Guosen Securities (Hong Kong): The automotive industry may achieve steady growth in 2024, and the advantages of independent brands are fully highlighted

Guosen Securities (Hong Kong) released a research report saying that the industry as a whole is still expected to maintain steady growth in 2024, of which new energy vehicles and export sales are expected to achieve a relatively rapid growth rate. In the process of the continuous evolution of the industry pattern, there are also more structural opportunities, independent brand traditional car companies continue to deepen into the new energy field, further expand their share, PHEV models continue to grow at a relatively high speed, the export market continues to grow highly, and the rise of the off-road SUV segment is likely to become an important attraction in 2024. In the medium to long term, the bank believes that the competitive advantages of mainstream domestic brand car companies have begun to be fully highlighted, and it is expected that the domestic market share of domestic domestic brand passenger cars will further increase, and sales in overseas markets are also expected to continue to grow at a high rate. Maintain an outperform rating. It is recommended to focus on Great Wall Motor (02333), Geely Automobile (00175), BYD (01211) and Li Auto-W (02015).

Guosen Securities (Hong Kong)'s main views are as follows:

Annual passenger car sales in 2023 are expected to hit a record high

In 2023, domestic passenger car production and sales will continue to rebound significantly. According to the data of the China Association of Automobile Manufacturers, from January to November 2023, the cumulative sales of passenger cars were 23.272 million units, a year-on-year increase of 9.3%. The cumulative sales volume from January to November is close to the level of last year.

The bank believes that from December 2023 to January next year, the production and sales of passenger cars are expected to remain high. Based on a relatively optimistic judgment on passenger car sales in December, the bank predicts that the cumulative sales of passenger cars in 2023 will reach about 25.9 million units, a year-on-year increase of about 10%, and are expected to surpass the peak in 2017 and set a new record for annual passenger car sales after six years.

Domestic brands continue to lead the growth of NEV sales

In terms of new energy vehicles, according to the China Association of Automobile Manufacturers, sales of new energy vehicles in November 2023 recorded 1.026 million units, a year-on-year increase of 30%, and monthly sales exceeded one million units for the first time. From January to November 2023, the cumulative sales of new energy vehicles were 8.304 million units, a year-on-year increase of 36.7%. Among them, 5.86 million pure electric vehicles, a year-on-year increase of 23.6%, and 2.439 million plug-in hybrid vehicles, a year-on-year increase of 83.5%.

In terms of penetration rate, according to the China Association of Automobile Manufacturers, the market penetration rate of new energy vehicles reached 34.5% in November 2023 and 30.8% from January to November, an increase of 5.2 percentage points from 2022. In terms of vehicle manufacturers, most of the traditional automakers of their own brands performed well in the sales of new energy vehicles, both in absolute sales and in terms of growth rate.

Taking into account factors such as the peak consumption season, the year-end sales of car companies, and the intensive launch of new models to stimulate the release of demand, the bank predicts that the sales of new energy vehicles are expected to remain high in December, and the cumulative sales in 2023 are expected to reach more than 9.3 million units, a year-on-year growth of about 35%.

Export sales have become the main driver of growth

In terms of exports, in 2020 and before, the absolute volume of export sales of China's automotive industry was not large, and the proportion was also low, at 4% or below. Since 2021, the export sales of automobiles have begun to grow explosively, and the scale and proportion of total sales have increased significantly, of which passenger cars are the main force of export sales growth.

In 2021 and 2022, the incremental contribution rate of passenger car export sales will be 65.5% and 44%, respectively. From January to November 2023, passenger car export sales increased by 1.469 million units year-on-year, with an incremental contribution rate of about 74.2%.

Overall, export sales have become the main force driving the growth of passenger car sales in the past three years.

The bank is optimistic about the sustained and rapid growth of automobile exports in the future: first, after years of continuous progress and continuous catch-up, China's automobile industry has established a relatively obvious overall industrial chain advantage, which provides a solid foundation for domestic automobiles to continue to expand their overseas market share. Secondly, the recognition and acceptance of China's own brand vehicles in overseas markets are expected to continue to increase. Thirdly, China's leading position in the field of new energy vehicles is also expected to continue to translate into sales in the international market. In addition, in the context of continuous fierce competition in the domestic market, accelerating the development of overseas markets is also one of the important growth points of many domestic car companies.

In 2024, the intensity of competition in the auto market may increase unabated

There are quite a lot of new models, especially since the fourth quarter, many pure new models have been intensively launched or released, and this situation is likely to continue until 2024, which means that the competition of car companies at the product level will increase in 2024. In terms of price, considering the endless emergence of new models on the supply side and the relatively flat growth of domestic demand for passenger cars, the bank believes that the overall supply-demand relationship of the industry in 2024 may not be friendly to car companies, so relatively low prices may become the norm for a long time in the future.

The domestic automotive industry is still in a critical period of industrial transformation and upgrading, rapid iteration of technology and products, and continuous change and evolution of the pattern. In order to occupy a dominant position in the future industry pattern, major mainstream car companies must continue to increase investment, and sales volume and market share will still be the core goals that car companies must put first. Overall, the bank believes that the intensity of competition in the auto market may increase in 2024.

The off-road SUV segment is in the ascendant

In recent years, the relatively niche off-road vehicle market has continued to heat up, including hard-core off-road and light off-road. For the off-road SUV market segment, on the one hand, the potential demand continues to expand, on the other hand, various new technologies and new models on the supply side are also emerging, and the cost performance is getting higher and higher, which has significantly promoted the release of potential demand. In the context of supply and demand going hand in hand and promoting each other, it is expected that the off-road SUV segment will continue to grow rapidly in the future.

Passenger car sales forecast for 2024

Looking ahead to 2024, the bank believes that the domestic passenger car market is still expected to achieve relatively solid growth. Overall, under the current policy conditions, the bank expects passenger car sales to achieve a growth rate of 4-5% in 2024, reaching the level of more than 27 million units. Among them, domestic sales may reach 22 million units, and export sales may exceed 5 million units. At the same time, the bank predicts that the sales of new energy vehicles are expected to achieve a rapid growth of about 20% in 2024, and the total sales volume will reach more than 11 million units.

The profitability of car companies may improve

The bank believes that the overall profitability of the industry will improve in 2024. Main reasons: 1. The price of raw materials for power batteries has dropped sharply, which will significantly reduce the cost pressure of the new energy vehicle business of vehicle enterprises. 2. The increase in the proportion of export sales will help improve the overall profitability of car companies. 3. After the fierce price war in 2023, the overall price of the domestic auto market has been significantly reduced, and it is expected that the room for further price decline in 2024 will be relatively limited. Of course, as the competition in the industry market may still be quite fierce in 2024, the differentiation of profitability between car companies will also become obvious, and factors such as production and sales scale, growth rate, popular products, and model matrix are still important factors affecting the profit growth of car companies.