Key investment thesis

The new energy vehicle industry is promising in China. The Chinese people and government both consider the new energy vehicle industry a vital sector for the development of society. Manufacturers like BJEV are very likely to concentrate private and social resources for the development of the industry.

The sales are backed by a stable requirement. Purchasing BJEV’s electric vehicles is one of the assigned options for customers in Beijing to receive government subsidies for new energy vehicles. Protected by the local government, BJEV’s leading position in the market of the City of Beijing is steady.

A fast-developing autonomous driving technology. BJEV’s latest high-end car model, ARCFOX, integrates the most up-to-date autonomous driving technologies, which shows its ambition to lead the market. 

Key investment risks

The COVID-19 crisis has deepened the regression of the Chinese passenger car market. The Chinese passenger car market seems to have reached its capacity after years of expansion (annual sales are down since 2019). The coronavirus crisis further reduced the sales of passenger cars (2020Q1, 41% down).

Government subsidies for new energy vehicles are being phased out. As an emerging company that fully focuses on electric vehicle manufacturing, BJEV could face a harder financial reality if the subsidy amount continues to drop.

There is a potential risk that BJEV’s stock price will not match its operational performance. BJEV’s reverse takeover listing on the A-share market in 2018 was the result of many complicated manipulations and business considerations, resulting in a high price in 2018 and a decreasing trend since then. 

Business overview

The Beijing Electric Vehicle Company (BAIC BJEV) is a subsidiary of Beijing Automotive Industry Holding Co. Ltd (BAIC), which focuses on new energy vehicles and in-vehicle smart systems. Founded in 2009, it has long been known as one of the vanguards of electric vehicles. BJEV’s sales of electric vehicles was the first in the Chinese market between 2013 to 2019. 

BJEV has outgrown its core reliance on the huge electric vehicle market of the City of Beijing. Since 2010, most main cities in China have started to set policies to offer subsidies to new energy car manufacturers and buyers. As a local company, BJEV is backed by the City of Beijing. Its product is one of the few assigned electric vehicle models that customers can buy with a subsidy in Beijing.

During the regression of the Chinese passenger car market since 2018, BJEV and its parent company BAIC have suffered losses. The number of BJEV’s electric vehicles sold in 2019 dropped by 4.7%. In 2020, the COVID-19 virus further assailed the automobile industry. Compared with traditional automobile manufacturers, BJEV had a more volatile performance.

New energy vehicle manufacturers rely on government supports

Apart from questions about its standard operation, investors are concerned about the amount of government support that BJEV can receive. As an emerging industry that is supported by Chinese government, the new energy vehicle sector is supported by various government subsidies and policies. The parent company BAIC is fully controlled by the local government of Beijing. BJEV has received a great deal of subsidy with regard to the manufacturing and selling of electric cars. According to its earnings report, BJEV received RMB 1.06 billion in subsidies in 2019, which is 11.5 times of its net income and 4.5% of its aggregate sales revenue. 

Read more about China’s EV subsidies here.

Since 2019, the government subsidies have been decreasing progressively. Considering that BJEV’s operational cash flows have been negative since 2018, BJEV may face a tricky financial status in future.

The recent decreasing subsidies show that Beijing will not endlessly pay for the new energy vehicles, but will progressively push manufacturers to build an independent business model. Such a signal, alongside the coronavirus crisis, is accelerating BJEV’s adjustment of business plans towards the market. As we can see, BJEV has chosen to focus on autonomous driving technology with high-end new energy passenger cars as the active platform.

Rapid development of autonomous driving

BAIC BJEV’s latest model involves an in-depth integration of autonomous driving technology

On 22 April 2020, BAIC BJEV published ARCFOX αT, which is the first passenger vehicle for sale of the new high-end electric vehicle brand ARCFOX. 

The new model applied in-depth autonomous driving technologies. BJEV claims the in-vehicle system α-Pilot achieves L3 autonomous driving. It also adopted most commercialized advanced autonomous driving-related technologies, including a 5G-connected vehicle service, a Human Machine Interface (HMI) platform and more than 30 sensors.

Backed by BAIC, a traditional automobile OEM, BJEV is able to collaborate with top players in the automobile and high-tech industries. ARCFOX’s 5G-supported commercial platform, the Intelligent Module Criterion (IMC) platform, is designed jointly with Huawei. BJEV also founded a joint company with Magna International, one of the largest automobile parts manufacturers in North America, for the manufacture of the ARCFOX series vehicles.

BJEV has been developing driving assistance systems since 2018. As with most other manufacturers, its ‘Darwin System’ is more like an auxiliary and supplementary element. Now, this is becoming the highlight of BJEV’s latest high-end ARCFOX, with the aim of outperforming its competitors, i.e. Tesla.

Competence against Tesla is pushing BJEV to place a heavier emphasis on autonomous driving

ARCFOX, as BJEV’s signature brand, is targeting Tesla in the Chinese market. ARCFOX’s two main vehicle types, ARCFOX αT (SUV) and ARCFOX GT (sport car) are its benchmark products set against Tesla Model X and Roadster. For the autonomous driving system, ARCFOX is also trying to exceed Tesla’s existing models. It is designed to have more and updated cameras, Radars and Lidars.

The localization of Tesla in the Chinese market has spurred the development and innovation of electric cars and autonomous driving for many Chinese traditional automobile manufacturers. Now, electric vehicle technology is becoming more mature. But the high cost of electric vehicle production still leads to manufacturers’ high reliance on government subsidies. In order to keep competitive in the market, advanced autonomous driving systems, which are now increasingly attractive to customers, are becoming more vital to manufacturers. BJEV and other Chinese manufacturers like GAC Group and Changan Automobile, are betting heavily on autonomous driving models.

Financial overview

BAIC BJEV is now known as the first A-share listed purely electric automobile company. Its listing was achieved by a reverse merger takeover just in September 2018. Thus BAIC BJEV is known as BAIC BluePark (600733) on the A-share market.

BJEV’s stock price has kept on a downhill trend since it was listed, which is the result of investors’ falling expectations for the new energy vehicle sector and the overestimation of BJEV when listing. Consequently, the trend of its stock price followed neither the index of the new energy vehicle sector nor the automobile sector. As illustrated in the figures from the abovementioned sectors, events like changes in Beijing City’s new energy vehicle subsidies and policies, the volatility of vehicle sales and the release of new car models have all had a strong influence on BJEV’s stock price.

As a fast-developing emerging company, BJEV’s sales revenue and net income increased up until the end of 2019, which was a reversal of the general trend in the automobile industry. For 1Q20, BJEV had a sharp decrease of 53% on its sales revenue compared with the same time period in 2019. And it suffered a notable net loss.

Its parent company BAIC (01598.HK) was earlier listed on Hong Kong Stock Exchange in 2014. But the operation of BJEV has been intentionally spun off from the mother company. And BJEV is more widely recognized as an independent new energy vehicle company.