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ASIAN INSIGHTS
ed-TH/ JS / sa- AS / CW / CS
17 July 2018 DBS Group Research . Equity
Asia leapfrogs in E-mobility
Transportation sector one of the largest generators of
air pollutants in major global cities
Intensifying vehicle electrification could translate to
electric vehicle (EV) penetration rate of over 20% by
2030 globally
For every two EVs sold globally, one will be in China,
creating a huge EV supply chain network
Expect Chinese upstream suppliers to benefit from
robust development of global EV market
E-mobility is a game-changer. Electrification aims to address
vehicle pollution. Western governments have plans to phase
out or cut fossil-fuel vehicle sales from 2025 to 2040. We
estimate global EV to account for some 20% of total vehicle
sales by 2030, translating to about 27m units. With the rise in
EVs, approximately 6% of annual oil demand could disappear
by 2030. To power EV development, governments are leaning
more on clean energy and by 2030, half of the global energy
mix will be from natural gas and renewable sources. The robust
EV market is also a major driver of the metals sector, such as
cobalt and copper.
EV upstream supply chain to benefit. China, the world’s
largest automobile market (both electric and traditional), is
leading the E-mobility development, with its strong policies and
fiscal support. The rapid EV market development has created an
exciting value chain, one of the most complete in the world.
Several Chinese upstream suppliers such as battery
manufacturers and auto parts producers stand to benefit. The
Chinese EV market upcycle is expected to increase battery
production by almost 5x to 215GWh by 2022, up from
44.5GWh in 2017. On the other hand, the introduction of the
EV quota cum carbon credit dual system in 2019 means
automakers could face keen market competition.
HSI: 28,481
ANALYST Rachel MIU +852 2863 8843 [email protected] Suvro Sarkar +65 81893144 [email protected] Pei Hwa HO +65 6682 3714 [email protected]
Lee Eun Young +65 6682 3708 [email protected] Yi Seul SHIN +65 6682 3704 [email protected]
Recommendation & valuation
Source: Thomson Reuters, *DBS Bank (Hong Kong) Limited (“DBS HK”), Bloomberg Finance L.P.
Company Name
Price
Local$
Target
Price
Local$ Recom
PE
18F x
Mkt Cap
US$m
Bat tery
Contemporary Amperex
(300750 CH)
83.90 n.a. NR 55.1 27,566
Guoxuan High-Tech Co
Ltd (002074 CH)
13.64 n.a. NR 14.3 2,345
A uto Part s
Minth Group* (425
HK)
32.25 39.80 BUY 13.1 4,726
Nexteer Automotive
Group* (1316 HK)
11.54 15.60 BUY 10.5 3,698
A uto Makers
BYD 'H'* (1211 HK) 45.30 60.00 BUY 25.6 17,354
Tesla (TSLA US) 310.10 n.a. NR n.a. 52,653
Asian Insights SparX
Regional Automobile, Oil & Metal Sectors
Refer to important disclosures at the end of this report
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 2
The DBS Asian Insights SparX report is a deep dive look into thematic angles impacting the longer term investment thesis for a sector, country or the region. We view this as an ongoing conversation rather than a one off treatise on the topic, and invite feedback from our readers, and in particular welcome follow on questions worthy of closer examination.
Table of Contents
Investment summary 3
Rapid economic development brings environmental woes 4
World governments embarking on electric vehicle development to tackle air pollution 7
United States – Exit from Paris Agreement, a potential setback 10
Europe – Set timeline to exit from ICE vehicle productions 11
Asia –China leading in EV adoption 16
India: U-turn on full electric adoption by 2030 23
South Korea: EV market still in an early stage but has huge potential 24
Oil sector – EV unlikely a demand shock 28
Metals sector: Key beneficiary from the EV growth 32
Copper: demand growth powered by EV, from battery to infrastructure 32
Steel – intensifying competition but to remain as key autobody material 34
Aluminium – the lighter the better 34
Profile
BYD Company (1211 HK) 40
Contemporary Amperex Technology (300750 CH) 42
Minth Group (425 HK) 44
Nexteer Automotive Group (1316 HK) 46
Special thanks to Hanjoon Lee for his contributions to the Korean EV market analysis
Note: Prices used as of 16 July 2018
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Investment summary
Thriving cities, environmental woes
Rising carbon emissions from transportation sector a concern;
countries looking at exiting from fossil vehicle sales. Both
developed and developing nations are grappling with rising
carbon emission levels, due to the rapid economic
development in the past decade. Asia’s share of the carbon
emission pie is huge, and China alone accounted for 26% in
2016, double that of the US. Of this, transportation is one of
the main culprits causing rising carbon emissions. Several
European countries have made plans to exit fossil fuel vehicles
starting from 2025 to 2040, such as Norway, Switzerland,
Netherlands, Germany, United Kingdom and France. China is
looking at a time frame after 2025.
