20220815-招银国际-China_Auto_Sector_Price_war_possible_despite_strong_Jul_wholesale_16页_1mb

China Auto Sector Summary

Core Content

The China auto sector experienced a strong July 2022, with significant growth in both wholesale and retail sales volumes. This growth was driven by inventory restocking and robust exports, particularly in the new-energy vehicle (NEV) segment. The market is also showing signs of easing chip constraints, which is expected to support continued growth in the coming months.

Main Points

• Wholesale Sales:
  • Passenger-vehicle (PV) wholesale volume surged 40% YoY to 2.17 million units in July 2022, marking the best July in history.
  • Retail sales volume rose 9% YoY to 1.79 million units, slightly higher than the forecast.
• Inventory Levels:
  • Industry-wide inventory levels increased by 0.19 million units in July 2022, totaling almost 0.7 million units for the first seven months, the second highest in history.
  • NEVs accounted for 41% of the industry-wide inventory restocking, indicating strong demand.
• Export Growth:
  • PV exports reached an all-time high of 0.24 million units in July 2022, up 22% from the previous month’s export record.

Price War Outlook

• A potential price war in both ICE and NEV segments is anticipated in the next six months.
• NEV start-ups, such as Xpeng and Li Auto, have already begun subtle promotional activities despite sufficient order backlogs.
• The continued inventory buildup and strong NEV growth may lead to increased competition and price pressures.

August 2022 Outlook

• Retail Sales: Expected to improve by 20% YoY due to a low base effect.
• Wholesale Sales: Could be affected if automakers continue pushing inventory to dealers. Forecasted to rise 35% YoY assuming no inventory changes.

Investor Sentiment

• NEV retail sales volume rose 106% YoY to 443,000 units, raising market expectations and investor concerns about competition.
• High growth potential may be overshadowed by increased competition, leading to potential volatility in automakers' share prices.

NEV Segment Analysis

• NEVs accounted for 23.3% of China's total PV retail sales volume in the first seven months of 2022.
• NEV retail sales in tier-1 cities reached 3.6 out of every 10 PVs sold, with individual customers making up over 80% of total NEV sales.
• The Tesla Model Y had a market share of 8% in the NEV segment, while mini BEVs dominated in lower-tier cities.
• The NEV market share in tier-3 and tier-4 cities rose to 19% and 15%, respectively, from 7% and 5% a year ago.

BEV Brands

• Total BEV retail sales volume rose 99% YoY to 337,000 units, with a market share of 77.2% in the NEV segment.
• BYD retained the YTD BEV sales crown with a 18.9% market share.
• Wuling, Tesla, and Chery also showed strong performance, with Wuling leading in unit growth.
• VW and other foreign brands are making inroads into the BEV segment.

PHEV Segment

• Total PHEV (including EREV) retail sales volume increased 133% YoY to 105,000 units.
• BYD maintained its leadership in the PHEV segment with a 57.8% YTD market share.
• Aito, backed by Huawei, is gaining market share, particularly in tier-3 cities and below.
• Geely is expected to enter the top 10 list in the PHEV segment due to the Emgrand L PHEV's performance.

City Tier Performance

• Tier-1 Cities:
  • Retail sales volume growth reached 14.9% YoY in July 2022, the highest among all city tiers.
  • However, YTD growth remained negative at -14.5%.
• Tier-2 Cities:
  • YTD growth was -7%, with a 10.6% YoY growth in July.
• Tier-3 and Tier-4 Cities:
  • Tier-3 cities saw 6.9% YoY growth, while tier-4 and below cities had 3.5% YoY growth.
• Shanghai:
  • Contributed the most to both sales growth and decline, showing strong post-lockdown recovery.

Chinese Brand Market Share

• Chinese brands' trailing 12-month market share rose to 43.0% as of July 2022, a 25-month streak.
• This growth was primarily driven by NEV demand.
• Chinese-brand ICE vehicle sales declined 24% YoY, weaker than the overall ICE decline of 23% YoY.

Luxury Brands

• Luxury brands' retail sales volume rose 6.5% YoY in July, still underperforming the overall industry by 2.3 ppts.
• Luxury ICE sales declined 20% YoY, slightly outperforming the industrywide decline of 23% YoY.
• The lack of NEV models is a key factor in the underperformance of luxury brands.

Key Companies

• Great Wall Motor:
  • Wholesale volume rose 11% YoY to 102,000 units.
  • Inventory levels increased, with a focus on Haval and WEY brands.
  • Expected to debut three more Tank models in the next 12 months.
• Geely:
  • Wholesale volume rose 24% YoY to 123,000 units.
  • NEV sales volume rose 106% YoY to 443,000 units.
  • Retail sales volume declined 10% YoY to 91,000 units.
• BYD:
  • Wholesale volume reached an all-time high of 162,000 units.
  • Inventory levels increased to 1.1 months.
  • Expected to further increase wholesale volume with new plants and battery capacity expansion.

Industry Indicators

• Discounts:
  • Luxury brands' discounts widened MoM in July 2022, attributed to large order intakes and increased competition.
  • BYD's discounts narrowed slightly due to new model launches.
• PHEV and BEV Growth:
  • PHEV segment growth is intensifying, with BYD and Lixiang leading.
  • BEV segment is dominated by Chinese brands, with BYD showing the strongest growth.

Conclusion

The China auto sector is showing robust growth in July 2022, driven by strong NEV performance, inventory restocking, and export increases. While the NEV segment is expected to continue its strong momentum, the potential for price wars and competition is rising. Investors should monitor the impact of macroeconomic conditions, policy changes, and shifting market sentiment. The market share of Chinese brands is on the rise, particularly in the NEV and PHEV segments, indicating a shift in the competitive landscape.