AllianceBernstein: Winding Road Ahead for China's EV Growth
China's battery electric vehicle (BEV) industry faces near-term challenges despite its global dominance. The country produced 6.2 million BEVs in 2023, over half the global total. However, growth has slowed due to competition from cheaper plug-in hybrids and charging infrastructure in smaller cities. Export growth is also meeting resistance with higher tariffs in key markets like the EU, Canada, and the US.
Despite these challenges, China's BEV industry maintains structural advantages, including leadership in lithium iron phosphate (LFP) batteries and dominance of the battery supply chain. The industry no longer receives national subsidies, contrary to some perceptions. Analysts suggest the next phase may involve industry consolidation, similar to other Chinese industries' growth trajectories.
Investors are advised to monitor for signs of industry maturation and invest selectively. Western automakers face their own challenges in transitioning to EVs while maintaining profitability. The report suggests watching Chinese BEV makers with integrated battery operations and battery manufacturers with diverse global clients.
L'industria dei veicoli elettrici a batteria (BEV) in Cina affronta sfide a breve termine nonostante il suo dominio globale. Nel 2023, il paese ha prodotto 6,2 milioni di BEV, oltre la metà del totale globale. Tuttavia, la crescita ha rallentato a causa della concorrenza di ibridi plug-in più economici e dell'infrastruttura di ricarica nelle città più piccole. Anche la crescita delle esportazioni sta incontrando resistenza a causa di tariffe più elevate in mercati chiave come l'UE, il Canada e gli Stati Uniti.
Nonostante queste sfide, l'industria dei BEV in Cina mantiene vantaggi strutturali, inclusa la leadership nelle batterie al fosfato di ferro litico (LFP) e il dominio della catena di fornitura delle batterie. L'industria non riceve più sovvenzioni nazionali, contrariamente a certe percezioni. Gli analisti suggeriscono che la prossima fase potrebbe coinvolgere una consolidazione del settore, simile ai percorsi di crescita di altre industrie cinesi.
Si consiglia agli investitori di monitorare i segnali di maturazione dell'industria e di investire in modo selettivo. I produttori di auto occidentali affrontano le proprie sfide nel passaggio ai veicoli elettrici mantenendo la redditività. Il rapporto suggerisce di tenere d'occhio i produttori cinesi di BEV con operazioni integrate di batterie e i produttori di batterie con clienti globali diversificati.
La industria de vehículos eléctricos de batería (BEV) de China enfrenta desafíos a corto plazo a pesar de su dominancia global. En 2023, el país produjo 6,2 millones de BEVs, más de la mitad del total global. Sin embargo, el crecimiento se ha desacelerado debido a la competencia de híbridos enchufables más baratos y la infraestructura de carga en ciudades más pequeñas. El crecimiento de las exportaciones también está encontrando resistencia por los aranceles más altos en mercados clave como la UE, Canadá y los EE. UU.
A pesar de estos desafíos, la industria de BEV de China mantiene ventajas estructurales, incluyendo liderazgo en baterías de fosfato de hierro litio (LFP) y dominancia en la cadena de suministro de baterías. La industria ya no recibe subsidios nacionales, contrariamente a ciertas percepciones. Los analistas sugieren que la próxima fase puede implicar la consolidación de la industria, similar a las trayectorias de crecimiento de otras industrias chinas.
Se aconseja a los inversores que monitoreen señales de maduración de la industria e inviertan de manera selectiva. Los fabricantes de automóviles occidentales enfrentan sus propios desafíos en la transición a los vehículos eléctricos mientras mantienen la rentabilidad. El informe sugiere observar a los fabricantes chinos de BEV con operaciones integradas de baterías y a los fabricantes de baterías con clientes globales diversificados.
