China is way ahead of the US in adopting electric vehicles. This is a double-edged sword for Chinese electric vehicle manufacturers. The market for their products is far larger than that for American electric vehicle manufacturers, but the competition is much hotter.
Now, after years of growth, the Chinese EV market is oversupplied. The current state of the Chinese EV market offers US investors a glimpse into what could happen in the US going forward – and how market developments will affect America
About 4.7 million all-electric vehicles were produced in China in 2022, up from about 2.6 million in 2021. Battery electric vehicles account for about 17% of the country’s total auto production, up from about 10% a year earlier.
The US market for battery electric vehicles is only a fraction of the size of China. About 810,000 battery-only electric vehicles were sold in the US in 2022, up from about 488,000 in 2021. Battery electric vehicle sales accounted for about 6% of total light vehicle sales in the US last year.
A smaller U.S. market hasn’t hurt Tesla at home, however. Elon Musk’s electric vehicle company captured about 65% of the market in 2022.
China is a different story. There are hundreds of EV models at different price points. this last year
sold about 440,000 electric vehicles in China, capturing about 10% of the market.
Today, China’s EV market is still growing, but at a slower pace. Sales of battery electric vehicles are up about 6% in the first two months of the year. That’s a problem for EV manufacturers. They have too much capacity, and declining sales have led to price cuts at a variety of companies.
Tesla cut Chinese prices in January. Others followed.
(VOW3.Germany) lowered the prices of its electric vehicles in China earlier this week.
There are also Chinese auto analysts, who sound more like traditional auto analysts, who rate automakers like e.g
“We calculate at the same time
and destocking of mid-range and entry-level NEV inventories could represent a potential margin shock for all auto brands,” wrote Citi analyst Jeff Chung in a recent research report. He believes automakers will have to cut production and prices to deal with an inventory glut. (ICE is the abbreviation for Internal Combustion Engine. NEV is the abbreviation for New Energy Vehicles).
That sounds like bad news for
It will certainly have an impact. Since Tesla’s price cuts in January, Wall Street 2023 earnings estimates have fallen from about $5.50 to about $4 per share.
There was a silver lining, however. The price cuts and market turmoil appear to be benefiting lower-cost producers.
“The battle for EV market share in China is very fierce and the competition is an MMA [mixed martial arts] Agreement between BYD, Tesla,
and others,” said Wedbush analyst Dan Ives Barrons. “A price war makes this a tough market for those who can’t scale as quickly as Xpeng.”
Market share for Tesla and
(1211.Hong Kong) is trending up, accounting for nearly 45% of the battery EV market on average over the past few months, up from about 30% of the market in the same period a year ago.
The combined share for
(LI) in 2023 is now below 10%, up from around 11% a year ago. NIO, XPeng and Li are not yet consistently profitable. BYD and Tesla are.
The Chinese market shakeout separates the EV wheat from the EV wheat.
Chinese momentum is what US auto investors will have to contend with as EV capacity grows and EV models proliferate in America. In 2019, fewer than 20 all-electric car models were on sale in the US. In 2022 there were more than 40. In 2023 more will be added, including Tesla’s Cybertruck.
Tesla’s market share will fall in the US, but if the Chinese experience is any guide, Tesla will be a winner as long as it’s a low-cost electric vehicle maker.
For now, Tesla is the cost leader. The operating profit margin in 2022 was almost 17%. operating profit margins at GM and
(F) was about 9% and 7%, respectively.
Tesla is up 0.2% in premarket trading on Friday.
Futures are down 0.4% and 0.1% respectively.
Write to Al Root at email@example.com
Source : www.barrons.com