Smart and Sustainable Electric Mobility
It's another sign that China's auto industry is changing rapidly and becoming hyper competitive, forcing major changes at traditional OEMs, Edison Yu's team said.
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Pacific Securities has a buy rating on Nio's Hong Kong-traded shares, with a target price of HK$103.62, implying an upside of 26.14 percent.
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The team has a HK$71.86 price target on Xpeng's Hong Kong-traded shares, implying an upside of 25.63 percent.
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Goldman Sachs believes the market has yet to fully reflect the potential of the G6, with the model ranking No.1 among comparable models, and which is the most competitive product released by Xpeng to date.
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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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While touring cars might be relatively niche compared to sedans, some comparable offerings in the market can still deliver monthly sales of about 10,000 units on a consistent basis, Tim Hsiao's team said.
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NIO (NYSE: NIO) officially launched the ET5 Touring yesterday, and its pricing looks competitive to analysts.
"Pricing of ET5 Touring is more competitive than we thought -- on par with the incumbent ET5 sedan at Rmb 298k+," Morgan Stanley analyst Tim Hsiao's team said in a research note sent to investors yesterday.
While the segment could be relatively niche, NIO management believes the ET5 Touring is likely to outsell its sedan version, the team noted.
In China, the available versions and pricing of the ET5 Touring are identical to those of the regular ET5 sedan.
Including the battery, the 75-kWh version starts at RMB 298,000 ($41,890) and the 100-kWh version at RMB 356,000.
Chinese consumers who choose to purchase the model using the BaaS (battery as a service) service will see the prices start at RMB 228,000 for both versions, with monthly battery rental costs of RMB 980 and RMB 1,680 respectively.
Compared to the regular ET5, the ET5 Touring has more rear-seat headroom, and more vertical space in the trunk, while it also has a lower driving position, and the option for electrochromic sunroofs, Hsiao's team noted.
"Such retrofits will help increase the TAM of the ET5 family by attracting users who attach greater value to the in-car space," the team said.
It's worth noting that in China, derivatives of sedans are a niche market.
However, the unexpected success of the Zeekr 001, the first model of Geely's Zeekr brand, has made such models increasingly popular.
For the full year 2022, Zeekr delivered 71,941 Zeekr 001s, reaching its goal of delivering 70,000 vehicles for the year.
While touring cars might be relatively niche compared to sedans, some comparable products in the market still manage to deliver monthly sales of about 10,000 units on a consistent basis, according to Hsiao's team.
In China, the competitive landscape in the touring market is relatively benign, with the main comparables coming mainly from foreign brands such as the Audi S4, Mercedes-Benz CLA and Volvo V60, according to the team.
Whether NIO can successfully ramp up sales of the ET5 Touring in the coming months to meet its goal of reaching 20,000 units per month in the second half of the year remains to be seen, the team said, adding that the company's management expects the ET5 family to contribute about 30 percent of sales.
The ET5 sedan, ET5 Touring and the new ES6 will dominate NIO's sales, Hsiao's team said.
NIO launched the new ES6, the most important model in its history, in China on May 24, with deliveries starting on launch night.
As with the new ES6, NIO produced some ET5 Touring vehicles in advance based on a combination of designer-recommended configurations, and its deliveries officially began today.
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NIO launches ET5 Touring in China with same pricing as regular ET5
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With NIO's broad price cuts and the rapid rollout of new NT 2.0 models, it could see a considerabe sales rebound in the second half of the year, according to Edison Yu's team.
NIO (NYSE: NIO) management expressed a rare cautious approach to future spending during last week's earnings call, and this week let the purchase threshold for the entire lineup drop. To Deutsche Bank, this series of moves suggests that NIO is finally starting to show real urgency.
"Our main takeaway following 1Q earnings and hosting NIO management (CFO in person in NYC this week) is that the urgency to capture volume and cut back spending is finally here," analyst Edison Yu's team said in a research note sent to investors today.
With NIO's broad price cut and the rapid rollout of the new NT 2.0 model, its sales can rebound considerably in the second half of the year, paving the way for 20,000 units per month, the team said.
In addition, as NIO reduces spending on non-core initiatives, its operating expenses and capital expenditures should be much more controlled, the team added.
NIO reported weaker-than-expected first-quarter results on June 9, with gross margins falling to just 1.5 percent due to promotional activities.
The company's management said during the earnings call that NIO will manage its cash flow carefully, postpone some of its fixed asset investments and focus on the countries it has already entered in Europe.
NIO is confident that it will see sales of more than 20,000 units per month in the second half of the year, William Li, the company's founder, chairman and CEO, said at the time.
On June 12, NIO lowered the starting prices of its entire new model lineup by RMB 30,000 yuan ($4,200), but the previously free battery swap service several times a month became a paid option.
Yu's team said in the research note today that they applaud the move as demand for NIO's existing models, particularly sedans, has been struggling in recent months.
