Smart and Sustainable Electric Mobility
The IEA now expects China's gasoline demand to peak in 2024, bringing forward previous forecasts of demand leveling off in 2025/2026.
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BYD, Hozon and SAIC together accounted for more than 68 percent of the Southeast Asian BEV market in the first quarter.
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Buying a BEV platform in China could be one of the "big bangs" needed for Volkswagen stock to break out of what can by now only be characterized as being largely ignored by many of the largest asset managers globally, Deutsche Bank said.
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By then, the energy density of lithium batteries could reach 500 Wh/kg, providing EVs with two to three times the range of liquid lithium batteries and tying the range of fuel vehicles, TrendForce said.
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Chinese automakers have now crossed the inflection point for global influence, with local brands expected to hold 65 percent of the market share in China by 2030, AlixPartners said.
China, the world's largest auto market, has been dominated by foreign brands for many years, but that is about to change with the rapid growth of local brands in the past few years.
This year, China will become the world's largest auto exporter, and for the first time, local brands are expected to overtake overseas brands in market share, AlixPartners, a New York-based consulting firm, said in a report yesterday.
Chinese automakers have now crossed the inflection point for global influence, with local brands expected to hold 65 percent of the market in China by 2030, said Stephen Dyer, co-head of AlixPartners Greater China.
In the first half of 2020, local brands' monthly share of the Chinese auto market was at slightly more than 30 percent, with German and Japanese brands then at around 30 percent and 25 percent, respectively, according to the China Passenger Car Association (CPCA).
In October 2022, the share of local brands in the Chinese auto market reached 51.53 percent, the first time in history that the monthly share exceeded 50 percent, according to data monitored by CnEVPost.
While local brands are on the rise, foreign brands are gradually declining. In October last year, the share of German brands fell to 19.25 percent and Japanese brands fell to 18.94 percent.
In the first five months of this year, the share of local brands has remained at around 50 percent, including 50.24 percent in May, according to the CPCA.
Chinese automakers are poised to become a dominant force in the global auto industry in the coming years, thanks to government support for new energy vehicle (NEV) companies, automakers' focus on vehicle styling and customer orientation, and the accelerating pace of NEV launches, according to AlixPartners.
The business models evolved by Chinese automakers are also likely to be successful in Europe and the US, and Chinese automakers will become a dominant force in the global auto industry in the coming years, the report said.
However, industry disruption from Chinese manufacturers won't necessarily make quick waves in overseas markets as traditional car companies around the world are focused on dealing with the impact of innovation from Tesla, the report also noted.
The success of Chinese NEV brands provides a reference for global automakers, AlixPartners said, adding that local brands are better able to meet the needs of a new generation of tech-savvy consumers while maintaining a strong value for money and offering a better digital marketing experience than joint venture brands.
Models that are popular with Chinese consumers are also increasingly likely to be popular with global consumers, and multinational automakers must be prepared to fundamentally change their working models as Chinese-style competition eventually comes to their home markets as well, the report said.
AlixPartners expects auto sales in China to grow 3 percent in 2023 and then maintain a slow but steady pace to reach a level of 50 million units around 2050.
Retail sales of passenger cars in China were 20.54 million units in 2022, up 1.9 percent year-on-year, with NEVs contributing 5.67 million units, or 27.6 percent, according to the CPCA.
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After the price cut and a series of new models, Nio sales could reach 20,000 units per month in the third quarter, according to Edison Yu's team.
China's major electric vehicle (EV) makers recently announced their June deliveries, and Deutsche Bank analyst Edison Yu's team provided their take, as usual.
"June EV sales surprised to the upside as demand picked up, likely signaling some normalization in consumer behavior and release of pent-up demand from buyers taking advantage of low prices," the team said in a research note sent to investors today.
Li Auto (NASDAQ: LI) again led the way among the upstarts, setting a new monthly record, while Nio (NYSE: NIO) saw a large improvement in monthly sales, driven by the speedy ramp-up of the ES6, the team noted.
