As China's subsidies on new energy vehicle roll back, one analyst sees little influence with Tesla in China.
On 23 April 2020, China issued a new policy on new energy vehicle subsidies, the main points of which include:
(1) The subsidy period is extended to the end of 2022; in principle, the subsidy rates for 2020-2022 are 10, 20 and 30 per cent lower than those of the previous year; the subsidy rates for 2020-2022 are 0, 10 and 20 per cent lower than those of the previous year for compliant vehicles in the areas of public transport, rental, sanitation and public service; in principle, the annual subsidy scale is capped at about 2 million vehicles.
(2) In 2020, no adjustment will be made to the technical indicators such as the energy density of power battery systems, raise the mileage threshold for pure electric passenger cars to 300km, and moderately raise the energy consumption requirements for whole vehicles of new energy vehicles.
(3) Non-electrification new energy passenger cars must be priced at 300,000 yuan or less before subsidy.
(4) A transition period of three months, until 22 July.
Dongxing Securities said in a report that Tesla's current models will not be eligible for subsidies after the transition period if there is no subsequent price adjustment.
But this will not affect the consumption demand of Tesla's potential customers, it will continue to create greater competitive pressure on domestic car companies, the "catfish effect" on the Chinese new energy vehicle market will not be significantly weakened.
The following is the full report.
1 Subsidy policy is largely in line with expectations and more friendly to the commercial vehicle market
1.1 Subsidy policy meets expectations
On April 23, 2020, the official website of the Ministry of Finance issued the Notice on Improving the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles (hereinafter referred to as the Notice), extending the implementation period of the financial subsidy policy for the promotion and application of new energy vehicles to the end of 2022. (b) To moderate the intensity and pace of subsidies, with the rates for 2020 - 2022 being in principle 10 per cent, 20 per cent and 30 per cent, respectively, from the previous year. In principle, the size of the subsidy is capped at about 2 million vehicles per year.
On 31 March 2020, the executive meeting of the Chinese State Council decided to extend the policy of subsidizing the purchase of new energy vehicles and exempting them from the purchase tax for two years, without disclosing the extent of the subsidies' decline.
But the moderate retreat has long been expected, according to 2020, according to media reports on January 11, the Ministry of Industry and Information Technology said that during the China Electric Vehicle Hundred People's Forum, on new energy vehicle financial subsidies related issues, Minister Miao Wei responded that the 2020 new energy vehicle subsidy policy will remain relatively stable, will not be a significant retreat. As a result, the 10% retreat of this subsidy is largely in line with industry expectations.
The focus on range and single-vehicle power consumption, without raising the energy density threshold requirements for power cell systems, in line with the previous "New Energy Vehicle Industry Development Plan (2021-2035)" (consultation draft) guidance, and also in line with our previous report on the industry trend judgment.
According to this policy document, for pure electric passenger cars, the mileage threshold to enjoy the subsidy is increased from 250km in 2019 to 300km in 2020, while the requirement for the single vehicle power consumption threshold is slightly increased.
However, the policy has not raised the energy density threshold requirements for power battery systems, which are 105Wh/kg, 125Wh/kg and 125Wh/kg for pure electric passenger car power battery systems in 2018, 2019 and 2020, respectively.
We believe that, in a sense, it gives the space for lithium iron phosphate blade batteries, CTP batteries using lithium iron phosphate and ternary lithium-ion batteries to "compete on the same stage", the coexistence of multiple technology routes is conducive to meeting the diverse needs of end-users, but also helps to reduce policy intervention in the market, so that technology routes that are more in line with the real needs of the market can achieve long-term development.
Since 2019, the power battery enterprises represented by Ningde era and BYD accelerated innovation in power battery assembly technology, using the blade battery technology and CTP technology of lithium iron phosphate battery significantly increased the bulk energy density of the battery pack, making new energy vehicles in the use of energy density is not outstanding when the lithium iron phosphate battery, can be installed more capacity of the battery to achieve long range driving effect, taking into account the long range requirements, but also improve the safety of power batteries.
According to the Ministry of Industry and Information Technology's official website released on February 14, 2020, the new BYD7009BEV pure electric sedan and BYD7009BEV1 pure electric sedan are equipped with a lithium iron phosphate battery system energy density of 140Wh/kg and range of 550km and 605km, respectively, it can be seen that it already has the range parameters to match the pure electric passenger car loaded with high nickel ternary power battery.
We previously noted in Power Equipment and New Energy Industry Monthly (December 2019): grid investment will shrink as new energy vehicles continue to receive policy support (20191205) that for the next phase of administrative regulation of the new energy vehicle industry, safety will be prioritized over the energy density and manufacturing costs of power batteries. In conjunction with the foregoing analysis, we stand by this view.
1.2 Policies are more business market friendly
The 2020 version of the subsidy policy is more friendly to the B-end market, mainly reflected in: 1) in order to accelerate the electrification of public transportation and other areas of vehicles, urban public transport, road passenger transport, rental (including network car), sanitation, urban logistics and distribution, postal express, civil aviation airports and official areas of the party and government agencies, the 2020 subsidy standard will not regress; 2) to increase the government procurement of new energy vehicles, in principle, in addition to the procurement of new energy vehicles for official use, such as aircraft communications, in addition to special geographical environment and other factors, priority procurement of new energy vehicles to provide rental services.
