Insights

After a disappointing 2022, some tailwinds will drive a recovery in retail sales and production in the Chinese auto sector in 2023, Goldman Sachs said.

"The short is answer is yes but we share investor frustration following the guidance cut last week," Edison Yu's team wrote.

Li Auto showed strong execution and sequential growth, while Zeekr's sales performance was the biggest positive surprise of last year, said Edison Yu's team.

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.

"Going into year-end, we see several potential positive developments for Nio," said Deutsche Bank analyst Edison Yu.

The sharp decline in gross margin was due to a huge hit of $803 million from inventory provisioning and loss of purchase commitments related to the accelerated phase-out of Li ONE.

"We expect a somewhat messy quarter due to accelerated phase-out of the Li ONE materially hurting margins," Deutsche Bank analyst Edison Yu's team said.

There are no major concerns about Xpeng regarding liquidity in the near term and there is still time to win back market share, according to Edison Yu's team.

Fab 5 China EV sales came in stronger than expected as new product cycles at Li Auto and Nio really start to kick in, leading to record monthly volumes despite a weak macro backdrop, said Edison Yu's team.

"We think a large part of the rally was caused by a short squeeze as investors were caught being too negative on the group given Covid and competition concerns," said Deutsche Bank analyst Edison Yu's team.