of the country’s PV wholesale shipment. The 8.5m units of China’s 2023 wholesale shipment of passenger EVs will include 6.6m units in domestic sales and 1.9m units of exports.
• The Cars Going Rural scheme spurs entry-level EV sales, as more than 80% of models covered by the campaign are priced below Rmb200,000. On 15 Jun 23, the five ministries announced the 2023 Cars Going Rural campaign, which will last from Jun 23 to Dec 23, with a total of 69 models (including 59 BEV models, eight PHEV models, one ICEcar model and one other model) under 23 OEMs involved (including 55 models under Chinese OEMs and 14 models under Sino-foreign JVs). Pursuant to the scheme, all people with rural household registrations (including those living in cities) are eligible for Rmb1,000- 3,000 or Rmb5,000-10,000 in subsidy for buying an ICE-car/EV respectively. In this round of activities, 59 models out of the 69 models involved have a price tag of less than Rmb200,000, of which 26 models are priced at Rmb150,000-200,000 and 18 models priced at Rmb100,000-150,000.
SAIC Group (including SAIC, SAIC Volkswagen, SGM Buick and SGM Wuling) has a total of 19 models (27.5% of the total 69 models) included into the subsidy list of the campaign. The other OEMs involved in the campaign include Changan (seven models), DFM (six models), BYD (five models), Aion (five models), Geely (two models), GWM (two models) and XPeng (two models). Although BYD only has five models out of its more than 30 models included into the scheme, these five models – Tang DM-i, Song Plus, Chaser 05, Dolphin, the Champion version of Seal – jointly contributed over 30% of the company’s total sales volume in May 23. XPeng is the first new EV company that is involved into the EVs Going Rural campaign, and it has two models included in the subsidy list – G3i and P5 – which jointly made up 27% of its May 23 deliveries. All in, we believe the EVs Going Rural campaign, coupled with the progressive rollback of purchase tax exemption for EVs from 2023 to 2027, will boost China’s EV sales over the next 2-3 years.
• China’s vehicle export volume surged 91% yoy to a record of 438,200 units in May 23, driven by EV exports and Russian market. According to China Customs, China’s vehicle export volume soared 91% yoy and 3% mom to a record of 438,200 units in May 23, bringing 5M23 number to 1.93m units (+80% yoy), bigger than Japan’s 1.5m units. On a monthly basis, China has taken over Japan’s position as the world’s largest vehicle exporter since Aug 22. Additionally, the ASP of China’s exported vehicles also hiked by 16% yoy and 5% mom to a record of over US$20,600 in May 23 along with Chinese branded cars moving upmarket. The buoyant export growth of China is being driven by China-made EVs’ penetration into European and Southeast Asian markets and ICE-car exports to the Russian market. For full-year 2023, we expect China’s vehicle export to grow 67% yoy to 5m units in 2023, representing 18% of our estimated 2023 China vehicle wholesale shipment of 27.6m units (+3% yoy).
China’s EV export volume spiked by 104% yoy and 19% mom to 103,700 units in May 23 and by 118% yoy to 675,300 units in 5M23. Europe was the biggest market of China’s EV exports in 5M23, which bought 338,900 units or 49% of the EVs exported by China in 5M23. And more than 100,000 units or 30% of them were the Model Y/3 shipped from Tesla’s China plant to Europe. Apart from Tesla China, the top three best-selling Chinese EV brands in Europe were SAIC’s MG, Geely’s Polestar and BYD, each of which made up low singledigit market share in the continent. Chinese brands’ market share in the western European EV market is expected to increase from 6% in 2022 to 9% in 2023, according to the latest forecast by market research firm TrendForce. Asia was the second biggest market for Chinese EVs, which bought 35% of all EVs exported by China in 5M23. Many Chinese OEMs are making an inroad into the Asian market, especially Southeast Asia, and are taking market share from the dominant Japanese brands with EV models. BYD, for example, has become the best-selling EV brand in Thailand.
China’s ICE-car export volume also surged by 95%/65% yoy to 277,500 units/1.235m units in May 23/5M23 respectively, mainly driven by the Russian market. Due to the West’s sanction on Russia for its invasion of Ukraine, all global carmakers have withdrawn from Russia, leaving room for Chinese carmakers such as Geely and GWM. China’s vehicle export to Russia escalated by over 1,700%/420% yoy to 68,200 units/287,500 units in May 23/5M23 respectively, representing 15% of China’s total vehicle export during those periods. The Russian market contributed 27% of incremental China vehicle export volume in 5M23.
• Profit growth of China’s auto industry accelerated from 2.5% in 4M23 to 24.3% in 5M23. According to China Association of Automobile Manufacturers (CAAM), revenue of China’s automobile manufacturing industry grew 14.3% yoy to Rmb3,631.26b in 5M23. The China automobile manufacturing industry’s net profit hit Rmb174.62b in 5M23, up 24.3% yoy (4M23: 2.5% yoy), while net margin edged up 0.1ppt yoy to 4.8% in 5M23. We expect the earnings momentum of China’s auto industry to accelerate from 2Q23 onwards, driven by the pick-up of auto sales and stabilisation of car prices and raw material prices.