중국의 배터리 전기차(BEV) 산업은 글로벌 우위에도 불구하고 단기적인 도전에 직면해 있습니다. 2023년 중국은 620만 대의 BEV를 생산하여 전 세계 생산량의 절반 이상을 차지했습니다. 하지만 저렴한 플러그인 하이브리드와 작은 도시의 충전 인프라 때문에 성장 속도가 둔화되었습니다. 또한, EU, 캐나다, 미국과 같은 주요 시장에서 높은 관세로 인해 수출 성장도 저항에 직면하고 있습니다.
이러한 도전에도 불구하고 중국의 BEV 산업은 구조적 이점을 유지하고 있으며, 리튬 인산철(LFP) 배터리에서의 리더십과 배터리 공급망의 지배력을 포함하고 있습니다. 이 산업은 더 이상 국가 보조금을 받지 않으며, 이는 일부의 인식과는 다릅니다. 분석가들은 다음 단계가 다른 중국 산업의 성장 궤적과 유사한 산업 통합을 포함할 수 있다고 제안합니다.
투자자는 산업 성숙의 징후를 주의 깊게 살펴보고 선택적으로 투자할 것을 권장합니다. 서양 자동차 제조업체들은 수익성을 유지하면서 전기차로의 전환에 어려움을 겪고 있습니다. 보고서는 배터리 통합 운영을 가진 중국의 BEV 제조업체들과 다양한 글로벌 고객을 가진 배터리 제조업체를 주의 깊게 살펴볼 것을 제안합니다.
L'industrie chinoise des véhicules électriques à batterie (BEV) fait face à des défis à court terme malgré sa domination mondiale. Le pays a produit 6,2 millions de BEV en 2023, ce qui représente plus de la moitié du total mondial. Cependant, la croissance a ralenti en raison de la concurrence des hybrides rechargeables moins chers et des infrastructures de recharge dans des villes plus petites. La croissance des exportations rencontre également des obstacles avec des droits de douane plus élevés sur des marchés clés tels que l'UE, le Canada et les États-Unis.
Malgré ces défis, l'industrie des BEV en Chine conserve des avantages structurels, notamment le leadership dans les batteries au phosphate de fer lithium (LFP) et la domination de la chaîne d'approvisionnement des batteries. L'industrie ne reçoit plus de subventions nationales, contrairement à certaines perceptions. Les analystes suggèrent que la prochaine phase pourrait impliquer une consolidation du secteur, semblable aux trajectoires de croissance d'autres industries chinoises.
Il est conseillé aux investisseurs de surveiller les signes de maturation de l'industrie et d'investir de manière sélective. Les constructeurs automobiles occidentaux font face à leurs propres défis pour passer aux véhicules électriques tout en maintenant leur rentabilité. Le rapport recommande de suivre les fabricants chinois de BEV avec des opérations de batteries intégrées et les fabricants de batteries avec des clients mondiaux diversifiés.
Chinas Industrie der batteriebetriebenen Elektrofahrzeuge (BEV) sieht sich trotz ihrer globalen Dominanz kurzfristigen Herausforderungen gegenüber. Das Land produzierte 2023 6,2 Millionen BEVs, mehr als die Hälfte der globalen Gesamtproduktion. Das Wachstum hat jedoch aufgrund der Konkurrenz von günstigeren Plug-in-Hybriden und der Ladeinfrastruktur in kleineren Städten nachgelassen. Auch das Exportwachstum trifft auf Widerstand durch höhere Zölle in wichtigen Märkten wie der EU, Kanada und den USA.
Trotz dieser Herausforderungen behält Chinas BEV-Industrie strukturelle Vorteile, einschließlich der Führerschaft bei Lithium-Eisenphosphat (LFP) Batterien und der Dominanz in der Lieferkette für Batterien. Die Industrie erhält keine nationalen Subventionen mehr, entgegen einiger Wahrnehmungen. Analysten deuten darauf hin, dass die nächste Phase eine Konsolidierung der Branche zur Folge haben könnte, ähnlich wie bei anderen chinesischen Industriezweigen.
