Overview of the Chinese Automobile Sector
The Chinese automobile sector is witnessing a dynamic shift, with electric vehicles (EVs) moving down the price curve and a brewing price war as 2024 draws to a close. The market is bustling with activity, driven by the trade-in subsidies and a strong year-end push in sales. However, a gradual rollback of favorable EV policies is underway, which could reshape the competitive landscape in the near future.
BYD Company (1211 HK)
Recommendation: HOLD
BYD Company recorded a significant growth in its wholesale shipments, achieving a 67.9% year-on-year (yoy) increase to a record 506,804 units in November 2024. This aligns with the company’s estimate and brings the 11-month cumulative shipments to approximately 3.76 million units, marking a 40% yoy growth. Despite this impressive performance, the company’s sales strategy involved discounts and interest-free loans, which could impact margins. The forecast for BYD’s net profit from 2024 to 2026 remains at Rmb39,627m, Rmb42,435m, and Rmb43,549m, respectively, with a targeted sales volume of 4.25 million units in 2024.
Li Auto (2015 HK)
Recommendation: HOLD
Li Auto experienced an 18.8% yoy growth in wholesale shipments, although there was a slight dip of 5.3% month-on-month (mom) to 48,740 units in November 2024. The cumulative deliveries for the year are at 441,995 units, a 35.7% increase yoy. The company faces increasing competition from rivals like XPeng and Leapmotor in the extended range electric vehicle (EREV) segment. The forecasted net profit for Li Auto from 2024 to 2026 is Rmb5,992m, Rmb5,440m, and Rmb5,074m, based on a delivery target of 505,000 units in 2024.
Geely Automobile (175 HK)
Recommendation: BUY
Geely reported a 27.0% yoy increase in wholesale shipments, reaching 250,136 units in November 2024. The company’s target for the full year is 2.0 million units, which is well within reach given its 11-month total of 1.97 million units. Geely’s electric vehicle sales surged by 93.9% yoy, driven by popular models like Galaxy and Zeekr. The company is expanding its product lineup to capture more market share from competitors such as BYD. The forecasted net profit from 2024 to 2026 is Rmb9.17b, Rmb10.67b, and Rmb13.03b, respectively.
XPeng (9868 HK)
Recommendation: SELL
XPeng achieved a 54.2% yoy increase in wholesale shipments, with insurance registrations reaching 9,400 units in the 48th week of 2024. The company plans to deliver 280,000 units by the end of the year, although current projections suggest a shortfall. XPeng’s recent growth has been attributed to new, more affordable models like the Mona M03 and P7+, which could pressure average selling prices and margins. The company is expected to report net losses of Rmb6,679m, Rmb5,487m, and Rmb4,229m from 2024 to 2026.
Tesla (Shanghai Factory)
Tesla’s Shanghai factory delivered 78,856 units in November 2024, reflecting a 4.3% decline yoy but a 15.5% increase mom. The company aims to exceed last year’s global sales of 1.81 million units by the end of 2024. To boost sales, Tesla introduced a price cut for the Model Y and extended a five-year, zero-interest financing offer, resulting in increased insurance registrations in recent weeks.
Market Dynamics and Future Outlook
China’s EV market is experiencing significant changes with the rollback of favorable policies, such as the imposition of road maintenance fees and increased charging prices. This development could level the playing field between EVs and internal combustion engine cars (ICE-cars). Despite the challenges, the Middle East is emerging as a promising market for China’s vehicle exports, complementing the slowdown in traditional markets like Europe and Southeast Asia.
Conclusion
UOB Kay Hian maintains a MARKET WEIGHT on China’s auto sector, with a preference for original equipment manufacturers (OEMs) over automotive part manufacturers and dealers. The top BUY recommendations are Geely, Fuyao Glass, and Desay SV, reflecting confidence in their robust performance and strategic market positioning.
