Demand in the automotive industry is expected to grow steadily in 2024, and structural opportunities are mainly focused on intelligence, overseas travel, and market segments.
The Zhitong Finance app learned that CITIC Securities released a research report saying that demand in the automotive industry is expected to grow steadily in 2024, and structural opportunities are mainly focused on intelligence, overseas travel, and market segmentation. The profit elasticity brought about by going overseas in 2023 has been verified by many leading companies. The bank expects that the profit structure of medium- to long-term vehicle and parts companies will continue to be diversified and globalized. Various intelligent innovations are still emerging. In particular, large models based on Transformers are being iterated at an accelerated pace in autonomous driving. In the medium term, autonomous driving has already entered a stage of declining costs on the hardware side. While urban NOA breaks out next year, it is expected to significantly increase the overall profitability of the industry. The bank continues to be optimistic about the strategic development opportunities of its own brands and supply chains in the process of intelligence and globalization, and maintains the “better than the market” rating of the automobile and auto parts sector.
The main views of CITIC Securities are as follows:
Passenger cars: Total volume is growing steadily, and overseas travel and market segmentation will bring structural opportunities.
After experiencing the overdraft period at the beginning of the year and the wave of price cuts brought about by Real Drive Emission (RDE) test regulations, the industry has come out of its worst moment, and total demand and sales volume are warming and stabilizing. According to data from the China Automobile Association, in January-September 2023, the sales volume of China's passenger car industry was 18.13 million units, +6.8% year-on-year. The bank expects passenger car sales to reach 25.19 million units for the full year of '23 (up 7% year on year; the original forecast was up 1% year on year). Among them, from January to September 2023, China sold 5.888 million new energy passenger vehicles, +37.5% over the same period, with a penetration rate of 33%. The bank expects the annual sales volume of new energy passenger vehicles to reach 8.7 million units, which basically maintains the bank's judgment at the beginning of the year.
Looking ahead to 2024, the bank believes that passenger car sales in the domestic market will remain stable and flat year-on-year. Overseas sales are expected to rise from 4.05 million units in 2023 (originally predicted 3.65 million units) to 5.25 million units in 2024, driving sales volume in the passenger car industry in China to 26.36 million units, +4.6% year-on-year. The significance of export sales is not only the “new cake of sales volume.” The low cost advantage of the Chinese automobile industry will help overseas car companies obtain a richer profit margin and effectively enhance the profitability of Chinese car companies. In 2024, the bank maintained the sales forecast for new energy passenger vehicles in China at 1.07 million units (+27% YoY). It is estimated that PHEV\ EREV (+40% YoY) sales growth will still be slightly faster than BEV (+22% YoY), but the gradual implementation of 800V mass production is expected to start the next strong growth point for pure electric models.
Intelligence: Urban autonomous driving is about to explode, and the opening up of equity cooperation in Huawei's smart car business will become a landmark event in the industry.
In mid-2023, leading new car companies have released high-profile urban assisted driving (urban NOA) functions; compared with urban intelligent driving that previously relied on high-precision maps, the NOA function is based on the Transformer+Bev architecture to eliminate the vehicle's dependence on high-precision maps by improving the vehicle's ability to sense itself, getting rid of the vehicle's dependence on high-precision maps, and at the same time greatly reducing the cost of opening a new city. The popularity of high-spec models such as Xiaopeng G6\ G9 and Huawei M7 has proven that consumer demand for urban NOA is growing rapidly. The bank expects that in 2024, more models equipped with urban NOA functions will push the autonomous driving industry chain into a period of rapid growth. Over the past 3 years, car companies have waged several rounds of arms races on smart hardware, and the computing power of the car's main chip has even increased a hundredfold. However, the breakthrough in this round of autonomous driving is based on algorithm iteration at the visual perception level of the large model Transformer. In the medium term, the hardware side has already entered a stage of cost reduction, which is expected to significantly improve the profitability of car companies while increasing volume.
Looking ahead to 2024, the cross-border entry of technology companies such as Huawei and Baidu into the automotive business is still the biggest variable in the industry. The recent signing of the “Memorandum of Investment Cooperation” between Huawei and Changan Automobile marks the opening of equity cooperation in Huawei's smart car business. The bank believes that under this cooperation model, car companies that have deeply cooperated with Huawei are expected to hold shares; at the same time, this cooperation is a major milestone in the domestic smart electric vehicle industry, and the development of the new company will have a decisive impact on the intelligent process of the Chinese automobile industry.