Policies and government directives to spur global electric
vehicle (EV) market development; financial incentives an
important driver. Globally, several government bodies (from
the developed countries and Asia, particularly China) are
pushing for EV development as part of their initiatives to
reduce carbon emissions. Policies (including financial incentives
and tax credits) have been implemented to encourage
automakers and car buyers to switch over to EVs. In China, the
“stick and carrot” approach since 2010 has produced some
rather favourable results. From 2013 to 2017, the Chinese
government have spent around Rmb50bn on EV subsidies.
Rapid global EV market expansion; Asia to lead the race. In
2017, EV sales accounted for around 2% of the global vehicle
market. Due to strong policies and government directives, we
project global EV sales to increase from about 1.26m units in
2016 to approximately 27m units by 2030. This translates to an
EV penetration rate of about 20% (from 2%% in 2017). And
the bulk of the EV consumption is expected to come from Asia.
Europe ranks second, well supported by several of the Nordic
countries’ aggressive policy on EV adoption. Broadly, the Asian
EV market is expected to be 3.5 times the size of North
America and 2.6 times of Europe by 2030.
Future power source for EVs. Currently, vehicle energy comes
largely from fossil fuels. As governments increase their
investments into clean energy, reliance on clean fuel is
expected to play a bigger role in powering EVs in the future. By
2030, clean energy (natural gas and renewables) is projected to
account for about half of the energy mix to power EVs, up
from 39% in 2016.
EVs unlikely to create a demand shock on oil sector. The
passenger vehicle market (factoring in improving efficiencies,
share mobility and EV) accounts for about 21% of global oil
demand. While this may seem big, other drivers of oil demand
could mitigate some of the impact from EVs. India is potentially
a bright spot, with projected strong economic growth. With
the rise in EVs, approximately 6% of annual oil demand could
disappear by 2030. Thus, we do not expect a major demand
shock from EVs, as the evolution, growth and adoption of EVs
will take time. Rather, industry investments and geopolitics will
be the major factors in determining oil prices in the future.
But a substantial driver of metals sector. The anticipated robust
EV market outlook has spurred prices of raw materials such as
lithium, cobalt, nickel and copper, the key raw materials for
lithium batteries, automotive parts and infrastructure network
to hit record levels. Based on International Copper
Association’s estimates, the amount of copper needed to make
one battery-electric vehicle (BEV) and hybrid electric vehicle
(HEV) is about four times and two times respectively the
amount needed for an internal combustion engine vehicle
(ICEV). From 2017-2030, we estimate copper demand to rise
by 19% per annum to 1.91m tons solely from EVs alone. Other
metals such as advanced high strength steel and aluminium are
expected to ride on the EV trend, as these metals are widely
used by automakers to reduce the weight of the EVs to
enhance battery performance.
China dominates global EV penetration rate. China has the
largest electric vehicle (EV) market in the world. For every two
EVs sold globally, one is in China. To accelerate the EV
development, the government introduced the EV quota and
carbon credit dual system. The EV quota-credit policy effective
from January 1, 2019, requires passenger vehicle makers in
China to generate a certain amount of credit points from EVs
(equivalent to10% of total production in 2019 and 12% in
2020). In addition, automakers have to comply with higher
vehicle fuel standards under the corporate average fuel
consumption (CAFC) policy. Starting from June 2018, only EVs
that meet the higher drive range will be entitled to subsidies.
This shift effectively forces EV makers to develop more
advanced technologies to level up with the international
players. Hence, we forecast EV sales to reach approximately
15m units by 2030, up from 777,000 units in 2017. By 2030,
China’s EV penetration is expected to hit 33%.
