20220919-招银国际-China_Auto_Sector_What_we_worried_earlier_is_partially_priced_in_now_17页_1mb

China Auto Sector Summary

Core Content

The China auto sector experienced strong growth in passenger-vehicle (PV) sales in August 2022, with wholesale volume up 37% YoY to 2.13 million units, exceeding prior projections. Retail sales volume also rose 18% YoY to 1.89 million units, though slightly below forecast. This growth was driven by purchase-tax cuts and increased inventory restocking, which led to record-high industry-wide inventory levels. PV exports hit an all-time high of 0.26 million units in August, with a 8% increase from July 2022.

Main Points

• Wholesale and Retail Sales:
  • PV wholesale volume in August 2022 was the highest on record, with a 37% YoY increase.
  • Retail sales volume rose 18% YoY to 1.89 million units, though slightly below forecast.
• Inventory Levels:
  • Industry-wide inventory increased by 0.73 million units in the first eight months of 2022, the highest in history.
  • NEV inventory increased by 86,000 units in August, contributing 51% of total PV inventory increases.
• NEV Growth:
  • NEV retail sales volume rose 101% YoY in August, reaching 483,000 units.
  • NEV market share in the PV segment reached 23.6% in the first eight months of 2022.
  • NEV market share in tier-1 cities reached 25.6%, while in tier-3 and below, it increased to 19.6% and 15.6%, respectively.
• NEV Segment Leaders:
  • BYD was the largest contributor to NEV sales growth, with its Dolphin BEV, Song Plus PHEV, Yuan Plus BEV, and Qin Plus BEV among the top five contributors.
  • Tesla's production and sales in China are expected to reach new highs in September.
• BEV Market:
  • BEV retail sales volume in August rose 96% YoY to 368,164 units.
  • BYD retained the YTD BEV sales crown with a 19.3% market share.
  • GAC Aion surpassed Chery, and Changan and VW also outperformed Xpeng.
  • Xpeng may drop out of the top 6 list by the end of 2022.
• PHEV Segment:
  • PHEV (including EREV) retail sales volume increased 123% YoY to 115,000 units.
  • BYD dominated the PHEV segment with a 59.1% YTD market share.
  • Aito and Geely are expected to enter the top 10 PHEV brands soon.
• City Tier Performance:
  • Tier-1 cities saw the highest YoY growth in PV retail sales in August (27%), driven by Shanghai and Beijing's post-lockdown recovery.
  • Tier-2 cities had the best performance in terms of YTD retail sales volume, with a 3.4% YoY decline.
  • Tier-3 and below cities showed mixed results, with some experiencing YoY declines due to pandemic recurrence.
• Market Outlook:
  • A short-lived rebound for auto sector share prices is possible, as most short-term negative factors have been priced in.
  • The market may be pricing in potential valuation dents from intensified competition and inventory levels in 2023.
  • Investors are advised to favor NEV start-ups over traditional automakers, with NIO as the top pick.

Key Companies and Models

• Great Wall Motor:
  • Wholesale volume rose 19% YoY to 88,000 units, but declined 13% MoM.
  • Retail sales volume declined 20% YoY to 71,000 units.
  • Inventory restocked by 1,800 units in August.
  • H6 HEV and PHEV models launched in August, but sales growth remains uncertain.
• Geely:
  • Wholesale volume rose 39% YoY to 123,000 units.
  • NEV wholesale volume accounted for 31% of total sales in August.
  • Retail sales volume increased 1% YoY to 109,000 units, with inventory destocking.
• BYD:
  • PV wholesale volume hit an all-time high of 174,000 units in August.
  • NEV market share reached 30% in the wholesale segment.
  • Inventory levels at dealers increased by about 81,000 units in the first eight months.
  • Expected to face intensified competition in 2023 due to capacity expansion.
• GAC:
  • Aion's wholesale volume rose 8% MoM to 27,000 units, surpassing prior forecasts.
  • Retail sales volume fell 2% MoM to 22,500 units.
  • Expected to launch two new B-segment models in 2023.
  • GAC Toyota's inventory level was estimated at 0.9 months as of August.
  • GAC Honda's performance lagged due to NEV boom and weak sales.

Outlook and Recommendations

• Stocks Covered:

  • Xpeng (XPEV US, 9868 HK): BUY
  • NIO (NIO US): BUY
  • Li Auto (LI US, 2015 HK): BUY
  • GWM (2333 HK, 601633 CH): BUY
  • GAC (2238 HK, 601238 CH): BUY
  • EVA (838 HK): BUY
  • Meidong (1268 HK): BUY
  • BYD (1211 HK, 002594 CH): HOLD
  • Geely (175 HK): HOLD

• Investor View:

  • A price war in both ICE and NEV segments is expected in the next six months.
  • NEV competition is intensifying, with more automakers entering the top 10 list.
  • The market may be pricing in the potential for a short-lived rebound in share prices.
  • NEV start-ups are preferred over traditional automakers due to their growth potential.
  • BYD and GAC are key players to watch for their future performance and new model rollouts.

Conclusion

The China auto sector showed strong performance in August 2022, driven by tax cuts and inventory restocking. NEV growth continued to outpace ICE, with Chinese brands gaining market share. However, concerns remain about competition intensifying in 2023, especially with the expiry of tax cuts and high inventory levels. The sector is expected to face short-lived rebounds, and investors should focus on NEV start-ups and companies with strong new model pipelines.