Anleger werden geraten, auf Anzeichen für eine Reifung der Branche zu achten und selektiv zu investieren. Westliche Automobilhersteller stehen vor eigenen Herausforderungen beim Übergang zu Elektrofahrzeugen und der Aufrechterhaltung der Rentabilität. Der Bericht empfiehlt, chinesische BEV-Hersteller mit integrierten Batterieoperationen und Batteriehersteller mit unterschiedlichen globalen Kunden im Auge zu behalten.
- China produced 6.2 million BEVs in 2023, more than half of the global total
- China leads in lithium iron phosphate (LFP) battery technology
- Chinese BEV industry has reached scale, quality, and sophistication to compete effectively long-term
- Strong growth potential in Chinese BEV exports to emerging markets
- Recent slowdown in BEV sales growth in China
- Increased competition from cheaper plug-in hybrids in the domestic market
- battery-charging infrastructure in China's lower-tier cities
- Higher tariffs imposed on Chinese BEV exports by EU, Canada, and US
- Ongoing price competition and industry rationalization affecting profitability
Insights
The article provides a comprehensive overview of China's battery electric vehicle (BEV) industry, highlighting both short-term challenges and long-term potential. Key points for investors include:
- China's dominance in BEV manufacturing and market demand, producing 6.2 million BEVs in 2023, over half the global total.
- Recent slowdown in Chinese BEV output due to competition from plug-in hybrids and charging infrastructure in lower-tier cities.
- Trade barriers from the EU, Canada and the US potentially impacting Chinese BEV exports.
- Structural advantages for Chinese manufacturers, including leadership in LFP batteries and control of the battery supply chain.
- Potential for Chinese BEVs to challenge traditional ICE makers, forcing price reductions and margin compression.
For AllianceBernstein (AB), this analysis suggests potential opportunities in Chinese BEV makers with integrated battery operations and battery manufacturers with diverse client bases. However, the industry's consolidation phase may require careful stock selection. The long-term outlook remains positive, but investors should be prepared for short-term volatility as the market matures.
This article offers valuable insights into the evolving global BEV market dynamics. Key takeaways for investors include:
- The BEV industry is following a typical Chinese industry growth pattern: rapid subsidized growth followed by price competition and rationalization.
- The number of Chinese BEV makers has decreased from 500 in 2019 to about 100 currently, with further consolidation expected.
- Western automakers face challenges in balancing EV growth with maintaining profitability and cash flow.
- Emerging markets present growth opportunities for Chinese BEV exports, potentially offsetting Western trade barriers.
For AllianceBernstein, this suggests a need for a nuanced investment approach. The firm should focus on identifying companies well-positioned to survive industry consolidation and those with strong potential in emerging markets. Additionally, AB should monitor Western automakers' ability to adapt their business models to the changing landscape. The transition from ICE to BEV vehicles represents a significant shift in the auto industry, with potential for both risks and opportunities across the global market.
NORTHAMPTON, MA / ACCESSWIRE / October 2, 2024 / AllianceBernstein
Lily Zheng | Portfolio Manager-China Net Zero Solutions; Senior Research Analyst
Kathleen Dumes, CFA | Responsible Investing Research Analyst-Fixed Income Responsible Investing
What do near-term pressures on China's battery electric vehicle industry mean for its long-term outlook?
China has quickly risen to dominate the global battery electric-vehicle (BEV) industry, both as a manufacturer and as a market. Its dominance looks set to continue, but the industry - in China and elsewhere - faces headwinds. The challenge for investors is to understand and navigate the short-term risks and to position themselves for long-term opportunities.
The trend in global autos away from internal combustion engines (ICE) to electric vehicles (EVs) is well established and is forecast to grow as countries continue efforts to reduce their carbon dioxide emissions. Among EVs, the strong growth in BEVs - as distinct from hybrid electric vehicles and plug-in hybrid electric vehicles - looks set to continue (See display 1 above).
China dominates the BEV segment in terms of both manufacturing and market demand. But its output in this area, while still well ahead of that of other countries, has recently slowed (See display 2 above).
