Major automakers including BYD, Tesla, Nio, and Li Auto were relatively unaffected, as they all have a certain level of order backlog, according to CICC.
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China significantly loosened Covid controls earlier this month and a large number of infections subsequently arrived, leaving industrial production facing short-term challenges. So, for the new energy vehicle (NEV) industry, how have they fared recently? Chinese investment bank CICC gave their take.
"The market has recently worried about the impact of China's Covid policy adjustment on the demand and supply of NEVs. We believe that the overall impact is limited," CICC analyst Deng Xue's team wrote in a research note today.
On the demand side, the Covid infection since December did have some impact on sales of NEVs, mainly in terms of consumer visits to stores, the team said.
In addition, some salespeople have been affected, the team said, adding that these factors can create some disruption in the acquisition of new orders.
"However, we believe that mainstream car companies such as BYD, Tesla, Nio and Li Auto have a certain level of order backlog thickness," the team said.
BYD has three months of stock orders, while Nio, Li Auto and Tesla all have more than one month of stock orders, the team said, adding that the mainstream car companies still have orders on hand to support sales in January and February or even the first quarter of 2023.
By February and March 2023, the impact of the Covid infection is expected to wane significantly, and car companies' order books are expected to gradually return to normal levels, the team said.
"We believe that the Covid infection will mainly affect those vehicle companies with relatively small orders on hand while having a limited impact on overall NEV sales in the first quarter of 2023," the team said.
In terms of NEV supply, the team believes that apart from those infected who are forced to suspend their work, others maintain their normal work, so car companies will likely not experience widespread work stoppages and production shutdowns.
As of now, the production of listed companies in the NEV industry chain are running normally, the team noted.
The current rules for car companies to resume work for Covid-infected people are very open. Some car companies do not require infected people to have a negative Covid test or to be quarantined at home for a certain number of days, they just need to be physically fit to resume work, the team said, adding that this ensures the continuity of production.
Looking at the pace of recovery in the fundamentals of the NEV industry chain, January to February 2023 will be the bottom of the year, the team said. They further explained:
On the one hand, the Chinese New Year holiday will have an impact, and there are fewer working days in February itself.
On the other hand, the Covid outbreak will still be in a period of spread.
"Starting in March 2023, we expect a more significant pickup in orders on the demand side as well as in production scheduling for the industry chain," the team said.
Looking at the industry chain's scheduling in January, battery makers' capacity utilization is expected to be around 50-60 percent, and will return to normal levels by March, according to the team.
Projecting from the major battery makers' scheduling, wholesale sales of NEVs in China are expected to be at the level of 1.5-1.6 million units in the first quarter of 2023, up 20-30 percent year-on-year, the team said.
China essentially abandoned its zero-Covid policy earlier this month, and the virus is now in the midst of a massive nationwide outbreak.
On Monday night, Chinese health authorities unveiled a new set of Covid-related policies, marking the country's decisive break with the zero-Covid policy.
In a speech at the APEC SME Business Forum 2022 on December 22, BYD executive vice President Lian Yubo said the company had produced two to three thousand fewer vehicles per day in recent days because many workers had contracted Covid.
The staff infection has severely affected BYD's production in recent days, with 20-30 percent of people taking time off work to stay home, Lian said.
BYD could have sold 1.9 million units this year, but the loss of production in the last few days will have an impact of 20,000-30,000 units on December sales, he said.
William Li, founder, chairman and CEO of Nio, said in a media group interview on December 25 that China's NEV market will be under more pressure in the first half of 2023 on both the supply and demand side, but the pressure on demand will be a bit greater.
The expiring subsidies will cause some consumers to bring their demand for next year forward to this year, while the impact of the Covid epidemic on the supply chain and the recovery of consumer confidence will take time, Li said.
Li believes China's NEV market will face a period of pressure in the first half of next year, but on the bright side, the market could gradually recover in the second quarter or in May.
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