• BYD’s new hybrid platform DM-o is coming to market, and Fang Cheng Bao is the first to adopt it. After DM-i and DM-p, BYD again launched a new hybrid, ace DM-o, which is known as the “master” of BYD’s hybrid technology and integrates “all advantages” of BYD’s hybrid technology. It is installed on previously released Fang Cheng Bao (Formula Leopard) models. In Mar 23, photos of the SF model showed the number “2316” emblazoned on its body, with the number 2 in the string referring to dual motors, 3 referring to three locks, 1 referring to a new platform, and 6 referring to the June launch. Note that in the pictures of Fang Cheng Bao SF released on 21 Jun 23, the numbers on the car were “2318”. It is
unclear if this means the SF model’s launch will be delayed from June to August. Also, the Fang Cheng Bao SF will be a “longitudinal” engine model, so it can make more room for the cloud car system. The car will also have a comprehensive range of 1,200km, with long running, strong power, and off-road capability (equipped with low-speed 4WD).
The launch of the DM-I technology in Jun 21 and debut of the DM-o technology in 2023 show that BYD is always leading its peers by one generation in plug-in hybrid technology. The new PHEV models from peers, eg Geely and Great Wall Motor (GWM), e-CMA and DHT, will probably not be able to challenge BYD’s DM-i, not to mention DM-o. This makes us even more certain that GWM’s accusation of BYD on the emission issue of its PHEV models is groundless. BYD’s unrivalled leadership in the PHEV segment, together with its strong product pipeline, enables it to deliver above-industry average sales growth, as China’s EV market has been being increasingly driven by PHEV sales since the beginning of 2023 with its share of China’s passenger EV sales rising from 26% in 2022 to 32% in 5M23. We maintain our estimates on BYD’s 2023-25 sales volume at 3.0m/4.0m/5.2m units respectively, of which PHEV models will make up half of its total sales volume.
• BYD offering 15-20% discount on 2022 Seal to clear inventories. This will probably boost Seal’s sales from 8,000 units in May 23 to over 10,000 units in Jun 23. The price cut is aimed at clearing the inventories of the old version of Seal, as the Champion version of Seal has recently debuted with a price tag of Rmb189,800-279,800, vs Rmb200,800-264,800. After the depletion of the inventories of 2022 Seal, monthly sales of the Champion version of Seal will probably remain at 10,000-20,000 units, as it is better value for money.
• BYD’s Denza to launch N7 SUV on 3 Jul 23, boosting monthly sales to over 20,000 units. Denza will launch N7 electric SUV on 3 Jul 23. The Denza N7 is a five-seat Bsegment SUV with a length, width and height of 4,860 mm, 1,935 mm and 1,602 mm, respectively, and a wheelbase of 2,940 mm. The N7 comes in four versions, including two single-motor versions and two dual-motor versions, the former with a peak motor power of 230kW and 702km in a single-charge range, and the latter with an additional peak motor power of 160kW and 630km in a single-charge range. Denza N7 is aimed at the market for traditional ICE-cars priced at around Rmb400,000. With a single model, D9 MPV, Denza’s monthly sales grew to over 11,000 units in May 23, less than a year since its launch in Aug 22. Denza expects to receive over 30,000 units in orders for N7, and targets over 20,000 units in monthly sales for the company before end-23. We estimate Denza’s 2023-25 sales at 150,000/300,000/500,000 units, representing 5%/7.5%/10% of BYD’s total sales volume.
• XPeng on 29 Jun 23 launched G6 at a price of Rmb209,900-276,900, Rmb15,000 lower than the presales prices. G6 is a mid-sized (B-segment) pure electric SUV, which is aimed at the segment of Tesla Model Y with a price tag of Rmb263,900-363,900. XPeng started pre-sales of the G6 on 9 Jun 23, and has since received 35,000 pre-sales orders. The debut of G6 will probably boost XPeng’s sales to over 10,000 units in Jul 23, which we have factored in. It remains to see whether XPeng’s new product will deliver sustainable sales growth, given the failures of G9 and P7i.
ACTIONS
• Maintain UNDERWEIGHT on auto sector with preference for EV segment. Based on the expected drop in sales and intensifying price war in China’s ICE-car market, we maintain UNDERWEIGHT on the auto sector. However, based on the expected faster EV sales CAGR of 30% in 2023-25, we still like the EV segment. Given the declines in battery material prices due to increasing supply, we prefer midstream and downstream EV plays.
• Our top BUYs include BYD (1211 HK/BUY/Target: HK$590.00), CATL (300750 CH/BUY/Target: Rmb390.00), and Li Auto (2015 HK/BUY/Target: HK$246.00). In particular, BYD is the most geared to tap the EV market growth, given its strong product pipelines, dominant position in the PHEV market and vertically-integrated business model. We are also adding back Li Auto to our top BUY list after upgrading the target price to HK$246.00 based on stronger earnings growth and sales growth in 2023-25. Our BUY calls are in order of preference: BYD, CATL, Li Auto, Yadea, Fuyao Glass, Minth, Ningbo Xusheng, EVE Energy, Nexteer and Weichai Power. Maintain SELL on Ganfeng Lithium, Tinci Materials, GEM, Great Wall Motor, Guangzhou Auto and Zhongsheng.