EqualOcean Sector Quarterly Report - Electric Vehicle Sector

Introduction

Shaky macroeconomic conditions and uncertainty have affected all markets throughout the first quarter. With supply chain disruptions and economic war being engaged with Russia by western coalitions, the global EV industry has faced unique challenges. Within China however, advanced development of this emerging industry has rendered it more well protected for shocks than western firms. Though battery prices had been bringing EVs towards price parity with ICE vehicles, the continued supply chain tightening in the last quarter has disrupted that timeline.

In this section, we’ll list 11 leading players in China’s EV sector and their current tech-related updates in Q1 2022. With news beyond supply chain shocks and short-term price action with equities and commodities, the transition to EVs is still underway. The automotive and tech industries’ collaboration is breeding all new innovations and designs of the next era’s passenger motor vehicle.

Main Players

NIO

NIO’s total delivery volume in March improved 63%, having delivered almost 10,000 EVs. The rebound in deliveries strongly indicates continual potential for growth for the remainder of 2022. Given the expected production and delivery ramp this year as well as new model launches, NIO investors have an opportunity to capitalize on what appears to be a current undervaluing of the stock. NIO’s BaaS model benefits them tremendously in today's economic environment. With battery costs spiking, swap technology allows consumers to basically participate outside of the battery ownership market that makes EV adoption so cost intensive. Because of their unique approach, NIO might make it through the next few quarters better than their competitors with price savvy EV buyers.

Xpeng

XPeng Inc. reported its most recent quarterly results on March 28 boasting an impressive delivery volume increase of 220% year over year. However, since Chinese EV stocks have sold off dramatically this year, Xpeng has traded largely based on fear. Shares have been victim to the rough market onslaught and are down consequently more than 60% so far in Q1. The strong delivery improvements are a testament to the rapid growth of the EV start up. Like their local competitors, Xpeng are on a trajectory towards profitability but are figuratively driving through a bumpy road to get there. Like Tesla, the patience will be rewarded if the company can continue growing production volume and getting their vehicles on the road. Xpeng’s debut in Europe should help pump their earnings up and establish their brand globally.

Li Auto

Li Auto has recently been outperforming Xpeng by delivering 8,414 Li Ones in February, showing 266% year over year growth. Their simple production of only their SUV means that profitability is a bit easier to attain than Xpeng and their other start up competitors. Like other EV companies, getting supplies like computer chips and maintaining healthy production growth will be the biggest challenge. Covid’s resurgence on the mainland has prevented better production numbers in hindsight. The company has said that production has been affected “by the shortage of certain auto parts resulting from the resurging Covid-19 cases recently in the Yangtze Delta region.” In relation to their industry growth, long-term success seems inevitable to some degree. The emerging young Chinese EV startups must all continue to adapt to volatile market conditions and hope for a clearing sooner than later for a hike in their valuations.

BYD

Like NIO, BYD flexed its pricing power with another round of price hikes in March. Since oil prices have risen significantly this year, the average annual gasoline usage cost for ICE cars in China has likely gone up significantly. This ensures that EVs relative to ICEs might stand a chance to sustain decent volumes of deliveries. BYD is basically China’s legacy EV maker. They’ve proved it as their worldly volumes sustained a hefty 87,000 plugin sales in February. There's also ample room for BYD’s battery supply business to expand further. Cooperation with DiDi and several other manufacturers should drive BYD’s external battery shipments and keep the company in a very stable position. Not to mention their innovation with “blade” battery technology. BYD is competitive across the EV value chain and their automotive sales are likely to continue to grow keeping them at the forefront of the EV industry.

GWM

Great Wall Motors’ net profit rose to 6.73 billion CNY from CNY 5.36 billion in 2020 jumping 25%. To prepare for the future, Great Wall Motor launched a "2025 Strategy" to continue investing in research and development for the development of more environmentally friendly, smarter and safer products. However, the supply chain tightening has forced GWM to suspend orders for two of its models. The company said its Black Cat car was losing 10,000 yuan per unit as a result of the rising raw material costs. While other companies can try to raise prices and hope to sustain volumes, GWM is clearly feeling the shake down. One might want to be a bit more cautious investing in GWM but if they can make it past these macro challenges, they’re in a better position than others below them to at least remain afloat long term.

SAIC

First quarter 2022 sales at SAIC-GM decreased. SAIC-GM Wuling increased the price of its models in the first quarter like many of their competitors. Wuling makes lower cost vehicles but is the second largest NEV maker in China. SAIC-GM-Wuling aims to double NEV sales by 2023. SAIC-GM-Wuling sustained 30,492 units of plugin sales in February while globally achieving around 97,000 plugin sales from February to the start of the year. SAIC Roewe will raise prices as well and by CNY 3,000 to CNY 5,000 on some models. As another one of China’s legacy automotive brands, SAIC has ICE sales to supplement any losses from trying to grow their EV models. Being more global than some other rivals and having support from multinational partners, SAIC will have to tread lightly in a complicated situation.

