Weekly: Passenger EV Sales Up 59% yoy/21% wow In 17-23 July, In Line
Daily average passenger EV retail sales spiked by 59% yoy and 21% wow and remained flat mom in the third week of Jul 23, implying a market share of 40.1%, and in line with expectations. However CPCA expects passenger EV retail sales to grow 27.5% yoy but fall 6.8% mom in Jul 23, implying a 35.8% market share. We keep our estimates on China’s EV sales growth at 30%, based on stimuli, increasing market share and strong exports. Maintain UNDERWEIGHT. Top picks: BYD, CATL and Li Auto.
WHAT’S NEW
• CPCA: China’s 17-23 July passenger EV retail sales up 59% yoy and 21% wow, in line. China Passenger Car Association (CPCA) posted in-line preliminary China’s passenger vehicle (PV) sales figures for 17-23 Jul 23. Accordingly, China’s PV retail sales volume grew by 5% yoy and dropped by 11% mom to 436,000 units during 17-23 Jul 23, including 175,000 units of EVs (+59% yoy/flat mom) and 261,000 units of ICE-cars (-14% yoy/-17% mom). The yoy growth in PV sales was mainly driven by EVs. On a weekly basis, daily average retail sales volume of passenger EVs and ICE-cars respectively grew 21%/24% wow during 17-23 Jul 23.
• CPCA expects China’s Jul 23 passenger EV retail sales to grow 27.5% yoy and drop 6.8% mom, but we see upside to the estimate. CPCA estimates Jul 23 China’s PV retail sales volume at 1.73m units (-5.6% yoy/-8.6% mom), including 620,000 units of passenger EVs (+27.5% yoy/-6.8% mom) and 1.11m units of ICE-cars (-17% yoy/-10% mom). Based on these, EV’s share in new PV sales in China soared by 0.7ppt mom to 35.8% in Jul 23. CPCA’s estimated Jul 23 passenger EV sales came in below our expectations. We see upside to CPCA’s estimated Jul 23 passenger EV sales, which only implies a 35.8% market share of passenger EVs, vs 39.4% for 1-23 Jul 23 and 40.1% for 17-23 Jul 23. We believe the EV market share in Jul 23 is underestimated.
• EV sales in July dragged by the overall PV sales, despite the former’s rising market share. According to CPCA, the mom sales decline in Jul 23 was due to seasonality. China’s auto market’s above-expectation performance in Jun 23 was due more to policy stimulus and promotions, and the momentum is difficult to sustain.
• Policies still favour EVs over ICE-cars. In 2H23, local regional policies are expected to be supportive of the auto market. The state is putting forth more favourable policies for EVs, eg the “EVs Going Rural” campaign, phasing out old ICE-cars, cash-for-clunker scheme, subsidies for trading in ICE-cars for EVs, reduction on charging fees, etc. All these measures, coupled with the gradual roll-back of purchase tax exemption for EVs from 2024-27, will likely boost EV sales in 2H23-25.
• CPCA: China’s vehicle export volume grew 65% yoy and fell 6.5% mom to 409,800 units in Jun 23. This brought 1H23 China vehicle export volume to 2.34m units (+72% yoy). The buoyant growth in China vehicle export in 1H23 was driven by: a) exports to Russia, and b) EV export. We keep our estimates on China’s vehicle export and EV export at 5m units (+67% yoy) and 1.9m units (+77% yoy) respectively, representing 18% and 21% of China’s 2023 wholesale shipment of vehicles and EVs.
• China’s vehicle exports to Russia surged by 515% yoy to 370,500 units in 1H23 (mainly ICEcars), and their share in China’s total vehicle export quadrupled yoy to 15.8% in 1H23. Due to sanctions by the West, all global carmakers have withdrawn from Russia, leaving the market for Chinese carmakers. Excluding the Russian market, China’s vehicle export volume still grew 52% yoy to 1.97m units in 1H23.
• As for EVs, China’s export volume spiked 107% yoy and dropped 19% mom to 125,300 units in Jun 23, and surged by 115% yoy to 800,000 units in 1H23. EVs’ share in China’s vehicle export rose by 6.8ppt yoy to 34.1% in 1H23. The biggest overseas market of China-made EVs was Europe (excluding Russia), which bought half of China’s total EV exports in 1H23. Tesla was the biggest EV exporter in China, which contributed 182,000 units or 37.6% of the country’s total passenger EV export volume in 1H23, compared to 52.3% in 1H22. BYD’s EV export volume surged by 1,245% yoy to 74,000 units in 1H23, representing 15% of China’s total passenger EV export volume during the period.
• We keep our estimates on China’s 2023 PV sales growth and passenger EV sales growth at +1% and 30% respectively. We expect ICE-car sales to decline in 2H23, as the local stimulus measures for ICE-cars expired by 30 Jun 23, which pulled forward sales to 1H23. As for EVs, we expect China’s sales to be driven by the country’s supportive policies, plug-in hybrid electric vehicles (PHEVs) continuously taking market share from ICE-cars, and burgeoning exports. We maintain our estimate on 2023 China’s passenger EV wholesale shipment at 8.5m units (+30% yoy), which comprises 6.7m units of domestic sales and 1.8m units of export. This implies 35.7% share of the country’s 2023PV wholesale shipment.
• Lithium carbonate price and spodumene concentrate price fell 4.7% and 1.4% wow to Rmb282,500/tonne and US$3,475/tonne respectively in the week ending 26 Jul 23. After holding up for a month despite the over 10% drop in spodumene concentrate price, lithium carbonate prices started to decline again starting from the week ending 19 Jul 23, and the wow decline accelerated to nearly 5% this week. The drop in lithium carbonate price in China was dragged by a decline in spodumene concentrate price. The US$3,475/tonne in spodumene concentrate price translates into a cost of Rmb200,000/tonne per tonne of lithium carbonate equivalent (LCE), compared with the current lithium carbonate price of
Rmb282,500/tonne as of 26 Jul 23.
• We see further downside for lithium carbonate prices, as lithium carbonate prices in China only edged down by 6.6% from 19 Jun 23 to 26 Jul 23, vs a 15.8% drop in spodumene concentrate price during the period. In the longer term, we expect lithium carbonate price to drop to Rmb200,000/tonne before end-23, due to increasing supplies of upstream lithium materials. The decline in lithium carbonate prices will transfer profit from upstream companies to midstream (eg battery manufacturers) and downstream companies (eg carmakers).
• VW invests US$700m in XPeng for 4.99% stake. Volkswagen (VW) has signed an agreement with XPeng to invest about US$700m in XPeng, buying 4.99% of the latter’s share at a price of US$15 per ADS, equivalent to HK$58.60 per Class A share. The two companies also agreed to jointly develop EVs. XPeng’s stock price spiked by 40% on the deal. We believe the best of the story has been priced in, and the stock price will be vulnerable to any negative catalysts, such as disappointing 2Q23 results and disappointing monthly deliveries, as investors are going to shift focus from the euphoria back to the fundamentals. XPeng’s weekly deliveries remained low at 1,200 units/2,100 units/2,600 units over the last three weeks, compared with the company’s target of at least 10,000 units in monthly deliveries from Jul 23.
ACTIONS
• Maintain UNDERWEIGHT on China’s auto sector, with a 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. Our BUY calls are in the following 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.
• Downgrade Geely (175 HK/SELL/Target: HK$9.00) from HOLD to SELL on valuations, as its stock price has risen well above our target price of HK$9.00 (pegged to 15x 2023F PE or 13x 2024F PE).