Looking ahead, pressure will be on Nio and Xpeng (NYSE: XPEV) to deliver big growth in the second half with new vehicle launches, while Li Auto works to increase its already strong order book, Yu's team said.
As a backdrop, Nio delivered 10,707 vehicles in June, up 73.96 percent from 6,155 in May, though down 17.39 percent from 12,961 a year earlier.
Xpeng delivered 8,620 vehicles in June, up 14.84 percent from May and the fifth sequential growth, despite a 43.64 percent decline from the same month last year.
Li Auto delivered a record 32,575 vehicles in June, surpassing the 30,000 mark for the first time.
Zeekr delivered 10,620 vehicles in June, up 146.86 percent year-on-year and up 22.38 percent from May.
Yu's team said Nio deliveries were slightly below their forecast, though the new ES6 appears to be ramping up smoothly and should be a bigger contributor in July along with the full month of production of the ET5 Touring.
After the price cut and a slew of new models, Nio could reach 20,000 units per month in the third quarter, the team said.
The team said Xpeng deliveries exceeded their expectations and, most importantly, the initial reception to the new G6 looks increasingly positive.
Looking ahead, Xpeng is on track to hit at least 10,000 deliveries in July and 15,000 in September is doable, the team said.
Here is the full text of the team's research note.
June gathering momentum
June EV sales surprised to the upside as demand picked up, likely signaling some normalization in consumer behavior and release of pent-up demand from buyers taking advantage of low prices.
Total NEV retail sales appear to be tracking around 670k according to preliminary CPCA forecasts or +16 percent MoM (+26 percent YoY).
Li Auto once again led the way among the upstarts setting a new monthly record while Nio saw a large improvement MoM driven by speedy ramp up of ES6.
Looking ahead, the pressure will be on Nio and XPEV to deliver big growth in 2H from new launches while Li Auto strives to increase its already robust order book.
June OEM recap
Li Auto delivered 32,575 vehicles (+15 percent MoM; +150 percent YoY), easily beating our forecast. Looking ahead, management is targeting L8 and L9 to be +10,000 each and L7 at 15,000 in monthly sales for 3Q and then 40,000 total in 4Q.
To support this, we are expecting a cheaper variant of the L9 to be available later in the year.
Separately, the first BEV (Li MEGA) is set to be unveiled in 4Q, catering to the >500k RMB segment.
The company exited the month with 331 retail stores and 323 servicing centers.
Nio delivered 10,707 units (+74 percent MoM; -17 percent YoY), slightly below our forecast.
The new ES6 appears to be ramping up smoothly and should be an even bigger contributor in July along with a full month of ET5 Touring production. New ES8 deliveries also began in the last few days of June.
Following the price cut and slew of new models, we think 20,000 in monthly sales is achievable during 3Q.
Nio exited the month with ~1,500 battery swap stations.
XPeng delivered 8,620 units (+15 percent MoM; -44 percent YoY), ahead of our expectations. P7 sales increased 17 percent MoM to nearly 5,200.
Most importantly, the initial reception to the new G6 is looking increasingly positive.
Starting price will be just 210k RMB and management raised its pre-sale number to +35,000 units (vs. prior +25,000), suggesting a robust pipeline of deliveries for 3Q.
Looking ahead, we expect July can reach at least 10,000 deliveries and 15,000 in September is doable.
Zeekr delivered sales of 10,620 vehicles (+22 percent MoM; +147 percent YoY). Looking ahead, Zeekr is offering some promotions through September on the 001 (likely in response to ET5 Touring competition) including free upgrade options on exterior color, larger 100 kWh battery, dual-motor 4WD, air suspension, and/or charging credits.
In addition, the company is providing special financing offers on all models.
Recall, Zeekr is targeting 140,000 in total unit sales this year (<43,000 through 6 months so far).
Nio deliveries rebound to 10,707 units in Jun as new models bring relief
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PHEVs get the same tax exemption as BEVs, and the extension of the tax break will attract more automakers to the market, Fitch said.
