China Auto: Weak demand, industry consolidation intensifies, focus on exports and strong brands (HSBC)
The HSBC report pointed out that China’s auto industry is showing a trend of weak demand and continued consolidation.
The HSBC report pointed out that China’s auto industry is showing a trend of weak demand and continued consolidation. The penetration rate of electric vehicles is increasing, but pricing pressure and high inventory continue to suppress industry profits. Research institutions have lowered their demand growth forecasts for passenger cars and electric vehicles to -13% and -6% year-on-year respectively. Due to weakened profit visibility, Great Wall's A/H rating was downgraded to "hold" and the target prices of GAC and BAIC were reduced. It is highlights to focus on OEMs with strong exports, strong local brands and healthy product cycles, maintain selective stock selection, and not be optimistic about widespread re-rating of sectors until demand and profits stabilize. One-sentence conclusion: China's auto industry is going through a brutal knockout competition. Price wars and inventory pressures are the norm. Only auto companies with strong export capabilities and brand moats can survive the cycle. The overall opportunity for the sector has not yet arrived. Positive/negative: negative for the entire Chinese automobile sector (especially Great Wall, GAC, and BAIC). The market may have partially reflected the weak demand, but may have underestimated the long-term profitability pressure brought about by industry consolidation. This is good for BYD (1211.HK) and Geely (0175.HK), which have export advantages (not directly named in the report, but logically supported). Catalyst: Car sales data in the second half of the year, especially the performance during the "Golden September and Silver Ten" peak seasons. The quarterly profit reports released by various car companies verify whether the industry's profit pressure has intensified. New industry consolidation or exit cases, as well as government stimulus policies for automobile consumption.