We expect that some local governments are friendly to the market policy of netroading, coupled with government procurement will form additional increment, or will form some support for the recovery of the domestic new energy vehicle market in 2020.
2 Set a 300,000 yuan watershed, hard to mitigate Tesla's "catfish effect"
No subsidies for passenger car models priced above 300,000 yuan, except for vehicles in the "power exchange" mode. We believe that this policy will have a certain helping effect on most domestic new energy vehicle enterprises, but local enterprises still need to practice their internal skills and improve the product price/performance ratio.
According to public information, except for some models of Tesla, Nio, BMW, Mercedes-Benz, Tenshi, Volvo, Beyton and Sky, most of the new energy passenger cars on sale in the Chinese market generally cost less than 300,000 yuan, in line with the corresponding price conditions of the subsidy policy.
On April 24, the Tesla Chinese-made Model 3 standard range upgrade and long range upgrade were reportedly priced up 4,500 yuan and 500 yuan to 303,550 yuan and 344,050 yuan, respectively (after a subsidized price during the transition period); the performance version, scheduled for delivery in January 2021, remains priced at 419,800 yuan.
As can be seen, these models do not benefit from the post-transition subsidy policy. However, our calculations found that the share of Tesla in the production of new energy pure electric passenger cars in mainland China in Q1 2020 may have reached 20.6%, its competitive impact on the independent brand new energy vehicle enterprises has been manifested.
According to the official website of the Association, in March 2020, the production and sales of new energy vehicles (excluding Tesla) in mainland China completed 50,000 and 53,000 units respectively, down 56.9% and 53.2% year-on-year respectively; from January to March, production and sales of new energy vehicles completed 105,000 and 114,000 units respectively, down 60.2% and 56.4% year-on-year respectively.
According to the data and notes reprinted by WeChat's "AutoReview" on April 10, the cumulative statistics for January to March should also not include the Tesla part.
Tesla's Model 3 registered 3,183, 2,284 and 11,927 units in China in January, February and March 2020, respectively, according to statistics from Reuters and Moneyball (shown in Figure 5), cited in an April 15 report by foreign media InsideEVs.
In our judgment, Tesla's Model 3 registered in China since 2020 is basically produced at the Shanghai factory, and the total number of registered Model 3s in the first quarter of 2020 is 17,394, as measured by the aforementioned data.
Based on the above analysis, we estimate that in the first quarter of 2020, the total production of new energy vehicles in mainland China, including Tesla, was 122,000 units, down 54.1% year-on-year. During the period, Tesla accounted for 14.2% of the total production of new energy vehicles in mainland China and 15.6% and 20.6% of the production of new energy passenger cars and pure electric passenger cars, respectively.
Under Tesla's latest pricing policy, current models that do not subsequently adjust their prices will not be eligible for subsidies after the transition period. However, we believe that its "catfish effect" to China's new energy vehicle market will not be significantly weakened.
Tesla and models priced under 300,000 yuan are targeted at different consumer groups, with Tesla targeting a less price-sensitive middle and upper income group, while models priced under 300,000 yuan are more price sensitive.
Therefore, we expect that the subsidy policy will not affect the consumption demand of Tesla's potential customers, and Tesla's Shanghai plant is expected to continue to maintain a high production and sales rate with good brand recognition, and continue to put more competitive pressure on domestic car companies.
Looking to the future, we believe that the C-terminal market is still the key demand of the new energy vehicle market, and local new energy vehicle enterprises still need to focus on product performance and driving experience improvement, cost control and marketing strategy improvement.
3. Central financial support for hydrogen energy and fuel cells with "awards instead of subsidies"
For fuel cells, the policy encourages technological innovation in key components.
The policy document states: "The current subsidies for the purchase of fuel cell vehicles will be adjusted to select cities or regions that have a foundation, enthusiasm and characteristics, and focus on technological research and industrialization of key components and applications to carry out demonstrations, and the central finance will adopt a 'reward instead of replenishment' approach to give incentives to the demonstration cities (the relevant notice will be issued separately). Strive to establish a hydrogen energy and fuel cell automobile industry chain through about four years, key core technologies to make breakthroughs, forming a good situation of reasonable layout and synergistic development."
We believe that the fuel cell support focuses on the core technology level, such as proton exchange membrane, catalyst, bipolar plate and other fuel cell core components worthy of attention, but the fuel cell industry as a whole is still in the initial stage of development, technology needs further breakthrough.
4 Update annual production forecasts, taking into account the impact of the epidemic
We believe that with the resumption of production, the impact of the COVID-19 epidemic on the supply side of the Chinese new energy vehicle market has been gradually repaired, but the impact on the consumer side will continue.
We expect total lithium new energy vehicle production to reach 1.287 million units in 2020, an increase of 3.6% year-on-year; among them, pure electric passenger cars account for the largest share (expected 66.2%), with an estimated production of 852,000 units, including 650,000 independent brands and 202,000 foreign and joint venture brands (Tesla 117,000 units).
Looking ahead to 2021 and 2022, we expect the domestic production of new energy vehicles to reach 1.826 million units, 2.246 million units, up 41.9% and 32.8% year-on-year, the specific split is shown in Table 6.
We believe that the overall development prospects of China's new energy vehicle industry are improving, and the competitive impact of foreign investment and joint venture brands will continue, but also play a role in the local industry chain. It is recommended to focus on the industry chain with long-term competitiveness and a good business model.
5 Risks
Industry demand may be less than expected; technology advances may be less than expected.
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