Chinese Autos_ 2025 Outlook. The year of deepening rifts — Few winners and many losers.

Summary of Key Points from the Conference Call Industry Overview - The Chinese autos industry is projected to experience a 1% volume growth in 2025, reaching approximately 27.5 million units. This includes about 22.1 million units for the domestic market (a -1% decline) and 5.4 million units for exports (a +10% increase) [1][9][17] - Domestic demand is expected to face pressure, with a forecasted -5% decline due to significant demand being pulled forward into the second half of 2024, driven by government trade-in subsidies [1][9][17] Electric Vehicle (EV) Market - EV sales are anticipated to grow by 25%, reaching 15 million units in 2025, with domestic penetration expected to hit 60% [2][10][19] - In 2024, EV sales re-accelerated, growing 48% year-over-year in the first eleven months, with strong performances from Battery Electric Vehicles (BEVs) and Plug-in Hybrid Electric Vehicles (PHEVs) [2] - BEV sales penetration is projected to reach 33% in 2025 (up from 27% in 2024), while PHEV penetration is expected to reach 27% (up from 19% in 2024) [2][19] Competitive Landscape - Competition in the EV market is expected to intensify, with PHEVs from Chinese brands becoming increasingly popular among consumers traditionally interested in Internal Combustion Engine (ICE) vehicles [3] - New PHEV launches have achieved price parity with ICEs, supported by enhanced policy backing and advanced features [3] - Chinese EV brands are anticipated to continue gaining market share from German, Japanese, and U.S. joint venture brands in both premium and mass markets [3] Export Dynamics - Exports are identified as a key growth driver, with Russia being the top destination for Chinese cars in 2024, although growth is expected to slow. The Middle East and LATAM regions are showing strong momentum and are likely to drive growth in 2025 [4][9] - Chinese OEMs are rapidly adopting AI technologies to enhance autonomous driving features and in-cabin experiences, with L2+ ADAS penetration reaching 15% [4] Company-Specific Insights - Great Wall Motors has been downgraded to Market-Perform with a price target of HK$14.50, down from HK$15.50 due to anticipated challenges in the domestic market and slower overseas growth, particularly in Russia [5][6] - BYD is rated as the top Outperform pick, supported by a competitive cost structure and strong R&D capabilities [6] - Li Auto and Geely are also rated Outperform, while XPeng, Great Wall, NIO, SAIC, and GAC are rated Market-Perform [6][10] Investment Implications - A cautious outlook for the sector is maintained at the start of 2025, with expectations of a -5% year-over-year decline in retail sales volume due to challenges in the macro-economy and consumer confidence [9][10] - Despite the challenges, exports are expected to continue driving growth, albeit at a more moderate rate than in previous years [9][10] Additional Considerations - The long-term growth outlook for EVs remains positive, with the transition to mass adoption in China expected to continue [10] - The competitive environment is likely to exert pressure on pricing and profitability within the domestic market [10]