20230316-招银国际-A_trough_in_the_short_term__20页_1mb

CMB International Global Markets | Equity Research | Sector Update Summary

Core Content

The China auto sector is experiencing a mix of performance across different segments and brands in February 2023, with some companies showing strong growth while others face challenges due to inventory and market conditions. The report highlights both short-term volatility and long-term trends, particularly in the new-energy vehicle (NEV) segment, which continues to gain market share.

Main Points

• Passenger Vehicle Sales:

  • Retail sales volume increased by 11% YoY in February 2023, slightly below the forecast.
  • Wholesale volume also rose by 11% YoY, exceeding prior projections due to inventory restocking and higher export volumes.
  • PV exports surged 86% YoY to about 271,000 units in February 2023.

• Inventory Levels:

  • Inventory levels across the industry are estimated to be around 2.2 months, with NEVs at 2.5 months.
  • Inventory risk has been largely priced in after recent sell-offs, particularly due to the shift from China VI-a to China VI-b emission standards.
  • Some brands, like Great Wall Motor, are actively destocking, with Great Wall reducing inventory by about 4,800 units in February 2023.

• Market Outlook:

  • The report suggests that the market may be in a short-term trough, but a recovery is expected in the second half of 2023.
  • March 2023 is projected to see a 6% YoY increase in retail sales to 1.57 million units and a 6% YoY rise in wholesale volume to 1.98 million units.
  • NEV market share is expected to reach a historical high of 34% in March 2023, with NEV retail sales forecasted at 0.53 million units.

Key Companies and Performance

Great Wall Motor

• Wholesale Volume: Fell 4% YoY to 68,000 units in February 2023.
• Retail Sales: Combined PV and pick-up truck sales dropped 8% YoY to 59,000 units.
• Inventory: Reduced by about 4,800 units, with a current level of 1.5 months.
• Discounts: Continued to widen to a 16-month high.
• Sales Target: The 1.6 million-unit target for 2023 is considered too aggressive; the full-year forecast remains at 1.25 million units.

Geely

• Wholesale Volume: Rose 39% YoY to 109,000 units in February 2023, driven by the Geometry series.
• Retail Sales: Increased by 6% YoY to 76,000 units.
• Inventory: Added about 16,000 units, resulting in a 2.2-month inventory level.
• Discounts: Continued to widen, especially for the Xingyue L, Xingrui, and Boyue L models.
• Sales Forecast: Maintained at 1.53 million units for FY23.

BYD

• Wholesale Volume: Increased 112% YoY to 190,000 units in February 2023.
• Retail Sales: Rose 109% YoY to 146,000 units.
• Inventory: Increased by about 220,000 units in the past 12 months, now close to two months.
• Discounts: Dealers announced price discounts of RMB 6,000–10,000, which could affect gross profit margins.
• New Models: Launched the redesigned Qin Plus PHEV with a price below RMB 100,000, and new orders exceeded 32,000 units within seven days.
• Sales Forecast: Maintained at 2.45 million units for FY23, which is more conservative than investor expectations.

Guangzhou Automobile Group (GAC)

• Total Wholesale Volume: Rose 12% YoY to 164,378 units in February 2023.
• GAC Toyota: Increased 26% YoY, while GAC Honda declined 28% YoY.
• GAC Aion: Wholesale volume rose 353% YoY to 55,000 units, contributing significantly to GAC Motor's performance.
• Inventory: Aion added more than 52,000 units to dealers, resulting in a three-month inventory level.
• Discounts: Both GAC Toyota and GAC Honda saw widening discounts in February 2023.

Leading Indicators

• Number of Leads:

  • Li Auto saw a 30% MoM increase, driven by the debut of the L7 model.
  • Other brands saw minimal changes, with Tesla maintaining the highest number of leads.

• Customer Flow:

  • Li Auto's customer flow per store increased by 46% MoM.
  • Tesla, NIO, and BYD saw 3–7% MoM increases, while Xpeng and Aion experienced declines.

• New Orders:

  • Most NEV brands saw an increase in new orders MoM, with Li Auto leading the growth at 136% MoM.
  • BYD had the highest conversion ratio from store visits to new orders at 10%.
  • Xpeng's new orders dropped 6% MoM, which could be a leading indicator for the P7i model's success.

NEV Segment Highlights

• NEV Sales:

  • Retail sales volume of passenger NEVs increased 60% YoY and 35% MoM to about 400,000 units.
  • NEV market share rose to 30.9% in February 2023, up from 22.7% in January 2023.
  • NEV sales have grown for 32 consecutive months, reaching 27.4% market share.

• Individual Customers:

  • Accounted for 77% of total NEV retail sales in February 2023, down from 83% in January 2023.
  • The decline is attributed to the phase-out of NEV subsidies at the end of 2022.

• NEV Exports:

  • NEV exports increased 71% YoY and 5% MoM to about 74,000 units.
  • Tesla accounted for 55% of China's NEV exports, followed by BYD and MG.
  • BYD's NEV exports increased 44% MoM to 15,000 units, with potential for exceeding prior expectations.

• City Tier Analysis:

  • NEV market share rose the most in tier-3 cities.
  • Tier-1 cities saw NEV market share at 39.9%, with every 10 PVs sold, 4 were NEVs.
  • The Tesla Model Y dominated in tier-1 and tier-2 cities, while the Wuling Hongguang Mini continued to lead in lower-tier cities.

• City Type Analysis:

  • Cities without ICE restrictions contributed 64% of NEV sales in February 2023, up from 62% in 2022.
  • Cities with driving restrictions contributed 16% of NEV sales, up from 14% in 2022.
  • The cancellation of PHEV green licenses in Shanghai had a limited impact on PHEV sales.

Outlook and Recommendations

• The market is expected to recover in the second half of 2023, with a short-term trough in the first quarter.
• NEV segment is expected to continue leading the market with a historical high market share.
• Inventory levels across the sector are considered manageable, with the risk largely priced in.
• The report maintains an "OUTPERFORM" rating for the China auto sector, with several companies rated "BUY" and BYD rated "HOLD".

Stocks Covered

Conclusion

The China auto sector is navigating through a period of inventory adjustment and market volatility, with NEVs leading the recovery. While some brands are facing challenges, others are performing well and are expected to continue their growth trajectory. The report highlights the importance of new model launches and the potential for NEV exports to surpass previous expectations. Overall, the market is seen as being in a short-term trough but with a positive outlook for the remainder of the year.