"In our view, pricing is an issue for getting incremental buyers considering premium BEVs in general have sold poorly this year," the team wrote.
Despite the ongoing platform changeover for NIO's three first-generation SUVs, combined sales of the Avatr 11, IM LS7 and XPeng G9 averaged only about 4,500 units per month this year, about half of what the Audi Q5 sells locally in China, the team noted.
NIO's pricing is the highest among the upstart brands. In addition to price adjustments, the company must effectively compete with internal combustion engine vehicle makers, and extended-range electric vehicle (EREV) makers, and enhance its brand appeal, Yu's team said.
The electrification of China's premium car market appears to be proceeding more slowly, which may be counterintuitive to those outside of China, the team said.
They explained further:
Based on our analysis of the premium SUV market (>300k RMB), the BEV mix is only 12% YTD, compared with PHEV (includes EREV) at 18%, leaving 70% for ICE.
This compares with the overall market that is 21% BEV and 10% PHEV, showing customer preferences are quite different depending on the sub-segment.
The team's interpretation of this is that the EREV value proposition is resonating with a broader audience than expected, and Li Auto has done a very effective job at maximizing.
In addition, Yu's team believes that NIO's brand appeal has hit a wall of sorts as it struggles to gain momentum outside of Shanghai and surrounding provinces and outside of financial and tech social circles.
The performance of NIO's best-selling ET5 is a case in point. Nearly 40 percent of the model's sales come from Shanghai and surrounding provinces, and while the ET5 theoretically has the broadest appeal among NIO's offerings, sales in the south have been quite poor, the team said.
"Moreover, based on our channel checks, affluent older customers simply are not buying into the brand (yet) and still prefer traditional BBA cars (i.e., greater loyalty)," the team said.
For investors, they are shifting to a less negative view as NIO's sales and cash burn trajectory appears to be reversing, the team said.
Depending on how the second half of the year plays out, NIO's stock price could remain volatile until there is a clear upward trajectory in sales, according to the team.
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BREAKING: NIO cuts starting prices by $4,200 for all models and makes battery swap benefits optional
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At present, 89 percent of the new energy heavy trucks are pure electric models, and half of them support battery swap.
(Image: Screenshot from a CATL video)
China's electrification transition involves not only regular passenger cars, but heavy trucks as well.
By 2025, sales of electric heavy trucks in China are expected to reach 190,000 units, with a penetration rate of about 16 percent, said CITIC Securities analyst Yuan Jiancong's team in a research note today.
In China, the singularity for accelerated penetration of electric heavy trucks has arrived, with penetration expected to reach 35 percent by 2030, the team said.
The acceleration of new energy heavy truck penetration in China from 2021 onward was largely driven by China's restrictions on carbon emissions from high-emitting companies, according to the team.
In 2022, retail sales of new energy heavy trucks in China were 25,000 units, up 142 percent year-on-year, with a penetration rate of about 5 percent, CITIC Securities said, citing data from China Automotive Technology and Research Center (CATARC).
At present, 89 percent of new energy heavy trucks are pure electric models, and half of them support battery swap, according to the team.
Heavy-duty trucks have larger batteries and take longer to recharge at the same charging rate, and battery swap meets the efficiency requirements of these models, the team said.
From 2021 to 2022, the percentage of battery swap-enabled heavy-duty trucks ramped up, the team said, adding that they expect such electric heavy-duty trucks to become the industry's dominant product form in the near term.
On June 12, CATL unveiled Qiji Energy, a battery swap solution for heavy-duty trucks. Similar to the Chinese power battery giant's EVOGO solution for passenger cars released last year, Qiji Energy supports flexible use of the number of batteries.
With a capacity of 171 kWh in a single battery block, heavy trucks can choose to use 1-3 blocks, and the entire battery replacement process takes only a few minutes, CATL said.
In the vehicle-battery separation model, a heavy truck can save RMB 30,000 ($4,190) to RMB 60,000 in annual costs, CATL said.
CATL's move is expected to further boost the electrification of heavy trucks, CITIC Securities said in the research note today.
The penetration of electric heavy trucks is expected to accelerate in areas with higher requirements for range and economy, the team said.
The note also said that Tesla's first electric heavy truck, the Semi, which began deliveries on December 2, 2022, has a range of 800 km at 37 tons fully loaded and has met the criteria for wide-scale commercial operation.
Electric heavy-duty trucks have shown good economic performance in both the US and China, and the Tesla Semi could help the industry grow more rapidly in the US, the team said.
In China, electric heavy-duty trucks will be adopted preferentially in the short term in scenarios including coal industrial parks, steel industrial parks, and sanitation trucks, driven by policy.
By 2025-2030, market forces will drive more growth in the sector as electric heavy trucks improve in economy and range, according to the team.
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CATL launches battery swap solution Qiji Energy for heavy-duty trucks
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