Trump’s Tariffs To Reshape China Automobile Supply Chain

Sector Update: Automobile – China

UOB Kay Hian – 08 November 2024

The potential imposition of tariffs by Donald Trump, following his victory in the 2024 US presidential election, is set to reshape the structure of China’s automobile supply chain. The impacts of these tariffs will be felt differently across various segments of the automotive sector.

Impact of Trump’s Tariffs

Trump has pledged to impose the highest tariffs in history on imports, including a 60% tariff on all Chinese imports and a 20% tariff on imports from other countries. Additionally, he has threatened tariffs of 200-1,000% on cars imported directly from China and over 200% on vehicles imported from Mexico. This aggressive stance targets Chinese auto imports specifically.

Minimal Impact on Chinese Carmakers

Chinese carmakers are unlikely to be significantly affected. Chinese car exports to the US remain minimal, with only 61,000 passenger vehicles exported to the US from January to August 2024, accounting for just 1.7% of China’s total vehicle exports. Companies like Geely, GWM, and BYD are focusing on emerging markets such as Southeast Asia, Latin America, and Africa instead of the US.

Vulnerability of Auto Parts

The auto parts segment, however, stands to be more vulnerable. China’s auto exports to the US are predominantly components, valued at USD 12.1 billion from January to August 2024. The US market accounts for over 20% of total revenue for Chinese automotive part suppliers under coverage, with Nexteer particularly exposed, deriving about 40% of its revenue from the US market. The tariffs would likely dent the margins of these suppliers.

Market Outlook and Top Picks

Maintaining a market weight stance, UOB Kay Hian’s top BUYs include Geely, CATL, Fuyao Glass, and Desay SV. Tuopu and Minth have been replaced by Fuyao Glass in the top BUY list due to the latter’s potential benefits from Trump’s policies.

Weekly Stock Performance

Relative Performance of Auto Stocks

Company Analysis

Geely (175 HK)

Geely remains a top pick with a BUY rating, a current share price of HK\$14.34, and a target price of HK\$21.50. Zeekr, a Geely brand, saw insurance registrations grow by 45% YoY, 57% MoM, and 14% WoW to 5,800 units in the 44th week of 2024. Zeekr delivered a record 25,049 vehicles in October 2024, up 91.6% YoY and 17.4% MoM, bringing 10M24 deliveries to 167,922 units (+82.3% YoY). The company is targeting around 230,000 vehicle deliveries for the entire year. Geely Galaxy Starship 7, equipped with Geely’s latest Thor EM-i super hybrid technology, was launched on 4 November 2024, competing with BYD Song Plus. The forecasted net profit for Geely for 2024-26 is Rmb8,980m/Rmb11,264m/Rmb13,495m based on sales volumes of 2.00m units/2.35m units/2.70m units.

CATL (300750 CH)

CATL is another top pick with a BUY rating, trading at RMB 262.80 with a target price of RMB 350.00. The company is a key player in battery manufacturing and is expected to perform well given the electrification trends in the market.

Fuyao Glass (3606 HK)

Fuyao Glass, rated BUY with a current share price of HK\$55.20 and a target price of HK\$68.00, is set to benefit significantly from Trump’s “made-in-America” policy. The company has two plants in the US, making it the only Chinese auto part company with local production in the US.

Desay SV (002920 CH)

Desay SV is rated BUY with a share price of RMB 133.00 and a target price of RMB 190.00. The company is expected to benefit from trends towards electrification and intelligentisation in the auto industry.

BYD (1211 HK)

BYD is rated HOLD with a current share price of HK\$280.40 and a target price of HK\$275.00. BYD’s insurance registrations were 100,500 units (+106.3% YoY, +44.2% MoM, +1.2% WoW) in the 44th week of 2024, with wholesale shipments of 502,657 units in October 2024, up by 66.5% YoY and 19.8% MoM. The company’s net profit forecasts for 2024-26 are Rmb39,627m/Rmb42,435m/Rmb43,549m, driven by new models such as Qin L DM-i, Seal 06 DM-i, Song L DM-I, and Han 2025.

Li Auto (2015 HK)

Li Auto is rated HOLD with a current share price of HK\$97.80 and a target price of HK\$100.00. The company recorded 11,400 units (+31.2% YoY, +31.0% MoM, +0.9% WoW) of insurance registrations in the 44th week of 2024. Monthly deliveries were 51,443 units in October 2024, bringing 10M24 deliveries to 393,255 units (+38.2% YoY). The net profit forecasts for 2024-26 are RMB 5,992m/RMB 5,440m/RMB 5,074m based on deliveries of 505,000 units/550,000 units/600,000 units.

XPeng (9868 HK)

XPeng is rated SELL with a current share price of HK\$50.00 and a target price of HK\$25.00. XPeng’s insurance registrations were 5,400 units (+15% YoY, +93% MoM, -4% WoW) in the 44th week of 2024. Monthly deliveries were 23,917 units in October 2024, bringing 10M24 wholesale shipments to 122,478 units. The company’s 2024-26 net losses are estimated at RMB 7.80b/RMB 6.13b/RMB 5.22b based on deliveries of 200,000 units/230,000 units/280,000 units.

Nexteer (1316 HK)

Nexteer is rated SELL with a share price of HK\$3.05 and a target price of HK\$2.00. The company faces significant exposure to the US market, with about 40% of its revenue coming from the US.

Minth (425 HK)

Minth is rated BUY with a share price of HK\$13.78 and a target price of HK\$39.50. Minth is expected to benefit from trends towards electrification and intelligentisation in the auto industry.

Ningbo Tuopu (601689 CH)

Ningbo Tuopu is rated BUY with a share price of RMB 49.81 and a target price of RMB 100.00. The company is expected to benefit from trends towards electrification and intelligentisation in the auto industry.

Joyson Electronics (600699 CH)

Joyson Electronics is rated BUY with a share price of RMB 17.88 and a target price of RMB 30.00. The company recently completed a RMB 200m share buyback plan and announced further buyback plans worth RMB 150m-300m. This move is expected to increase earnings per share and boost investor confidence.

Conclusion

UOB Kay Hian maintains a MARKET WEIGHT stance on China’s automobile sector, with a preference for auto part manufacturers over OEMs and other segments. The top BUYs are CATL, Geely, Fuyao Glass, and Desay SV, with a specific focus on companies that are well-positioned to benefit from trends in electrification and intelligentisation, as well as those that can navigate the challenges posed by Trump’s tariffs.