Top players in EV value-chain. Along the EV value-chain, we
prefer upstream EV parts suppliers, as they directly tap on the
global EV market trend. These include high-end EV batteries
and light-weight automotive parts. China has a relatively large
EV supply chain given its scale. By end-2017, China EV market
size has reached approximately 1.8m units, the largest in the
world. Among the Chinese EV battery makers, Contemporary
Amperex Technology Ltd (CATL; 300750 CH) is the largest
player in the world. The Chinese EV market upcycle is expected
to create a battery market size of 215GWh by 2022, almost 5x
up from 44.5GWh in 2017. CATL has locked in several
international automakers to be their battery supplier. In the
lightweight automotive parts segment, Minth (425 HK) is one
of the leading global players. It is expanding production
capacity in view of increasing demand for lightweight parts, as
well as working with US’s Clean Wave to develop electric drive
systems (including the electric traction motor and its drive
control units, and the gearhead system) for NEVs.
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Rapid economic development brings environmental woes
Rising global carbon dioxide emissions a worrying sign. Global
air pollution is not just a country specific issue today, it has
become a global problem, as both developed and developing
countries are facing worsening air quality, especially in the
major capital cities around the world.
Based on WorldBank’s study, rising carbon dioxide (CO2)
emission is reaching a critical point and governments are
getting together to address this issue. Globally, 195 countries
(the US withdrew from the agreement recently) have pledged
their Nationally Determined Contributions (NDCs) under the
Paris Agreement on their emission reduction targets.
In fact, global CO2 emission has been on the rise since 1990,
as shown in the chart below. The rising trend is largely
attributable to economic development – industrial production,
transportation, and power generation. Among which, the
vehicle sector has played a key role.
Trend in global total greenhouse gas emissions
Source: PBL Netherlands Environmental Assessment Agency
Based on the 2015 greenhouse gas (GHG) emission statistics, it
shows that Asia is a large contributor to global warming. China
accounts for almost a quarter of the global GHG emission, one
of the largest in the world.
Share of greenhouse gas emissions by countries (2015)
Source: Natural Resources Defense Council, as of 15 Dec 2015
Over the years, China’s share of global CO2 emission has been
on the rise, attributable to its growing economic power.
Increasing demand for goods and services (such as car
ownership and transportation) has contributed to the alarming
level of CO2 emissions. This trend also holds in many of the
developing nations in Asia. Below are some of the key factors
contributing to the rise in CO2 emissions.
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3%
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5%India7%
EU 289%United
States13%
Other G20 countries
14%
Other countries
20%
China 26%
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Global carbon dioxide emissions by region, 1751 to 2015
Source: World in Data, CDIAC (2017)
Rapid urbanisation a major driver of GHG emission. Rapid
economic expansion has delivered about 60% of global
growth. The Organisation for Economic Cooperation and
Development (OECD) has suggested that Asia’s fast growth will
stay through 2030. Urbanisation rates are also on the rise in
Asia, from around 40% in 2010 to over 50% in 2030. Such a
fast rate of expansion would drive up GHG emissions.
Transportation needs in step with urbanisation. Based on
various studies, transportation is a growing contributor to GHG
emissions. In fact, rising car ownership is the main culprit to
the worsening air quality across the globe, especially for the
Asian economies. Global vehicle sales have been on the rise
post the great financial crisis, and a large part coming from
Asia. For example, the Chinese government has been building
more roads and this has facilitated car travel and rising car
ownership.
China’s automobile market is the largest in the world, and this
has been the main factor to the worsening air quality especially
in the major Chinese cities. The Chinese government in its
latest 2017 Environmental Report, mentioned that the
automobile industry released a total of 43.6m tonnes of GHG
in 2017, given that the country has over 300m automotive
vehicles, and of which 217m units are motor vehicles.
Global vehicle sales projection
Source: OICA, DBS HK
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Industrial activities. Economic growth is tagged to a vibrant industrial sector, which also leads to huge power demand. The combined impact of industry growth, power generation and transportation could account for sizeable portion of the total GHG emissions. For example, in the US, these three sectors accounted for approximately 80% of the total GHG emission in 2016, as shown in the chart below.
