China’s Automobile Sector: EV Sales Surge and Strategic Market Insights
UOB Kay Hian, October 4, 2024
China’s automobile sector experienced a significant uptick in September 2024, particularly in the electric vehicle (EV) segment. As market conditions evolve, multiple companies are adjusting their strategies and outlooks, prompting revised valuations across the board. Here’s a deep dive into the key developments and company-specific analysis within the Chinese automobile industry.
Sector Overview: Boosted by EV Sales
China’s September EV sales surpassed expectations, particularly for key players like BYD and Geely. The ongoing electrification trend in the automotive sector is enhancing the prospects of auto part manufacturers more than original equipment manufacturers (OEMs) and battery material suppliers. Accordingly, the sector maintains a “Market Weight” rating, reflecting a balanced outlook.
Given the sector’s performance, several target prices have been raised due to lower discount rates and market risk premiums. The top BUY recommendations include CATL, Geely, Desay SV, Tuopu, and Minth, based on their attractive valuations compared to historical ranges.
BYD: Riding on Robust Wholesale Shipments
BYD Company continues to demonstrate strong performance, with wholesale shipments rising 45.9% year-on-year (YoY) and 12.4% month-on-month (MoM) to reach a record 419,416 units in September 2024. This brings the company’s 9-month (9M24) wholesale shipments to approximately 2.75 million units, marking a 32.1% YoY increase and aligning with the estimated full-year shipment of 4 million units.
The growth is driven by impressive sales of new models such as the Qin L DM-i, Seal 06 DM-i, Song L DM-i, and Han 2025. Additionally, export volumes grew by 17.7% YoY and 5% MoM to 33,012 units in September, accounting for 7.9% of the total sales volume.
The company maintains its 2024-2026 net profit forecasts at RMB 37.07 billion, RMB 37.54 billion, and RMB 38.87 billion, respectively, based on projected sales volumes of 4.0 million, 4.5 million, and 5.0 million units. The net profit per vehicle is estimated to be RMB 8,060, RMB 7,060, and RMB 6,400 for the corresponding years.
Geely: Accelerating EV Sales
Geely Automobile Holdings reported a 21% YoY and 11.4% MoM growth in wholesale shipments, achieving a record 201,949 units in September 2024. This brings the 9M24 wholesale shipments to around 1.49 million units, reflecting a 32.1% YoY increase. These numbers are on track with the company’s full-year target and the forecasted sales of 2.0 million units for 2024.
The EV segment has been particularly strong for Geely, with EV sales soaring by 69.7% YoY and 20.7% MoM to 91,134 units in September, accounting for 45.1% of the total wholesale shipments. The internal combustion engine (ICE) vehicle sales saw a slight decline of 2.2% YoY, but a modest rise of 4.8% MoM to 110,815 units.
In terms of market breakdown, domestic sales in China grew by 16.8% YoY and 19.5% MoM to 162,766 units, while export volumes expanded by 42.1% YoY, although they fell by 13% MoM to 39,183 units. The company’s 2024-2026 core net profit forecasts remain at RMB 7.76 billion, RMB 9.90 billion, and RMB 12.10 billion, based on sales volumes of 2.0 million, 2.35 million, and 2.7 million units.
Great Wall Motor (GWM): Mixed Performance with Overseas Growth
GWM’s performance has been mixed, with wholesale shipments declining by 10.9% YoY but increasing 14.8% MoM to 108,398 units in September 2024. The company’s 9M24 wholesale shipments total 853,813 units, a slight decrease of 1.2% YoY. This aligns with the estimated 2024 full-year shipment of 1.3 million units, representing a projected 5.6% YoY increase.
Overseas sales present a bright spot, surging by 46.9% YoY and 9% MoM to 44,105 units in September, accounting for 40.7% of GWM’s total sales. The company’s 2024-2026 net profit forecasts stand at RMB 15.17 billion, RMB 18.05 billion, and RMB 20.63 billion, with an expected sales volume of 1.3 million, 1.5 million, and 1.7 million units, respectively. The forecasted profit growth is primarily driven by improved margins and a higher share of overseas sales.
Li Auto: Steady Sales Growth Amid Price Cuts
Li Auto reported robust growth, with deliveries increasing by 48.9% YoY and 11.6% MoM to 53,709 units in September 2024. The company’s 9M24 deliveries reached 341,812 units, reflecting a 40% YoY increase, in line with its full-year estimate of 500,000 units.
The growth in sales was primarily driven by price reductions on models L9, L8, and L7, as well as the ramp-up of the more affordable model L6. Li Auto’s 2024-2026 net profit forecasts are RMB 4.815 billion, RMB 4.355 billion, and RMB 3.941 billion, based on expected deliveries of 500,000, 550,000, and 600,000 units, respectively. The target price is set at HKD 70.00, implying a 30x 2025 forecasted price-to-earnings ratio.
XPeng: In-Line with Estimates but Facing Challenges
XPeng’s deliveries surged by 39.5% YoY and 52.1% MoM to 21,352 units in September 2024. This brings its 9M24 wholesale shipments to 98,561 units, aligning with the company’s full-year estimate of 200,000 units but falling short of its target of 280,000 units for 2024.
The recent launch of the compact sedan Mona M03 drove sales growth, although the gross margin for this model is estimated to be less than 5%, compared to the overall gross margin of around 14%. XPeng’s 2024-2026 net loss estimates remain at RMB 7.80 billion, RMB 6.13 billion, and RMB 5.22 billion, based on deliveries of 200,000, 230,000, and 280,000 units, respectively. The target price is HKD 18.00.
Sector Outlook: Market Weight Maintained
The overall sentiment for China’s automobile sector is cautiously optimistic, with a preference for auto part manufacturers over OEMs and other segments. The recommended segments in descending order are: auto part manufacturers, OEMs, battery material suppliers, and auto dealers.
Target prices across the board have been raised based on lower discount rates, and investors are encouraged to consider top BUYs such as CATL, Geely, Desay SV, Tuopu, and Minth due to their attractive valuations relative to their historical ranges. Ganfeng Lithium and Tinci have also been upgraded from SELL to HOLD, indicating a bottoming out of their product prices.
China’s automobile sector continues to show promise, particularly in the EV market. With companies like BYD and Geely setting new benchmarks, the sector is poised for a dynamic year ahead, provided it navigates market challenges effectively.
