China EVs

Have global EVs sales growth been stalled by recent Covid lockdowns in China?

Global sales of EVs (“electric vehicles) has being growing rapidly over the past three years.

And it is China which is driving that global growth.

But sales and production have “stalled” recently.

Shanghai’s lockdown has had a serious effect on consumer confidence and production this year. No one single car was sold in Shanghai in April! 25 million residents, with over 25k of sales in the same period a year prior.

Nationwide car sales fell 36% YoY to 1m units.

The China Passenger Car Assoc forecast 5.5m sales in EVs in 2022, up 60% YoY from 3.3m in 2021.

There are a combination of critical factors threatening that forecast:-

  1. Manufacturers are still not fully operational due to staff and Covid restrictions.
  2. Supply chain constraints, idling factories and warehouses, and logistics firms being hampered by shipping logjams and restricted lorry deliveries.
  3. Raw material and commodity price increases, including Lithium and Cobalt.
  4. Possible EV price increases, and delivery delays turning off the consumer.

Interestingly, two large auto manufacturers XPENG (Rev: $3.3Bln) and LI Autos ($9.6Bln) have seen production slide and sales fall. Both down 40% YoY.

Tesla has recently struggled with both production and sales especially during the Shanghai lockdowns. Shipping just 1,500 cars in April, whilst trying to maintain production at 2,000 daily!

Another serious threat to EV growth in China is the tax credits handed by the Govt. The subsidies for EV car manufacturing will run out at the end of 2022, which inevitably drive costs up and prices up. That is without incorporating the higher Lithium and Cobalt prices used in the manufacture of the batteries themselves. This could mean that consumers will likely be forced into buying petrol engines until the EV cost & price structure are remedied…

General Motors and Volkswagen Group are lagging behind the local Chinese manufacturers. The top 10 automakers in EVs in China are all local with no foreign producers making the list except for Tesla.

Key Chinese brands include Wuling, Chery, Xpeng and BYD. “Build Your Dreams” a catchy name for the new EV market is partly owned by Warren Buffet’s Berkshire Hathaway, with a 7% stake.  They have sold 400k EVs, whilst Tesla sold 120k in the same period. VW does have a partnership with First Automobile Works business, which accounts for a small portion of EV Sales 15th in the list of EV sales in China.

Slowly, the traditional brand names are being eroded and marginalised by the Chinese manufacturers, being chased out of town.

VW which owns high end brands Bentley and Lamborghini and Porsche, has been influential in China’s upwardly mobile generation. The threat is now from the new EV age of revolution in the car space. China is not playing catch up anymore, but is becoming the pioneer. However, Porsche has an excellent EV offering, and Bentley and Lamborghini have a unique high status offering that is unlikely to be unattractive to more aspirational buyers.

GM which shipped Chrysler, Cadillac and Buick to China twenty years ago, sensibly bought a stake in SAIC-Wuling Autos, now called SGMW shipping Chinese cars. Competition has ruled out the Americana produced by GM.

Current risk facing producers are the ongoing chip shortages and supply-chain disruptions which in effect cause a shortage of inventory to meet supply, and concerning increase costs of making the cars as a result.

This is further compounded by the cost of raw materials and labour rising.

Both Lithium (433%) and Cobalt (75%) have risen dramatically over the past year. Two key components in the production of EV batteries.

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