US greenhouse gas emission by sector
Source: US Environmental Protection Agency
Residential 5%
Commercial6%
Agriculture9%
Industry22%
Transportation29%
Electricity29%
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World governments embarking on electric vehicle development to tackle air pollution
Global EV scenario. Governments worldwide have arrived at
measures to address the worsening air pollution. Regulations
targeting cleaner vehicle fuel are being formulated. For
instance, China and the European Union (EU) have announced
higher fuel standards to reduce the amount of vehicle
pollutants. But a longer-term solution is to increase the vehicle
electrification rates.
Many global automakers are intensifying their EV business
strategy to catch up with the EV trend.
International automakers’ EV strategy
Auto makers EV strategy and targets
Volkswagen Electrified all 300 models by 2030, involving some
EUR70bn of investment
16 productions sites for EV by end of 2022
Partner with battery manufacturers for Europe
and China demand, amounting to EUR50bn by
2025
To build 2-3m Evs annually or 20-25% of total
portfolio by 2025
Over EUR20bn of capex in the period to 2030
BMW All future vehicle models on modular
construction, allowing for fully electric, plug-in
hybrid or internal combustion powertrains
Planned 12 all electric and 13 hybrids in its lineup
by 2025
To enhance its xEVDrive train architectures by
2020, and leveraging on its in-house battery
modules and packs capability
Daimler Focus on 48 Volt electrification to provide comfort
and agility
Modular architecture to provide flexibility from
ICE to xEV
EUR10bn investment in EV fleet
More than 10 BEV and 50 electrified passenger
cars by 2022
General
Motors
Delivering over 300 miles of range
To lower battery cell cost by 30% from US$145
per KWh to below US$100 by 2021Source: Companies
Anticipate faster adoption of EVs globally. Many nations are
racing to finalise their EV development plans and several
European nations (the EU) have vowed to stop the production
and sale of fossil fuel vehicles during 2030-2040. Member
countries of the Paris Climate Accord are becoming more
active in cutting down GHG emissions through various
measures and faster EV adoption is one of the solutions. The
automobile markets in the US and Europe are the most
developed but their EV development were slower compared to
China. Worldwide, the total number of EVs sold passed a
million units in 2017, with China taking a sizeable 40% share.
For the first four months of 2018, EV deliveries worldwide had
hit almost 130,000 units, representing 93% y-o-y expansion.
World’s top 10 best-selling electric cars (Jan-Apr 2018)
Source: Inside EVs
Compared to the US and EU, China’s EV market has advanced
the most. One major driving force is the Chinese government’s
willingness to spend billions of yuan to incentivise new energy
vehicle companies to embark on EV development. After years
of promotion and providing financial support, China’s EV
industry has reached the top, becoming the largest in the
world.
Moving away from fossil fuel vehicles. Globally, the electric car
market is attracting a lot more attention. The following are
factors directing the global EV market development in the
coming few years.
EVs are approaching cost parity with the internal
combustion engine (ICE). Market estimates point to 2020-
2025 for the price of BEV to be on parity to the ICE
vehicle.
Adoption rate of EVs is expected to rise, as global
governments are pushing for EV development. Several
large automakers have plans to roll out new EV models in
the coming years. For instance, Volkswagen plans to offer
80 EV models by 2025. We project EVs to account for
some 20% of market by 2030.
China is accelerating the EV adoption rate through various
investment, incentive and policies measures, especially
under the latest dual credit scheme.
Governments have announced that there could be bans
on ICEs in the future. France, Britain and Norway are
ditching fossil fuel vehicles and replacing these with
cleaner energy ones between 2030 to 2040. And China
has started to study the timeline for the country to exit
from fossil fuel cars.
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Renault ZOE
Tesla Model 3
Tesla Model X
JAC iEV7S/E
BYD Qin
Tesla Model S
BYD Song
Toyota Prius
BAIC EC Series
Nissan LEAF
Units
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Global EV market to post rapid expansion. In 2017, total
electric car sales hit over one million units, with China as the
largest. China sold 770,000 units of electric vehicles (passenger
and commercial vehicles) last year, compared to approximately
750,000 units in the EU and 190,000-200,000 units in the US.
Top electric car market in the world (2017)
Source: Statista Research
Based on the various governments’ incentive schemes and
GHG policy, we estimate total EV sales will reach approximately
27m units by 2030, and account for about 21% of total
vehicle sales.
