Shares of Chinese electric car makers started the new year on a downtrend, facing stiff competition and ongoing price wars that are eroding automakers’ profitability amid weak overall market sentiment.
Hong Kong-listed shares of Nio and Xpeng have fallen more than 18% and 16%, respectively, while Li Auto has fallen 12% so far this year. BYD and Zhejiang Leapmotor have fallen nearly 2.5% and 12%, respectively, in 2024.
Bernstein analysts noted in a recent report on China’s electric vehicle industry: “We expect competition within the domestic market to remain intense, putting pressure on pricing and profitability.”
Morgan Stanley also highlighted these concerns about competition in its note on Wednesday: “Investors remain cautious as the Chinese auto market has had a volatile start to the year amid persistent competition and macroeconomic uncertainties.”
According to data from the China Association of Automobile Manufacturers cited by Fitch Ratings, sales growth of electric passenger vehicles in mainland China slowed to 28% in the third quarter of 2023, from 108% in the same period a year earlier.
Fitch Ratings expects this growth slowdown to worsen in 2024. “We expect domestic demand for passenger cars in China to increase modestly in 2024 to nearly 22 million units amid economic uncertainty,” Fitch Ratings said.
Automakers have been working to increase deliveries despite the slowdown warning. Xpeng delivered a record 20,115 EVs in December, up 78% from a year earlier, with fourth-quarter deliveries topping 60,000 for the first time. Li Auto’s fourth-quarter deliveries reached 131,805, up 184.6% year-over-year.
BYD surpassed Tesla in the fourth quarter to become the world’s best-selling electric vehicle brand, selling more battery-powered vehicles than its U.S. competitor.
Competition and price wars are intensifying in China’s EV market. BYD, Li Auto, and Geely have all met their 2023 sales targets, while Xpeng and Nio have failed to do so. Bernstein noted: “The competitive landscape will be more challenging, with pricing pressure set to continue. While EV demand is likely to remain resilient, the industry will face three major supply-side challenges: overcapacity, new model launches, and the rise of new technology entrants such as Huawei and Xiaomi, which point to increasing competition.”
HSBC China Autos analysts noted in a December report that more than 100 new EV models are expected to be launched in China in 2024. Several domestic EV players, including Nio, Huawei, and Zeekr, have recently unveiled new EVs. Xpeng launched its latest X9 large 7-seater EV on January 1, further intensifying competition. Chinese consumer electronics giant Xiaomi is also set to launch its first EV in the increasingly competitive market.
Last year, Tesla embarked on several rounds of price cuts, including in China, quickly followed by domestic rivals BYD, Nio, Li Auto and Xpeng.
Fitch Ratings said in November: “We expect the market to consolidate accordingly, with smaller niche EV manufacturers that require development capital likely to merge or be acquired by stronger market participants.”
As Chinese EV makers scramble to attract customers with new offerings and lower prices, their profitability will come under increasing pressure. Morgan Stanley warned that 2024 will be “tougher as China remains relatively saturated.”
Morgan Stanley has resumed coverage of Hong Kong-listed Geely with an overweight rating on expectations that the Chinese automaker can weather macro and industry uncertainty. Fierce competition in China’s new-energy vehicle market, which includes hybrids and battery-powered cars, has increasingly forced automakers to cut prices and add features to survive. Many companies have launched overseas expansion strategies to tap into new revenue streams, but rising trade tensions with the United States and, more recently, the European Union, have added challenges. “We see Geely as a beneficiary of market consolidation,” Morgan Stanley Asia equity analyst Tim Hsiao and a team said in a June 25 report resuming coverage of the stock. “Geely said it has limited exposure to the EU, with the exception of PHEV exports under Lynk & Co (which are not currently affected by the tariff hike) and potential overseas expansion for Zeekr (which will start at a minimal level),” the report said. PHEV stands for plug-in hybrid electric vehicle. Hangzhou-based Geely entered the Chinese auto industry in 1997 and is best known for acquiring Volvo in 2010. Geely has a number of other subsidiaries, including Polestar, Lynk & Co. and electric car brand Zeekr, which listed in New York earlier this year. Morgan Stanley analysis showed Geely rose from its fourth-place ranking in years to third last year in China market share, behind one of Volkswagen’s joint ventures in the country. BYD retained the top spot, a position it has held since 2022, down from 13th place in 2021, the analysis showed. In 2020, BYD launched the Blade battery, which many have argued helped spur the company’s growth in electric vehicles. Geely announced Thursday that it has developed its own competitor, the “Aegis Short Blade” lithium iron phosphate battery, which it says has passed industry-standard tests without exploding. The company also said the new battery can be used for 50 years, which can support second-hand sales. The company plans to use the battery in its own vehicles for the first time this year. Most of Geely’s cars are still traditional internal combustion engine vehicles. But the company has increased the share of its new energy vehicles to 32% so far this year, higher than rivals such as Great Wall Motor, whose share is 23%, Morgan Stanley analysts noted Tuesday. Geely’s “presence in the (new energy vehicle) market should bode well for its presence in the domestic market in the medium to long term amid the trend toward NEV transition and contribute to the long-term sustainability of profits,” the report said. Analysts expect Geely to increase sales by 22 percent overall this year, despite a moderation in growth in the second half of this year. Zeekr and other electric car brands typically release monthly shipment figures toward the end of each month. Geely reported first-quarter results for the first time on Friday, under Hong Kong rules that do not require such frequent disclosures. Quarterly revenue rose 56 percent to 52.32 billion yuan ($7.2 billion) year over year, filings showed. Profit attributable to shareholders more than doubled to 1.56 billion yuan from the same period a year earlier. Geely shares closed 1.2 percent lower at HK$8.79 ($1.13) on Friday ahead of its earnings release. Morgan Stanley analysts set a price target of HK$11.20 ($1.43) on Tuesday, about 27 percent higher than the stock’s close on Friday. “While profitability has been volatile over the past 2-3 years due to investments (in new energy vehicles) and one-time non-cash expenses, we see good visibility on earnings growth aided by rising sales volume and potential reduction in losses in its NEV business,” Morgan Stanley’s report said. “We believe the company’s profitability will enable it to navigate the ongoing macroeconomic uncertainties,” analysts said.
