20220614-招银国际-China_Auto_Sector_We_expect_June_wholesale_to_rise_double-digit_15页_1mb

China Auto Sector Summary

Core Content Overview

The China auto sector experienced mixed performance in May 2022, with retail sales declining significantly due to the impact of the Shanghai lockdown, while wholesale volumes showed strong growth, driven by inventory restocking and increased exports. The purchase tax cut introduced in June 2022 was expected to support internal-combustion engine (ICE) vehicle sales but did not significantly impact the New Energy Vehicle (NEV) segment, which continued to grow robustly.

Key Market Trends

• Wholesale Volume:

  • China's passenger-vehicle (PV) wholesale volume fell 2% YoY in May 2022, slightly better than the prior projection of a 16% decline.
  • Retail sales volume in May fell 22% YoY, aligning with the forecast of a 23% decline.
  • For June 2022, the report expects retail sales to fall 2% YoY and wholesale volume to rise 18% YoY.

• Inventory Levels:

  • Industry-wide inventory increased by about 0.36mn units in the first five months of 2022.
  • Inventory months fell to 1.72 in May from 1.91 in April, indicating a recovery in sales.

• NEV Performance:

  • NEV wholesale volume in May rose 109% YoY and 53% MoM, exceeding expectations.
  • NEV retail sales volume increased 82% YoY to about 0.33mn units.
  • NEVs accounted for 26% of total wholesale volume and 25% of total retail sales volume in May 2022, well on track for the full-year forecast of 25% market share.
  • NEV market share in tier-1 cities slightly narrowed to 24.7%, while it expanded in lower-tier cities.
  • The Wuling Hongguang Mini was a top-selling mini BEV in lower-tier cities, capturing 17% of the market share in the first five months of 2022.

• Segment Breakdown:

  • BEV Brands: BYD retained the YTD BEV sales crown with a market share of 18.2%, while Wuling came in second with 13.0%.
  • PHEV Brands: BYD dominated the PHEV segment with a YTD market share of 57.7%, and the segment as a whole saw a 23.2% share of the NEV market in May 2022.

Key Players Analysis

• Great Wall Motor:

  • Wholesale volume fell 8% YoY to about 80,000 units, and retail sales volume declined 33% YoY to about 60,000 units.
  • Inventory increased by about 7,400 units in May 2022.
  • The company has an order backlog of 200,000 units, with Tank contributing about 160,000 units.
  • The report expects continued weakness in WEY's wholesale volume due to inventory build-up.

• Geely:

  • Wholesale volume decreased 7% YoY to about 89,000 units, underperforming the industry.
  • NEV wholesale volume accounted for 22% of total sales in May 2022.
  • Retail sales volume fell 23% YoY to about 71,000 units, leading to an inventory increase of 2,100 units.
  • The company has an order backlog of about 180,000 units, with the Xingyue L contributing 35,000 units.
  • The report is cautious about the recent retail performance of key models and suggests monitoring the trend.

• BYD:

  • Wholesale volume rose 8% MoM to an all-time high of 114,183 units in May 2022.
  • Retail sales volume increased 14% MoM to about 103,000 units, leading to an inventory increase of 10,700 units.
  • The company is expected to further increase its wholesale volume with new plant capacities coming online.
  • BYD's battery annual capacity is projected to reach 275 GWh in 2023 and 350 GWh in 2024.

• GAC Group:

  • Total wholesale volume rose 4% YoY, outperforming the industry.
  • Aion's wholesale volume doubled MoM to about 21,000 units, while its retail sales volume was only about 11,000 units.
  • GAC Toyota's wholesale and retail sales both increased YoY, with an inventory level of 1.5 months as of May 2022.

Industry Indicators

• City Tier Performance:

  • Tier-1 cities saw the largest YoY decline in retail sales (-47% in May 2022), primarily due to the Shanghai lockdown.
  • Tier-3 and tier-4 cities showed more resilience, with NEVs contributing significantly to growth.
  • Retail sales growth in different city tiers was expected to be similar in 2022, but pandemic recurrence could lead to more volatility.

• Chinese Brand Market Share:

  • Chinese brands saw a 23-month streak of rising trailing 12-month market share, reaching 42.6% as of May 2022.
  • Excluding NEVs, Chinese-brand ICE vehicles saw a 39% YoY decline, weaker than the overall ICE segment (-34% YoY).
  • The report suggests that the momentum could continue, potentially making the full-year market share projection too conservative.

• Luxury Brands:

  • Luxury brands underperformed, with total retail sales volume falling 32% YoY in May 2022, 10 ppts below the industry average.
  • Luxury market share shrank to 16.4% as of May 2022, with the most significant decline in tier-1 cities.
  • Despite the lockdown, Tesla retained the 4th position among luxury brands, with a YTD market share of 9.7%.
  • The report projects that luxury brands may narrow the gap with the overall industry as supply chain constraints ease.

Company Watch List

Outlook and Recommendations

• The report maintains an OUTPERFORM rating for the China auto sector.
• NEVs are expected to remain resilient despite the purchase tax cuts.
• The report cautions that the tax cut could lead to volatility in sales and highlights the need for better inventory and demand forecasting by automakers.
• It recommends focusing on leading NEV makers that could disrupt the industry and suggests that the tax cut should not deter traditional automakers from electrification and digitalization efforts.
• Investors should pay more attention to high-margin models and monitor the performance of key brands like Geely and Great Wall Motor.