Weekly: PV Sales Down 7% yoy/2% mom During 1-9 July; Missing Estimates
China’s 1-9 Jul 23 retail sales of passenger EVs came in lower than expected at only 122,000 units (-13% yoy/-1% mom), but EV penetration rate topped records at 36.9%. The disappointing EV sales in 1-9 Jul 23 was due to the drop in overall PV sales in China. We keep estimate on 2023 China EV sales growth at 30% on increase in stimuli and strong export. SC6 price fell by 8.5% over the past month, easing cost pressure for EVs. Maintain UNDERWEIGHT on China’s auto sector. Top BUYs: BYD, CATL and Li Auto.
WHAT’S NEW
• CPCA: PV sales down 7% yoy/2% mom during 1-9 July, missing estimates. According to China Passenger Car Association (CPCA), China’s passenger vehicle (PV) retail sales volume and wholesale shipment reached 331,000 units (-7% yoy/-2% mom) and 337,000 units (-9% yoy/-3% mom) respectively during 1-9 Jul 23, missing estimates. This is despite the “Cars Going Rural” campaign launched in Jun 23.
• Passenger EV sales down 13% yoy/1% mom during 1-9 July, missing estimates; but EV penetration rate topped record at 36.9%. Passenger electric vehicle (EV) retail sales volume and wholesale shipment also came in lower than expected at 122,000 units (-13% yoy/-1% mom) and 115,000 units (-30% yoy/+6% mom). This implies a record EV penetration rate of 36.9% in retail sales and 34.1% in wholesale shipment during 1-9 Jul 23.
• We keep our estimates for China’s 2023 PV wholesale shipment and passenger EV wholesale shipment at 23.8m units (+1% yoy) and 8.5m units (+30% yoy) respectively, implying 35.7% EV penetration rate (+8.0ppt yoy), based on the expected increase in policy stimulus and burgeoning export. We believe the government will need to put forth stronger stimulus measures to boost EV sales in China and achieve their target. Export will likely contribute 1.2m units (+95% yoy) out of the expected 8.5m units in China’s passenger EV wholesale shipment.
• CAAM: China vehicle export volume grew 53.2% yoy and dipped 1.7% mom to 382,000 units in Jun 23. This brings China’s 1H23 vehicle export volume to 2.14m units (+75.7% yoy), according to China Association of Automobile Manufacturers (CAAM). China’s EV export volume spiked 170% yoy and dropped 28.4% mom to 78,000 units in Jun 23 and surged by 160% yoy to 534,000 units in 1H23, of which Tesla China accounted for 182,434 units (or 34% of total). Stripping out Tesla China, China’s EV export volume (mainly from Chinese companies) spiked by 225% yoy to 352,000 units in 1H23, of which BYD contributed 74,289 units.
• China’s EV battery installation volume grew 22% yoy and 16.5% mom in Jun 23, in line with estimates. According to China Automotive Power Battery Industry Innovation Alliance, EV battery installation volume grew 22% yoy and 16.5% mom to 32.9GWh in Jun 23, in line with estimates. This brings 1H23 installation volume to 152.1GWh (+38% yoy). This compares to the 30% yoy/9% mom growth in production volume of passenger EVs in Jun 23.
• CATL remained the largest EV battery manufacturer in China with installation volume of 14.85GWh (+11% yoy/+27% mom) and market share of 45.1% (-4.5ppt yoy/+3.8ppt mom). The numbers from China Automotive Power Battery Industry Innovation Alliance only reflect the domestic shipments in China. According to SNE Research, CATL’s global shipment reached 86.2GWh (+60% yoy) in 5M23, much bigger than 51.2GWh (+31% yoy) in installation volume in China. This implies 36.3% of global market share for CATL in 5M23, vs 37% in 2022.
• BYD’s battery installation volume grew 80% yoy/4% mom in Jun 23, bringing 1H23 volume to 45.4GWh (+91% yoy). BYD had a 27.4% share in China’s EV battery market in Jun 23, making it the second-largest EV battery manufacturer in China. The burgeoning growth in BYD’s battery shipment was driven by both in-house EV production and external sales. BYD’s EV sales volume grew 89% yoy and 5% mom to 253,046 units in Jun 23. Also, BYD has started to sell EV batteries to global automakers like Tesla and Toyota.
• EVE Energy witnessed 170% growth in battery installation volume in 1H23. EVE Energy’s battery installation volume grew by 160% yoy/11% mom to 1.48GWh in Jun 23 and spiked by 170% yoy to 6.6GWh in 1H23, the fastest among all Chinese battery companies. The buoyant growth in battery shipment was driven by the launches of new projects for customers, including the lithium iron-phosphate (LFP) battery for XPeng and other Chinese EV companies, as well as the prismatic nickel cobalt manganese (NCM) battery for BMW. Going forward, the launch of the big cylindrical battery (4695) for BMW and other customers will further boost sales growth.
• Spodumene concentrate price tumbled by 8.5% over the last month, implying easing supply-demand balance. The CIF price of spodumene concentrate 6 (SC6) from Australia fell by 8.5% over the past month, closing at US$3,675/tonne as of 12 Jul 23. This translates to a SC6 cost of Rmb211,700 per tonne of lithium carbonate equivalent (LCE), compared to the lithium carbonate price of Rmb302,500/tonne as of 12 Jul 23. On the other hand, lithium carbonate price in China only edged down by 1.3% from 12 Jun 23 to 12 Jul 23. This is in sharp contrast to the decline from Nov 22 to Apr 23 when the drop in lithium carbonate price led to the drop in lithium concentrate price for three months. Only since endFeb 23, three months after Nov 22, did the spodumene concentrate price start to decline. It is because the last decline in lithium carbonate price was due to destocking by battery manufacturers and traders in anticipation of easing lithium supply-demand balance, and spodumene concentrate supplies did not increase much. This time, the decline in spodumene concentrate price is leading the decline in lithium concentrate price. This can be attributed to the increasing supply of spodumene concentrate, which will feed through to lower lithium concentrate price in due course. Global lithium supply is expected to grow from 737,000 tonne LCE in 2022 to 1.0m-1.2m tonne/1.2m-1.5m tonne/>2m tonne LCE in 2023/24/25 respectively. Global demand for lithium is expected to grow from 892,000 tonne LCE in 2022 to 1.57m tonne LCE in 2025. The global supply-demand balance of lithium will likely reverse from a deficit of 155,000 tonne LCE in 2022 to a surplus of not more than 100,000 tonne/200,000-300,000 tonne/>400,000 tonne LCE in 2023/24/25 respectively. We maintain UNDERWEIGHT on the lithium sector based on the prospective decline in lithium prices.
• Audi in talks to buy EV platform from SAIC, underscoring China’s technologic leaderships in the EV industry. This is specially so when Audi’s parent company Volkswagen has already developed its own EV platform Modular Electric Drive Matrix (MEB).
ACTIONS
• Maintain UNDERWEIGHT on China’s auto sector, with preference for the EV segment. Based on the expected decline in China’s ICE-car sales and intensifying price war in the ICE-car market, we maintain UNDERWEIGHT on China’s 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 the 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 Li Auto to our top BUY list again, as we have just upgraded the stock’s 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.