China’s Automobile Sector: A Comprehensive Analysis and Market Outlook

Date: November 22, 2024

Broker: UOB Kay Hian Private Limited

Introduction

The Chinese automobile sector has shown remarkable growth and transformation over the years. As of mid-November 2024, insurance registrations for passenger vehicles (PVs) have surged, with significant developments across various companies in the sector. This report delves into the performance of key players like BYD, Li Auto, Geely, XPeng, and others, offering an in-depth analysis of their market strategies and financial forecasts.

BYD Company

BYD remains a pivotal player in China’s automobile industry, with recent insurance registrations reaching an impressive 99,260 units, marking an 81.3% year-on-year growth. Despite a robust sales volume exceeding 500,000 units in October 2024, BYD has surprised the market by cutting the starting price of its Qin Plus DM-i model by 14%. This strategic move aims to outpace joint venture brands in the entry segment, leveraging BYD’s scale and cost advantages. However, these price cuts raise concerns over potential margin pressures in Q4 2024, as evidenced by a historical plunge in net profit per vehicle due to similar year-end price adjustments. The company maintains a cautious outlook, with projected net profits for 2024-26 at Rmb39,627m, Rmb42,435m, and Rmb43,549m, respectively.

Li Auto

Li Auto has recorded 12,300 units in insurance registrations in the 46th week of 2024, aligning with their annual target of 502,000-512,000 units. While the company did not unveil new models at the Guangzhou Auto Show, it showcased advancements in its intelligent driving architecture, notably the End-to-End + VLM dual-system. Despite a sales recovery, Li Auto faces increasing competition in the extended-range electric vehicles (EREV) segment from peers like XPeng. The company’s net profit forecasts for 2024-26 stand at Rmb5,992m, Rmb5,440m, and Rmb5,074m, respectively.

Geely Automobile

Geely’s performance has been buoyed by Zeekr’s impressive 150% year-on-year growth in insurance registrations, totaling 6,000 units in the 46th week of 2024. Geely’s cumulative registrations for the year stand at 171,000 units against a target of 230,000. The company anticipates future growth driven by new model launches and expanded production capabilities. Geely’s innovative efforts were highlighted at the Guangzhou Auto Show, showcasing advancements such as the Thor EM-i super hybrid and Shield Blade battery. The company’s net profit forecasts remain strong, with projections of Rmb9,173m, Rmb101,666m, and Rmb13,032m for 2024-26.

XPeng

XPeng has reported a 50% year-on-year increase in insurance registrations, totaling 6,300 units in the 46th week of 2024. Despite better-than-expected Q3 2024 results, the company faces challenges due to stagnant sales and stiff competition. XPeng’s cumulative registrations for the year are 120,400 units, with a target of 280,000 deliveries. The company has revised its net loss estimates for 2024-26 to Rmb6,679m, Rmb5,487m, and Rmb4,229m, respectively, and maintains a “SELL” recommendation, albeit with a revised target price of HK\$35.00.

Market Trends and Outlook

The Guangzhou Auto Show has showcased notable trends in the sector, including advancements in smart driving technologies and a shift towards plug-in hybrids and extended-range electric vehicles. The NDRC’s recent support for ICE-cars, alongside the continued growth of EVs, indicates a dynamic market landscape. As EV market share in China exceeds 50%, there is a gradual rollback of favorable policies for EVs, signaling potential changes in the regulatory environment.

Conclusion

China’s automobile sector presents a complex yet promising landscape, with companies adopting diverse strategies to navigate market challenges. While BYD continues to leverage its scale, Li Auto and Geely are focused on technological advancements and production capacity expansions. XPeng, despite facing hurdles, remains committed to innovation. Investors and industry stakeholders should closely monitor these developments as the sector evolves.

Recommendations:

• BYD: Hold
• Li Auto: Hold
• Geely: Buy
• XPeng: Sell