This reflects a change in the dynamics of the industry's growth. To understand the investment implications, it helps to know a little about how China came to dominate the BEV industry, and how the growth outlook is, in our view, becoming more nuanced.
Rapid Rise Hits Speed Bumps
China's rise to BEV dominance began in the early 2000s, when the government realized that the country's traditional ICE auto manufacturing base, while strong, was unlikely to overtake the US, European and Japanese automakers. As Japan already had an advantage in hybrid vehicles, one area in which China was likely to compete strongly was BEVs.
This new technology required large-scale innovation and investment. The government - motivated by environmental as well as economic benefits - provided generous subsidies. It even imported competition to stimulate growth, by allowing BEV maker Tesla and other Western auto companies to set up factories in China.
The government also boosted manufacturers of BEVs' most crucial component: batteries. China is now a leader in lithium iron phosphate (LFP) batteries which, before advances made possible by Chinese research, had been considered inferior to the lithium nickel manganese cobalt batteries favored in the West.
In 2023, China produced 6.2 million BEVs, more than half the global total of 11.2 million and many more than Western Europe (2 million), the United States (1.2 million) and Japan (87,000). But there have been speed bumps: the number of Chinese BEV makers peaked at 500 in 2019 and has since fallen to 100 or so. More rationalization is expected, for a number of reasons.
China's BEV Makers Face Short-Term Challenges
BEV sales growth has recently slowed, mostly due to competition within China from cheaper plug-in hybrids and limited battery-charging infrastructure in China's lower-tier cities.
This has led to price-cutting and moves to protect margins. At the same time, China's BEV exports, which have grown strongly since 2020, are meeting resistance in key markets, with higher tariffs imposed by the European Union (EU), Canada and the US.
These are short- to medium-term challenges; we think the longer-term outlook is more encouraging. The impact of Western trade barriers, for example, may be softened by strong growth in Chinese BEV exports to emerging markets. More fundamentally, the Chinese BEV industry has reached the scale, quality and sophistication it needs to compete effectively in the long term.
Structural Advantages May Help in the Long Term
This does not seem to be well understood outside China. The aim of the US tariffs, for example, is to counter "extensive subsidies and non-market practices" that have supported China's BEV exports. But, as of 2023, China's EV manufacturers no longer receive national subsidies, and subsidies for the sale of EV batteries ended in 2018.
The country's leadership in LFP batteries and dominance of the battery supply chain, from raw materials to production, are key structural advantages, in our analysis. LFPs' cheapness keeps vehicle prices low, and their relative safety is a selling point. Many US BEV makers source their batteries from South Korea and elsewhere, which involves supply-chain risks and small-scale, high-cost suppliers.
We think a major risk for US and European automakers is that tariffs on Chinese BEVs could ease the pressure on them to improve their own EV batteries, and that they may rely instead on their traditional dominance of the large but low-growth ICE markets. Long-term, we see China's low-cost, high-quality BEVs as challenging ICE makers and forcing them to lower their prices and accept thinner margins.
Next Consolidation Could Yield Opportunities
The Chinese BEV industry is following the growth trajectory of older Chinese industries such as home appliances, textiles and machinery-fast, subsidized growth in the early stages followed by price competition and rationalization. The next phase of consolidation may take time, given the number of players still in the industry (See display 3 above).
In our view, investors should monitor these changes and look for early signs-such as moderating price competition, stable market share and strong cash flows-that the industry is maturing. As we see it, the key will to be to research the market and individual companies intensively and to invest selectively.
This also applies to investing in US and European automakers, which face short-term risks. US automakers must grow their EV businesses to secure their long-term futures, but rating agencies and investors demand strong cash flow and profitability. The EU's climate goals put its automakers at risk of penalties if sales of EVs-which are currently margin dilutive-don't increase significantly.
We believe that Western automakers will continue to evolve their business models and differentiate themselves in response to the greening of global transportation. As the global market develops, we regard Chinese BEV makers with integrated battery operations, and battery manufacturers with a broad spread of clients both inside China and globally, as companies worth watching.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.
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FAQ
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