Geely

Between January and February of 2022, Geely-Volvo sold more than 72,000 plugin vehicles globally, but Geely's February sales were reported up only 2% year-over-year. New launches later in 2022 should drive a new period of market share growth for Geely while exports are expected to continue growing. Input costs are weighing on Geely just as hard as any other average competitor. Covid in China is certainly taking a toll on the industry hopefuls. Since delivery growth was more sluggish for Geely as of recent, we expect their share performance to be bogged down. Geely must attempt to trudge through better and sturdy EV growth to fit well within the industry. Their new Zeekr brand majority owned by Geely Auto will focus on high-end NEVs to compete with the likes of Tesla. Time will tell whether their innovations stand up well against industry champions.

Evergrande Auto

The monumental effort of servicing debt and delivering to home buyers hasn't cut the budget for Evergrande’s EV business. The company's first mass-produced EV is the Hengchi 5 SUV and will be priced below CNY 200,000 as their cheapest vehicle among nine cars announced last year. The start of Hengchi sales will be the first step for China Evergrande to recoup the vast amount of money it has invested. The model is scheduled to begin accepting pre-orders in the second quarter of this year. Given that China's EV market is dominated by BYD, Tesla and Chinese startups, it doesn’t seem easy for Evergrande Auto to break into an already crowded market as a latecomer. Last month, the retail sales of NEVs in China expanded 138% year on year to 445,000 units, according to the China Passenger Car Association (CPCA). Investors must simply wait and see if Evergrande Auto can squeeze their way into the industry.

FAW

FAW, as a major domestic partner for Toyota and Volkswagen in China, will benefit tremendously from their recent joint venture with BYD for battery production and distribution. The new partnership allows both companies to integrate production and powertrain design with added scale to help mitigate headwinds from the sourcing of raw materials during this supply chain crunch. FAW halted production between March 13 and 16 to help Changchun contain an Omicron variant-fueled outbreak of Covid. The severity of the outbreak stopped their facility from restarting production on March 17 without a fixed date for the restart. Though Audi and FAW planned construction of an NEV plant to start in the second quarter, FAW will have to endure facility closures and production constraints.

GAC

Earlier in January of 2022, Stellantis increased their stake in their joint venture with GAC in China to 75% subject to the approval of the Chinese government. GAC’s EV brand Aion made a big leap in March with a new monthly record of 20,317 units delivered. With an increase of 189%, the company almost tripled its March 2021 deliveries. Aion benefits from being part of an established carmaker and managed to just slightly outperform the other startups. It’s a positive sign that demand can be relatively high on a smaller scale especially in the tumultuous supply chain storm. It seems a bit too early to tell whether GAC will bloat into a serious competitor as they face production acceleration challenges just as much as everyone else except with less of an established product.

BAIC

Chinese automaker Chery and Huawei's partner BAIC Arcfox announced a plan to lift the prices of their models as the costs of raw materials continues to affect the entire industry with the details to be announced before April 30. Sales figures are currently uncompetitively low at this stage in the company's development. They maintain ambition and have plans to build 100 new stores in 60 cities in China. It almost feels like a blessing in disguise to not be at a later stage in development and must grapple with the macroeconomic challenges plaguing the industry at the moment. BAIC and their EV brands have time to plan and prepare to grow healthier and be more proactive for an uncertain future with disrupted global supply chains.

Key Events

Factory closures, resurgence of Covid, Russian invasion

Many brands like NIO, Li Auto, FAW, and others have had to at least shrink production numbers due to Covid’s most recent wave. Disruptions in nickel markets, lithium, oil, and many other inputs have shocked the price of batteries which have been getting cheaper for years. Lots of progress made to make EVs authentically competitive without price controls has been stunted. The race for lithium supplies has become a national security issue for many nations. China has been ahead of the game on this. This year is going to be a crash course of how to endure irregular market conditions. Supply chain rearrangement will be the new normal for the next months to years it seems to many as nations and companies aim to have sustainable and more efficient means of operating. This is especially true for EV firms.

While the crisis in Ukraine has devolved to a regional conflict in the Donbass at the moment, the future of the conflict is uncertain, and the economic war and its consequences will continue to be felt. Russia is the world's largest geographic country and is mineral rich with many EV inputs. China will likely try to tread a fine line between supporting Russia while not instigating with the west. If the crisis resolves and counties figure out covid protocols, the EV industry will be better off.

Beijing autoshow postponed

            It was announced March 25 by Reuters that Organizers of the Beijing autoshow, which was scheduled to be held in late April, had postponed the event due to a recent flare up of COVID-19 cases in China. Event organizers have yet to decide on a new date apparently. This is a bearish sign and a microcosm of the challenges and volatility the EV industry has been facing. The autoshow is an opportune event for EVs to showcase to consumers what differentiates their models between others. It’s also a big opportunity for China’s industry champs to try and outshine Tesla. The trade show in the world's largest auto market alternates each year between Beijing and Shanghai while New York’s autoshow will be underway in the US on April 15. New York will attempt to show to the world America’s challengers, outside of Tesla, to China’s advantageous EV makers. China usually includes foreign competitors like VW and Toyota. While the event could resume later in the year, Covid will continue to challenge the nation's production capabilities in an ever more important year for the EV revolution.