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China last week extended tax incentives for new energy vehicles (NEVs) for four years, a move that in the view of international credit rating agency Fitch Ratings could help renew electrification momentum.
China's extension of tax breaks for electric vehicle (EV) purchases should facilitate steady growth in the sector, while the continued coverage of subsidies for plug-in hybrid electric vehicles (PHEVs) reinforces Fitch's view that such vehicles will be a key catalyst for China's transition to EVs, analyst Jing Yang's team said in a June 28 research note.
On June 21, China's Ministry of Finance announced that NEVs with a purchase date between January 1, 2024, and December 31, 2025, will continue to be exempt from vehicle purchase tax, but the exemption will not exceed RMB 30,000 yuan ($4,340) per vehicle.
For NEVs with a purchase date between January 1, 2026 and December 31, 2027, the vehicle purchase tax will be levied at half the normal rate, with a tax reduction of no more than RMB 15,000 per vehicle.
"We believe the renewal of tax waivers for consumers purchasing EVs until end-2025 aligns with market expectations. Purchase taxes will be halved in 2026-2027 and then return to normal levels," Fitch said.
Sales of PHEVs, including extended-range electric vehicles (EREVs), will continue to grow rapidly under the updated policy, with these vehicles receiving the same tax exemption as battery electric vehicles (BEVs), the note said.
PHEVs are a close substitutes to traditional internal combustion engine vehicles because drivers do not suffer from mileage anxiety or charging inconvenience, and are therefore widely seen as a transitional product before the market shifts completely to BEVs, Fitch said.
PHEVs' share of China's EV market soars from 17 percent in 2021 to 28 percent in January-May 2023, Fitch said.
Competition in the PHEVs segment has intensified, and the extension of tax breaks will attract more automakers to the market, according to the note.
Plug-in hybrids are an easier sub-segment for traditional automakers to compete in than BEVs, with Great Wall Motor, Geely and Changan Automobile all launching competitively priced plug-in hybrids this year, Fitch said.
Joint venture brands, despite having a firmer foothold in the market, have been slowed due to their global parent companies' focus on BEVs and less attractive pricing, the note said.
Tax breaks for high-end EVs will remain in place, which could ease local automakers' concerns about upgrading to premium EV brands, did not expect the waivers to be renewed, and should incentivize traditional luxury carmakers to transition faster toward EVs, Fitch said.
The latest program exempts consumers who buy battery swap-enabled EVs from the battery tax for the first time, Fitch noted, saying it expects this to benefit EV brands selling high-end BEVs with battery swap capability and to encourage automakers to adopt the model.
Overall, Fitch believes the subsidy extension will have little impact on EV sales in China in 2023 and continues to forecast EV deliveries to grow by more than 30 percent during the year and EV market penetration to reach 35 percent.
However, the extension could reduce front-loaded purchases in the fourth quarter of 2023, as consumers will no longer be eager to take advantage of expiring tax breaks, Fitch said.
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China's Ministry of Finance explains in detail how consumers will enjoy NEV tax breaks in 2024-2027
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Western Europe is a traditional stronghold for international carmakers, and it's difficult for Chinese brands to stand out, TrendForce said.
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Chinese brands are expected to increase their share of the Western European new energy vehicle (NEV) market to 9 percent in 2023, up from 6 percent in 2022, market research firm TrendForce said in a report today.
SAIC's MG is the dominant Chinese brand in the Western European NEV market, according to the report.
Chinese exports of NEVs are primarily aimed at Western European countries with clear timetables for phasing out fuel vehicles, as well as Southeast Asia, especially Thailand, where penetration of such vehicles is low, TrendForce noted.
Western Europe is the home base of traditional international car manufacturers, and it is difficult for Chinese brands to stand out, the report said.
However, it is worth noting that Chinese NEVs emphasize high cost-efficiency and intelligence, and affordable electric vehicles can meet demand against the backdrop of high inflation facing Western Europe, TrendForce said.
In Southeast Asia, where Chinese brands entered early, the number of NEVs here is small, in the tens of thousands range, but the share of Chinese brands is high, the report said.
