What's Trending - China EV market latest earnings & 2H22 outlook

Q: China Electric Vehicle (EV) manufacturers have reported their earnings for the second quarter of 2022. What are some of the notable highlights that investors should focus on?

• Deliveries were weaker in 2Q22. As expected, vehicle deliveries slowed down in 2Q22 as the EV manufacturers faced challenges from COVID-19 lockdowns in China, extreme weather conditions, as well as supply chain uncertainties. Li Auto saw the sharpest decline in EV deliveries to 28,687 units (-9.6% QoQ) in 2Q22 as its factories were impacted by restrictions in Shanghai. On the other hand, NIO saw a more modest decline to 25,059 units in 2Q22 from 25,768 units in 1Q22, representing a 2.8% QoQ decline.  

• Margins also came down in 2Q22.  With lower deliveries, the margins of Chinese EV manufacturers declined in 2Q22. This was most noticeable for NIO, which saw a decline in vehicle gross margin to 13.0% in 2Q22 from 14.6% in 1Q22. NIO’s management attributed the margin decline to higher battery costs per unit. On a more positive note, NIO also shared that it expects a “slight increase of vehicle margin in 3Q”, as the company has taken multiple measures such as raising the prices of certain vehicles.

Q: Based on their respective 3Q outlook commentaries, EV manufacturers are still guiding for growth in their revenue and vehicle deliveries. What does this tell investors about the state of China’s EV market?

• Supply chain bottlenecks expected to ease. Encouragingly, Chinese EV manufacturers have taken active steps to ease the impact of supply chain bottlenecks. As such, they have mostly kept their guidance for deliveries this year as production is expected to ramp up in the fourth quarter. For example, NIO has kept its delivery guidance of 100,000 vehicles in 2H22, which would suggest that deliveries in 4Q22 could increase to a record 68,000 units from about 31,000 to 33,000 units in 2Q22.

• Demand remains healthy. Clearly, the Chinese EV manufacturers believe that the slower deliveries in 2Q22 were driven by production constraints rather than weaker consumer demand. According to them, there are signs that China’s EV demand remains healthy and new launches have seen strong ordering activity. For example, NIO saw more orders for its ES7 (mid-large SUV) compared to its initial expectations, and will start mass production for its ET5 (mid-size sedan) in October.  Likewise, Li Auto also saw strong orders for its newly launched Li L9 (full-size flagship SUV). Overall, Chinese EV sales have continued to grow compared to the previous year based on data from the China Passenger Car Association (CPCA).

Are you wondering if you should invest in the Chinese EV sector? We share our thoughts here. 

Did you know?

• Listed on SGX in January this year, the NikkoAM-StraitsTrading MSCI China Electric Vehicles and Future Mobility ETF (EVS) is the first SGX listed ETF to offer investors access to Chinese companies that are expected to derive significant revenues from energy storage technologies (including EV), autonomous vehicles, shared mobility and new transportation methods.
• Investors can trade NIO shares through its secondary listing in Singapore. Also traded in Hong Kong and the US, investors can transfer NIO shares in Hong Kong and convert NIO ADS’ in the US, to and from Singapore shares.

This article also appeared on SGX Market Updates.