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<Research>CMS: EU Tariff Hike Will Not Stun Momentum of CN Carmakers Going Overseas; Global Mkt to Concentrate Towards Leaders Under Fierce Competition
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The European Union announced that it will impose additional tariffs on electric vehicles imported from China from July. China Merchants Securities wrote in a report the policy's impact on the auto industry is limited, and should not change the general trend of carmakers going overseas. The amount of tariffs is lower than the previous general market expectations, and manufacturers have already taken precautions against this. Furthermore, with the weakening of the European car market, Southeast Asia and South America have become new directions for automakers to expand, which maintained strong overall growth of exports.

According to the broker, the affected sales volume of export leader BYD COMPANY (01211.HK) accounted for only 1.6% of the total sales volume, and even after the tariff increase, the price-performance ratio advantage is still big. It is estimated that the selling price will be no more than EUR43,000 after the tariff increase and retaining reasonable profit, which is still lower than the average selling price of EUR49,000 of the competitors, while there is still a bigger room for adjusting the profit of the company in the overseas market. In addition, BYD will start localised production in Europe next year.

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CMS believed the market is highly competitive, and the global market share would be concentrated towards market leaders in a strengthening Matthew Effect. For medium- to long-term, the broker's top picks are BYD and FUYAO GLASS (03606.HK) for the whole-car and parts sectors respectively.

The broker commented that the market is still underestimating the power of BYD's DM5.0 on fuel vehicles, and the new technology platform will speed up the market disruption after it is fully implemented on cars this year. The broker believed BYD has the potential to double its market share in China and multiply its growth in exports. The EU tariff policy has also limited substantive impact on the company.

Secondly, CMS recommended Xiaomi Automobile and Huawei Automobile, car brands developed by giants in other industries, which possessed industry crossover effect but saw short-term margins weakening. The related stocks are XIAOMI-W (01810.HK) and SERES (601127.SH).

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At the same time, CMS is focused on LI AUTO-W (02015.HK)'s improved delivery capacity for its L6 model, which could drive product line recovery. The broker added that XPENG-W (09868.HK), NIO-SW (09866.HK) and Tesla (TSLA.US) should be watched for trading opportunities driven by events such as release of MONA, launch of ONVO, and AI robot progress update respectively.

FUYAO GLASS is the top pick of CMS for the parts and components sector. The broker is optimistic about its global expansion, relative monopoly advantage, strong pricing power, and high ability to absorb product innovation dividends catalysed by electrification and intelligentisation of cars.



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