In 2023, the market share of Chinese brands in the Southeast Asian NEV market is expected to rise to 63 percent from 52 percent in 2022, TrendForce said.
This is a major concern for Japanese brands, which have long had a high market share in the Southeast Asian auto market, the report said.
Entering new markets requires a significant investment of resources, including the establishment of showrooms, after-sales maintenance service systems, charging infrastructure and compliance with local regulations.
Therefore, how to maintain price advantages while adding additional costs will be key to the success of Chinese auto brands overseas, according to TrendForce.
China's NEV industry developed early and has advantages in supply chain, productivity, cost-effective lithium iron phosphate (LFP) battery technology and production capacity, the high report also noted.
Chinese battery makers have layout in global upstream lithium resources, so their cost control and component supply stability are higher, becoming an advantage for Chinese car manufacturers when expanding overseas markets, the report said.
NEVs accounted for more than 25 percent of China's auto exports in the first quarter of 2023, and NEVs will be the focus of future expansion into overseas markets, TrendForce said.
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Second-tier battery makers may adopt a more aggressive pricing strategy to gain market share in the second half of the year, and CATL could face increasing risks to its market share and margins in the domestic market, Morgan Stanley said.
Morgan Stanley downgraded its rating on CATL, citing market share risks, sending shares of the Chinese power battery giant tumbling in morning trading.
"We downgrade CATL to UW as we think second-tier battery makers may adopt more aggressive pricing strategies to gain market share in 2H23," analyst Jack Lu's team said in a research note sent to investors earlier today.
As of press time, CATL shares traded in Shenzhen were down about 6 percent to near their lowest point of the year.
Earlier this year, Morgan Stanley upgraded CATL to equal weight, while being bearish on most battery material makers, as it believes CATL is better able to respond to slowing demand and leverage its cost advantages and bargaining power across the broader value chain.
Now, Lu's team believes that the dual-sourcing battery strategy of local EV companies may help the Tier 2 battery makers achieve their goals, while CATL may face increasing risks in terms of market share and margins in the domestic market.
In February, CATL launched a lithium rebate program to trade cheap lithium resources for market share. However, the subsequent plunge in lithium prices to below RMB 200,000 per ton has led to significant uncertainty about the program, the team said, adding that they have not received any further news about the program.
Meanwhile, battery makers have been offering fairly significant price cuts against the backdrop of falling lithium prices in the second quarter, the team noted.
"Our checks with tier-two battery makers indicate that the price cuts could be in the range of 10-20% during the quarter, with some battery makers likely offering more aggressive cuts than others," the team wrote.
Such actions could threaten CATL's market share in its domestic market, and market share potential is an important stock price driver, the team said.
CATL's power battery installed base in China was 10.26 GWh in April, ranking first with a 40.83 percent share, but down from 44.95 percent in March, China Automotive Battery Innovation Alliance (CABIA) data from last month showed. Data for May is Expected to be available in a few days.
NIO (NYSE: NIO) and Li Auto (NASDAQ: LI) are bringing in new battery suppliers instead of making CATL their sole supplier, Lu's team noted.
"With many new models being launched in the domestic EV market, we think CATL's domestic market share could come under pressure," the team said.
As background, since late last year, regulatory filings for NIO's new NT 2.0-based models have shown battery suppliers that include the smaller CALB in addition to CATL.
Last month, NIO filed to use semi-solid-state batteries from Beijing WeLion New Energy Technology in its models.
On February 8, Li Auto officially launched its first five-seat SUV, the Li L7, and announced the introduction of Sunwoda Electric Vehicle Battery and Svolt Energy as new battery suppliers.
More and more Tier 2 companies are adopting increasingly aggressive pricing strategies, and CATL may have to do the same, according to Lu's team.
Despite a short-term recovery in value chain orders, there will still be excess battery capacity in the short term and price competition is inevitable, the team said.
In addition to the market share pressure it faces domestically, Lu's team believes CATL's overseas path is increasingly uncertain.