Components: Intelligent innovation is still emerging, and globalization is driving parts companies into a high growth path.
The penetration rate of various intelligent configurations such as intelligent driving, smart cockpit, and smart chassis continued to increase in the first three quarters of 2023. Intelligent configuration is one of the important manifestations of the product power of independent brands. The innovation of intelligent automobiles and the brand upgrade+functional upgrade of Chinese car companies are two sides of the integration of China's intelligent components with global competitiveness. Furthermore, the global competitiveness of leading companies in the parts sector has been further strengthened over the past year. Furthermore, the overseas strategy of China's high-quality auto parts manufacturers has changed from product exports to production capacity exports. With the rapid penetration of new energy vehicles around the world in the future, domestic parts companies will continue to invest at a high level of capital expenditure, which is expected to overtake the curve between technology and products. In particular, with Tesla's expansion of global production capacity as an opportunity, China's independent supply chain is exporting global production capacity, and has the opportunity to become a leading international auto parts supplier.
Commercial vehicles: Going overseas has become a core factor in the sector exceeding expectations in 2023. In 2024, the sector is expected to resonate with domestic and external demand.
According to data from the China Automobile Association, the commercial vehicle industry's sales volume from January to September 2023 was 2.94 million units, +18% year-on-year, of which the cumulative sales volume of heavy trucks in January-September was 707,000 units, respectively. The bank expects annual heavy truck sales to reach 950,000 units. While domestic demand for commercial vehicles has not exceeded market expectations, the continued rise in export sales has become an important source of excess profit for the industry. Many leading commercial vehicle companies have created profit margins close to previous years or even high against a backdrop where the total volume has not increased compared to previous years, thanks to the overseas markets they have been deeply involved in for many years.
Looking ahead to next year, supported by favorable factors such as gradual economic recovery, potential commencement of infrastructure construction, logistics recovery, high export growth, and the elimination of national four vehicles, the industry will clearly come to the bottom. The bank judges that the commercial vehicle industry is expected to usher in an upward cycle of at least 3 years. The bank predicts that sales volume of the commercial vehicle industry in 2024 will be 4.73 million vehicles, +15% year on year. Among them, the heavy truck industry will experience a high degree of certainty recovery in 2024. The industry's sales volume is expected to return to 1.15 million vehicles, +21% year-on-year. Among them, it is estimated that 850,000 vehicles will be sold domestically, +25% over the same period last year, and 300,000 units will be exported, +11% year-on-year. In addition, the penetration rate of heavy natural gas trucks has continued to reach record highs since entering the second half of 2023. Currently, China's commercial vehicle industry is showing a trend of accelerated innovation in different types of new energy technologies and accelerated evolution of commercial forms. The bank expects that heavy natural gas trucks, electric semi-trailers, pure electricity and hydrogen fuel heavy trucks will bring more room for growth and positively drive valuations to leading enterprises with leading new energy layouts.
Two-wheelers: The pattern of two powers is difficult to shake, and sodium electricity is expected to accelerate penetration.
Although competition in the two-wheeler industry continues to intensify in 2023Q2 and low price promotions are frequent, leading companies have achieved good performance in the face of market fluctuations through more flexible market strategies and stricter cost control. The bank believes that the industry will continue to evolve in a volatile manner towards a pattern of two strong players. Through the combined strength of products, supply chains, marketing, and brands, the leader will bridge the gap between the two dimensions of share and profit and the final brands, and grow through the cycle. Sodium batteries will soon be introduced, bringing new changes to the technical side of two-wheelers. The lithium battery itself has good safety performance, but two-wheelers are limited by the product's own characteristics and cannot provide a stable environment similar to that of four-wheeled passenger cars. In comparison, sodium batteries provide a balance of performance and cost. Low temperature resistance and better chemical stability will also expand the scope of use of two-wheelers. 2023 is the first year that leading two-wheeler companies such as Yadi began to launch sodium-battery two-wheelers. The bank expects sodium-battery two-wheelers to begin accelerated penetration, and the penetration rate is expected to reach 35% in 2030. Leading OEMs are expected to use the sodium battery opportunity to further complete vertical integration of the two-wheeler supply chain and enhance medium- to long-term profitability.