BYD, Leapmotor, Geely Tipped to Lead in China's EV Race

Key Takeaway

• BYD, Leapmotor, and Geely highlighted as potential winners in China's competitive EV market by Jefferies and JPMorgan.
• Over 110 new car models unveiled at Beijing auto show, emphasizing rapid innovation and marketing in the auto industry.
• Government stimulus and policies expected to boost EV sales, with increased electric vehicle penetration forecasted.

Beijing Auto Show Highlights

The Beijing auto show, China's premier automotive event, showcased the intense competition within the country's car market. With an unprecedented number of visitors and live-streamers, the event highlighted the growing interest in China's automotive sector, both domestically and internationally. JPMorgan's Nick Lai noted the significant presence of foreign visitors, particularly Chinese brands' overseas dealers, indicating a global expansion of China's auto industry. Tesla's CEO Elon Musk's recent visit to Beijing and the company's progress on regulatory approvals underscore the importance of the Chinese market to global automakers.

Market Dynamics and Consumer Trends

The Chinese car market, significantly larger than Europe's, is characterized by a high number of brands and intense competition. This saturation leads to challenges in achieving economies of scale, as highlighted by JPMorgan's analysis. The transition from internal combustion engines to battery electric vehicles adds another layer of complexity, prompting questions about the viability of competing in certain market segments. The Beijing auto show's shift to public access allowed brands to engage directly with consumers, employing innovative marketing strategies such as Apple Vision Pro experiences and live performances to attract attention.

Industry Responses and Innovations

Over 110 new car models were unveiled at the Beijing auto show, demonstrating the industry's rapid innovation and the importance of marketing in gaining consumer traction. Companies like Xiaomi and BYD stood out, with Xiaomi's SU7 generating significant social media buzz. The event also highlighted the strategic importance of autonomous driving technology, with suppliers like Asensing showcasing their latest advancements. This focus on smart vehicles reflects the industry's direction towards integrating more advanced technologies into consumer products.

Investment Insights and Future Outlook

Investment analysts have identified potential winners in the Chinese auto market, with BYD, Leapmotor, and Geely receiving buy ratings from Jefferies and JPMorgan. These companies are expected to benefit from government stimulus and positive market sentiment. The upcoming US IPO of Zeekr, a high-end EV brand under Geely, further illustrates the growing investor interest in Chinese automakers. Despite challenges, policies encouraging trade-ins and subsidies for new energy vehicles are expected to boost sales, with analysts forecasting increased penetration of electric vehicles.

Street Views

• Nick Lai, JPMorgan (Neutral on China's car market):

  "The number of visitors this year was simply overwhelming."

• JPMorgan European autos analysts (Neutral on the Chinese car market):

  "Despite the Chinese car market being ~50% larger than Europe, it has about 170 brands operating in the market vs 80 in Europe, which clearly suggests an oversaturation of the market with poor economies of scale selling about 150k cars per brand vs ~200k in the EU."

• Morgan Stanley Asia Pacific autos analysts (Neutral on auto shows as marketing tools):

  "Auto shows have become a marketing tool for top brands to gain traction via not only their products but vocal management."

• Jefferies’ auto equity analysts (Bullish on Xiaomi and its impact through marketing):

  "Xiaomi was one of the surprising standouts, with the most social media hits for SU7 and its chairman Lei Jun... We learnt that marketing matters and that’s rich in [Xiaomi’s] DNA as the consumer electronics juggernaut."

• Bank of America Merrill Lynch analysts (Bullish on Nio and Leapmotor's delivery performance):

  "Nio and Zhejiang-based Leapmotor reported better-than-expected deliveries in April... We believe that orders will improve [month-over-month] in May, thanks to [a] stimulus policy announced on 26 April."