UBS "takes the pulse" of China's auto industry: the market chaos is fierce In 2022, there will be more than demand

"In 2021, China's new energy vehicle sales have increased by about 2 times, from more than 1 million in 2020 to more than 3.5 million in 2021, which is far beyond expectations." However, it is expected that in 2022, China's auto market may shift from short supply in 2021 to oversupply. A few days ago, at the 22nd UBS Greater China Seminar on the automotive industry, Gong Min, head of research at UBS China's automotive industry, told the China Business Daily reporter.

According to the latest data released by the China Association of Automobile Manufacturers, in 2021, the production and sales of automobiles in the mainland reached 26.082 million units and 26.275 million units, respectively, an increase of 3.4% and 3.8% year-on-year, ending the downward trend that has lasted for three years since 2018. Among them, the production and sales of passenger cars were 21.408 million units and 21.482 million units, respectively, an increase of 7.1% and 6.5% year-on-year, respectively, an increase of 3.7 and 2.7 percentage points higher than the industry growth rate, respectively; the production and sales of new energy vehicles were 3.545 million units and 3.521 million units, respectively, an increase of 1.6 times year-on-year, and the market share reached 13.4%, 8 percentage points higher than that of 2020.

According to UBS data, by 2025, China's electric vehicle sales are expected to reach 7 million, an increase of 2.3 times over 2021, the penetration rate is expected to exceed 30%, and the CAGR (compound annual growth rate) from 2020 to 2025 is 42%, and the market chaos will be more intense.

In Gong Min's view, the improvement of China's electric vehicle product strength and competitiveness is obvious to all, but the automobile industry is still facing some dangers and challenges, and more attention needs to be paid to the new problems that are gradually emerging.

In terms of rising raw material prices, Gong Min said that in 2021, although the automotive industry is facing the problem of "lack of core", this is only temporary, and the more lasting problem will be the rise in raw material prices, both traditional steel plates, iron, aluminum, copper, etc., as well as rare metals used in the production and manufacture of fuel vehicles, while the rise in materials such as lithium and cobalt in electric vehicle materials is more obvious.

According to UBS's preliminary estimates, compared with 2020, the cost of a fuel vehicle will increase by about 5,000 yuan in 2021, while the cost of electric vehicles including power batteries will increase by more than 10,000 yuan.

Gong Min further pointed out that a large part of the reason for the rise in raw material prices is that Western countries have increased subsidies for new energy vehicles, while China's new energy vehicle subsidies are in decline. "From the perspective of global resources, including the allocation of mineral resources, they are all obtained by the highest price." Therefore, the differentiated subsidy policy has pushed up the price of raw materials to some extent, and it is bound to form a certain squeeze on the Chinese automobile market. ”

However, on the other hand, China's new energy automobile industry is gradually getting rid of its dependence on subsidies. Fu Bingfeng, executive vice president and secretary general of the China Association of Automobile Manufacturers, said that in 2021, under the influence of unfavorable factors such as chip shortages and continuous high raw material prices in the automotive industry, the annual automobile production and sales showed a steady and increasing development trend, especially new energy vehicles have become the biggest bright spot, and have shifted from policy-driven to market-driven new development stages.

"In the past year or so, the shortage of chips has led to an overall shortage of supply in China's car market, and the terminal sales price performance is relatively good. However, due to the shrinking demand caused by the downturn in real estate, epidemic prevention and control, and the overall economic downturn, coupled with the increase in the supply side brought about by the easing of the chip shortage problem, the auto market in 2022 may shift from short supply to oversupply in 2021, resulting in a decline in transaction prices, and even the occurrence of price wars is not ruled out. Gong Min pointed out that in this case, coupled with the impact of rising raw material prices, the profits of the automotive industry may face certain challenges, and car companies need to be more fully prepared.

In terms of competition between "new car-making forces", Gong Min told reporters that in the past year and a half, the three listed "new car-making forces" of "Weilai Automobile, Xiaopeng Automobile and Ideal Automobile" have received $23 billion in financing in the open market, equivalent to more than 100 billion yuan. "For these companies, market share may be more important than profit margins. If you do not hesitate to sacrifice profit margins to pursue market share, it will lead to some companies that do not want to fight a price war or are unwilling to sell cars with money and make money in the process. ”

Gong Min also said that in 2021, some traditional foreign-funded enterprises' electric vehicle platforms will enter the Chinese market, in fact, there is no great impact on independent brands. On the contrary, China's own brand electric vehicles are further strengthening in terms of product strength and competitiveness.

"This is a gratifying phenomenon in the past year, and consumer recognition of Chinese brands is also greatly improved." Gong Min believes that on the one hand, compared with the traditional foreign luxury brands, the "new car-making forces" have progressed faster to some extent from pushing new models to the use of the latest technology; on the other hand, the brand power of some foreign luxury brands is relatively static in nature, and even the brand premium ability of some car companies in fuel vehicles has not been completely transferred to the electric vehicle model.

In the long run, technological change and innovation, fierce competition are dynamic evolutionary processes, and China's auto industry has just begun. Gong Min said: "Whether it is service, product iteration, or response to various problems, 'new car-making forces' have remarkable places, their brand power can not be said to have reached the level of traditional old luxury cars, but at least in rapid progress." ”

For the future development trend of China's auto industry, Gong Min predicts that in the next decade, we will witness China's auto industry from global backwardness to leading, China is likely to make electric vehicles with higher cost performance, better product strength, more interesting intelligent entertainment systems, and even achieve qualitative breakthroughs in automatic driving, "the rise of independent brands will be the trend of the times."

Gong Min also said that we will also see a more diversified market: both particularly high-end products and particularly low-end products; both a wide range of suppliers and the participation of technology companies; both "new car-making forces", as well as traditional car companies and foreign brands. "Unlike overseas markets dominated by traditional car companies, the technological progress and innovation generated by the Chinese market will be the most active."

(Editor: Zhang Jiazhen Proofreader: Yan Jingning)