China Talk: China is leading the world in EV

  • China leads Global EV market
  • Shenzhen and Shanghai witness surge in NEV market
  • Customers prioritise cost efficiency and comfort in EV

China has been making solid advance in electric vehicle (EV). As of the end of last year, Shenzhen is at the forefront and penetration of new energy vehicle (NEV) has rapidly reached 60%. Likewise in Shanghai, registered passenger NEVs already accounted for over 50% of all its total motor vehicles. BYD, being the number one EV maker in China, doubled its sales of new energy vehicles in June. With its market capitalisation of over USD100bn now topping that of both GM and Ford combined, BYD's sales has also expanded globally to over 60 countries, from Italy and Spain to UAE and South Africa.

In China, many of these EV makers are having their showrooms in luxury malls, making them easy to be seen to attract passing shoppers. Competition is keen, and the mainstream EVs are priced at below USD32,000, before discounts offered by dealers or subsidies from the local governments.

We have taken an on-site visit to several EV showrooms in June. On the whole, the sales of EVs and the number of people visiting the showrooms have improved compared with April and May. In China, the peak season of auto sales normally starts in August and for the rest of the second half of the year.

Even though competition remains keen among the EV manufacturers, we noticed that various preferential activities and discounts have been significantly reduced. While for some brands, customers can still apply for a local district subsidy of as much as USD2,500, popular and best-selling brands such as BYD, Tesla, and Li Auto are not offering any sales discount at all now. 

We also noticed that, from the perspective of the number of people entering the stores, customers mainly choose either EVs with high cost performance/comfort level. 

Our View

In recent years, the Chinese government has been supporting EV sector by offering favourable subsidy programs to EV buyers, in the hope that enhancing EV penetration can help the country to fulfil its carbon emission reduction target. Given the vast opportunities, different players with diverse background have been investing aggressively to gain market shares, which include but not limited to traditional Auto maker, Chinese conglomerates and fresh new entrants. At the same time, different players are adopting different strategies, for example, some focus on vertical integrated production model (battery + car), some adopted hybrid engine models (Gasoline + Battery) and some emphasize on pure EV with leading technology and performance.

While we are positive on the overall EV market in China, we believe the EV industry would need to go through consolidation amid fierce competition and therefore bottom up stock selection would be key to identify the ultimate winners. Having first-mover advantage, leading battery technology, developed sales channels, and strong brand awareness will provide significant advantages for the company.