Makers of electric cars to benefit from coming boom in global demand
A worldwide wave of adoption for new energy vehicles is set to transform the fortunes of a select group of automakers, analysts say
As China strives for a big leap to a more sustainable consumer-led economy, the rise of new energy vehicles looks set to have profound impact and deliver significant opportunities for savvy investors.
New energy vehicles (NEVs), including hybrids, plug-in hybrids and electric cars, have undergone explosive growth during the first three months of this year, offering up a bright spot in China’s cooling economy. The China Association of Automobile Manufacturers (CAAM) reported Thursday that sales of NEVs sales doubled in the first quarter from a year earlier at 58,125 units.
Among the NEVs, electric car sales increased 1.4 times year-on-year. Sales of plug-in hybrids jumped 43 per cent.
In January, the CAAM said the output and sales of NEVs more than tripled in 2015, making China the world’s largest market for new energy cars.
“China is experiencing a long-term social shift from old manufacturing story to the rise of consumer spending, “ said HyungJin Lee, manager of the Baring Asia Growth Fund. “A range of sectors will benefit from the new social trend, particularly ones focused on the environment and clean energy and other disruptive technologies.”
Lee recommended investors look at the new economy sectors reflecting “the future of China”, in particular the electric vehicle segment, which encompasses both clean energy and technology.
Citic Securities also gave a strong buy signal on the new energy vehicle sector, as they expected China’s NEV sales to jump 58 per cent in 2016, reaching 600,000 units.
“We reiterate our outperform call on the NEV sector considering its long-term strategic significance to China’s ambition in building a strong auto industry, and believe the NEV sector could deliver good investment value,” Citic analysts said in a recent note.
They noted the success of Tesla’s latest electric vehicle, priced at US$35,000, as striking a chord with consumers. The US automaker’s recently released Tesla Model 3 has attracted a large number of orders, even though the backlog means deliveries will be delayed until 2017, signalling the wider attention shift to the electric vehicle industry.
“We believe new energy passenger vehicles still have huge headroom for growth, driven by the supply of license plates in tier-1 cities in the near term,” they said. “On a longer horizon, the supply of high-performance electric vehicles could be essential to drive demand.”
Meanwhile, the Chinese central government’s supportive stance seems “intact”, despite a recent probe into several NEV subsidy fraud cases.
The State Council, China’s cabinet, released five supportive measures in February to boost the NEV sector, including calls for innovation in battery technology, the construction of more charging piles, expanding the use of NEVs in the public transportation system and logistics industry, and revising fiscal subsidy policies.
“We believe policymakers will gradually build a sophisticated NEV subsidy framework by amending subsidy rules to avoid excessive subsidies or subsidy fraud, and supporting and developing local brands, including local original equipment manufacturers, batteries and other core parts,” Citic analysts said.
As the industry expands and the regulatory network becomes increasingly sophisticated, leading automakers with superior resources, core technology and leading brands will likely take up greater market share.
Citic’s top picks included electric car maker BYD, Jianghuai Automobile,Songz Automobile Air Conditioning, Sichuan Tianqi Lithium Industries, Guoxuan High-Tech, Beijing Easpring Material Technology, Zhejiang Nanyang Technology, Ningbo Yunsheng and Hongfa Technology.
Lee from Barings favoured companies involved with the ongoing electric vehicle build out, such as producers of Lithium ion batteries.
Another beneficiary will be key component suppliers that have the technology and franchises to supply this growing segment, he said.
In addition, Lee favoured the “future car” story – the adoption of Advanced Driver Assist System applications such as parking sensors, around-view camera systems, automatic parking and lane departure warnings.
“Electric vehicles are already growing strongly in Japan and North America, and the government in China has set a volume target as it battles pollution. We believe EVs are on the cusp of wave of adoption in China and globally,” he said.