The author is an analyst of NH Investment & Securities. He can be reached at firstname.lastname@example.org. -- Ed.
Impacted by Covid-19 effects, Chinese car demand plunged in February. While uncertainties remain in play on the demand side, we expect to see a gradual recovery in both demand and utilization rates from March. Once uncertainties ease, the EV market should resume expansion, with operations at Tesla’s Shanghai plant ramping up to full-scale and Byton slated to launch new models.
China’s February car sales down 78.4% y-y
Chinese auto sales fell sharply to 254,000 units (-78.4% y-y) in February, with the spreading impact of Covid-19 resulting in an extension of the Lunar New Year holidays and a suspension of sales activities at most dealers.
In February, xEV sales (EVs/PHEVs) plummeted to about 14,000 units (-69.4% y-y), with the related share of the overall automotive market coming to 5.7% (vs 4.0% in Feb 2019 and 2.5% in Jan 2020). Sales of Tesla’s Model 3 (which kicked off in January) reached 3,900 units in February (vs 2,620 units in Jan 2020) with an xEV market share of 27.2%. Although Covid-19-related uncertainties linger, the prospects for long-term growth in China’s EV market remain intact, considering both the start of full-scale operations at Tesla’s Shanghai plant and tightening environmental regulations (NEV credit requirement rising from 10% in 2019 to 12% in 2020).
xEV market to expand once uncertainties ease
In February, HMC and Kia’s China sales (retail) reached 7,313 units (-79.4% y-y) and 2,268 units (-87.0% y-y), respectively, with their ex-factory sales coming in at 1,935 units (-95.0% y-y) and 1,070 units (-95.1% y-y), due to plant shutdowns. Given a slowdown in the number of new Covid-19 cases and the resumption of sales activities by sales dealers, we expect to see a gradual recovery in demand/utilization rates from March.
Upon stabilization in the Covid-19 situation, the growth story of the Chinese EV market should again become a primary focal point. This year, the Chinese government’s xEV subsidy reduction policy is expected to ease, Tesla’s Shanghai plant is set to begin full-scale operations, and new models are slated for release by Byton.