"Some investors have argued that CATL's market share overseas is yet to see signs of decline; however, in our view CATL's overseas market is under increasing scrutiny and becoming more and uncertain, limiting visibility," the team wrote.
CATL has tried to penetrate overseas markets through exports and localization of production, but both pathways are increasingly at risk due to geopolitical tensions, particularly in the US, the team said.
Notably, Lu's team stressed that if the cost of battery materials and minerals continues to fall, this could give car companies more room to pursue new technologies and other battery performance metrics.
"If this is the case, CATL could regain any lost market share and continue to dominate the global battery market, leveraging its strong R&D capabilities and bargaining power over the supply chain. Our bull case scenario assumes 60% global market share in the long term," the team wrote.
Global EV battery market share in Jan-April: CATL 35.9%, BYD 16.1%
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Confirmed orders for the ES6 accounted for 35-40 percent of new orders in May, meaning inflows since the model's launch in the last week of May have been quite meaningful, Morgan Stanley said. | NIO US | NIO HK | NIO SG
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The new ES6 is critical for NIO (NYSE: NIO) to turn around its weak sales performance. So what has the model contributed to NIO since its launch? A new research note from Morgan Stanley provides a good reference.
NIO's overall new order intake hit a year-to-date high, boosted by the launch of the new ES6, analyst Tim Hsiao's team said in a research note sent to investors on June 5.
The team said they have been tracking some feedback from startups' major sales channels in major Chinese cities since early last year to better understand the latest market dynamics.
The team shared their key findings in their research note while noting the limitations of their sampling methodology.
Confirmed orders for the ES6 accounted for 35-40 percent of new orders in May, implying quite a meaningful inflow since the model hit the market in the last week of May, the team said.
As background, NIO officially launched the new ES6 on May 24 and delivered it to its first owners the same night, the fastest from launch to delivery in the company's history.
Including the battery, the new ES6 has a starting price of RMB 368,000 ($51,680), making it NIO's least expensive SUV.
NIO saw overall traffic at its flagship stores in Tier 1 cities increase 30-40 percent month-on-month in May and continued that momentum in early June after the company brought the new ES6 to market, Hsiao's team said, citing their latest checks.
"Overall store traffic at the stores we track is back to the level seen this February but still 20% below last September's level, when the company rolled out ET5," the team said.
NIO stores' retail conversion rate -- the ratio of orders to traffic -- remained largely steady at 5 percent in May, the team said, adding that consumers need more time to get a closer and deeper look at the new model and they expect conversion rates to climb gradually with broader test drives.
Hsiao's team believes the starting price for the new ES6 looks a bit conservative, but their checks last week at major NIO flagship stores in Tier 1 cities suggest that order momentum has been picking up.
"Certain stores we talked to further suggest that NIO's orders as a whole exceeded 9k units in May. Within this, ES6 basically dominated order inflow after taking confirmed orders from last week of May," the team said.
On a full-month basis, the new ES6 accounted for more than 35 percent of total orders, which suggests a quite meaningful turnaround at the end of the month, the team said.
Orders for NIO look a bit overly concentrated at the moment, Hsiao's team said, adding that some salespeople they interviewed suspended order intake for the ES8 and EC6 during the model changeover.
NIO's sedan models, such as the ET7, saw orders drop by about 20 percent in May from a year earlier, according to the team.
"ET5 and the all-new ES6 contribute about 80% of new orders, implying likely greater volatility if other high-margin models fail to catch up," the team said.
Notably, NIO is still in the process of getting the new ES6 capacity to climb, and the model contributed very little to deliveries last month.
The EV maker delivered 6,155 vehicles in May, down 7.55 percent from April and down 12.37 percent year-on-year, according to data released June 1.
The deliveries included 2,396 SUVs and 3,759 sedans, NIO said.
NIO will complete the capacity ramp for the new ES6 in June to deliver vehicles as soon as possible, Jim Wei, the company's senior vice president of customer operations, said in a June 1 announcement of May delivery figures on the NIO App.
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NIO Q1 earnings preview: Struggling along for another quarter
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