In-Depth Analysis of China’s Automotive Sector

Broker: UOB Kay Hian | Date: December 6, 2024

Overview of China’s Automotive Market

In recent times, China’s automotive market has shown significant growth and transformation. The market has been influenced by various factors including government policies, market demands, and global economic conditions. As we delve into the specifics, several key players emerge, each with notable performance and strategic maneuvers.

BYD Company (1211 HK)

BYD Company has been a notable player in the automotive sector, with wholesale shipments witnessing a growth of 67.9% year-on-year and 0.8% month-on-month to a record of 506,804 units in November 2024. This performance aligns with UOB Kay Hian’s estimate, pushing the 11-month 2024 wholesale shipment to around 3.76 million units, marking a 40% year-on-year increase. Although BYD is on track to meet its estimated 2024 wholesale shipment of 4.25 million units, the price war in the electric vehicle (EV) sector, initiated by Tesla’s price cuts, poses potential challenges. The company’s strategy includes offering discounts on some models and maintaining a robust sales volume forecast for 2024-26, with net profit estimates of Rmb39,627m, Rmb42,435m, and Rmb43,549m respectively.

Li Auto (2015 HK)

Li Auto has also made significant strides with its wholesale shipments growing by 18.8% year-on-year, although experiencing a slight dip of 5.3% month-on-month to 48,740 units in November 2024. The company’s 11-month delivery stands at 441,995 units, a 35.7% increase year-on-year. However, the company faces increasing competition from peers like XPeng and Leapmotor in the Extended Range Electric Vehicle (EREV) segment. Despite these challenges, Li Auto maintains its 2024-26 net profit forecasts at Rmb5,992m, Rmb5,440m, and Rmb5,074m, based on delivery targets of 505,000 units in 2024 and a steady increase in the subsequent years.

Geely Automobile (175 HK)

Geely has demonstrated strong growth with wholesale shipments increasing by 27.0% year-on-year and 10.3% month-on-month, reaching a record of 250,136 units in November 2024. The company’s 11-month 2024 wholesale shipments have reached 1.97 million units, marking a 30.9% year-on-year growth. Geely’s strategic focus on expanding its electric vehicle (EV) lineup, including models such as the Galaxy and Zeekr, has bolstered its market position. The company’s executive directors recently increased their stakes in Geely, indicating strong confidence in its future performance. Geely’s net profit forecasts for 2024-26 stand at Rmb9.17b, Rmb10.67b, and Rmb13.03b respectively, with sales volume targets of 2.10m units for 2024.

XPeng (9868 HK)

XPeng has seen a significant surge with its wholesale shipments growing by 54.2% year-on-year and 29.2% month-on-month to 30,895 units in November 2024. The company’s recent sales growth has been driven by the introduction of cheaper models like the Mona M03 and P7+. However, this growth comes at the cost of lower Average Selling Prices (ASP) and margins. Despite the challenges, XPeng’s insurance registrations reached 9,400 units in the 48th week of 2024, marking a 100% year-on-year increase. The company maintains its net loss estimates for 2024-26 at Rmb6,679m, Rmb5,487m, and Rmb4,229m respectively.

Tesla Shanghai Factory

Tesla’s Shanghai factory reported the delivery of 78,856 units in November 2024, a slight year-on-year decline of 4.3%, but a positive month-on-month growth of 15.5%. The company aims to sell over 515,000 vehicles globally in the fourth quarter of 2024. Tesla’s strategic price cuts and financing incentives in China have proven effective, with insurance registrations reaching 18,700 units in the 48th week of 2024, marking an 8% year-on-year increase.

Market Trends and Future Outlook

China’s EV market is currently experiencing a shift down the price curve, with a brewing price war as 2024 comes to an end. The rollback of favorable policies for EVs, including increased charging prices and the introduction of road maintenance fees, indicates a shift towards a more balanced playing field between EVs and Internal Combustion Engine (ICE) cars. Despite these challenges, the Middle East is emerging as a new growth driver for China’s vehicle exports.

Conclusion

UOB Kay Hian maintains a MARKET WEIGHT rating on China’s automotive sector, with a preference hierarchy of OEMs, automotive part manufacturers, and automobile dealers. The top BUY recommendations are Geely, Fuyao Glass, and Desay SV, given their strategic positioning and growth potential in the evolving market landscape.