Global EV sales and penetration rates
Source: CAAM, Global EV outlook 2017, DBS HK
Impact of EVs on value-chain
EV critical mass breakthrough. The adoption rate of EVs largely
depends on the cost parity to internal combustion vehicles
(ICVs). According to various market estimates, the price parity
between electric cars and gasoline cars is expected to narrow
in the coming years, especially with falling battery costs.
Market estimates on cost parity time-line
Source: Companies
The cost of EVs currently is more expensive to ICEVs by about
30%, largely attributable to the battery cost. However, as the
cost of batteries is falling, achieving parity is only a matter of
time. Depending on the speed of battery cost reduction, 2020-
2025 is a possible timeline for EVs to hit a critical mass level.
Battery cost as percentage of EV’s total cost (2016-2030)
Source: Statista Research
A 2018 study by the University of Michigan’s Transportation
Research Institute shows the average cost to operate an EV in
the US is US$485 per year, while the average cost for a
gasoline powered vehicle is US$1,117.
DNV GL predicts EV prices to fall to the same price as
combustion vehicles by 2022. More importantly, automakers
such as General Motors are working towards lowering the
battery cell cost by 30% by 2021. These actions should bring
the price of EVs down to more affordable levels post 2020.
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Brazil
India
Australia
United Kingdom
Japan
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Norway
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ChinaUnits
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Others Europe
North America Asia
EV penetration rate (%)
000 units (%)
2015 2020 2025 2030 2035
Mckinsey
Bloomberg New Energy
DNV GL (Energy ConsultingFirm)
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Impact on battery market. With the rise in EV developments,
demand for car batteries is expected to surge. Electric car
companies are looking at certain qualities for automotive
batteries, including car battery density, safety, charging time
(quick charge), life span of battery, and travel distance per
charge etc.
As such, manufacturers are constantly looking at ways to
enhance the performance and durability of the car batteries.
Globally, the Lithium Nickel Manganese Cobalt Oxide (NMC)
batteries are widely used in EVs. Hence, the key raw materials
of the NMC batteries is an important consideration. These
include copper, nickel and cobalt, which have seen a strong
price surge in recent years, as demand is expected to outstrip
supply, especially for cobalt.
Global car battery demand
Source: GGII; DBS HK
Global battery players. In 2017, total car battery demand
amounted to 69GWh, representing 40% y-o-y growth. The top
ten global battery manufacturers accounted for approximately
70% of total market share. Among the major manufacturers,
the Chinese battery companies have taken up seven of the ten
positions, with a 65% market share. This is due largely to the
huge EV market demand in China underpinned by supportive
government policies. In 2017, Contemporary Amperex
Technology Ltd (CATL) became the largest EV battery
manufacturer in the world, eclipsing the more established
international players.
Top ten global EV battery manufacturers (based on 2017 sales)
Source: GGII
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CBAK Energy Technology, Inc
Beijing Guoneng Batteries Technology
Samsung SDI
Guoxuan High-tech
LG Chem
Optimum Nano
BYD
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CATL
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United States – Exit from Paris Agreement, a potential setback
Transportation sector one of largest culprit to US GHG
emissions. According to the US official statistics, transportation
generated about 29% of total GHG (Greenhouse gas)
emissions in the US in 2016. Within the transportation sector,
light duty vehicles formed the largest category (60% of GHG
emissions), while medium-heavy duty trucks accounted for
23%. In fact, transportation GHG emissions share has been on
a rising trend compared to any other sector (electricity
generation, industry, agriculture, residential or commercial) in
absolute terms, due to rising demand for travel. It rose from
24% share of total GHG emissions in 1990 to 29% in 2016.
Share of GHG emissions in the US by sector (2016)
Source: US Environmental Protection Agency
Share of US transportation sector’s GHG emission (2016)
Source: US Environmental Protection Agency
California leads in advocating carbon emission reductions. The
state has set a mandate requiring automakers to sell a certain
quantity of zero emissions cars after reaching certain ICE
vehicle sales volume. California is working toward a goal of
placing in service at least 1 million zero emission vehicles and
near-zero emission vehicles by January 1, 2023. There are other
states following California’s footsteps in implementing stricter
emissions standards and minimum quantity of zero emission
car sales ratios, including Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Jersey, New Mexico, New York,
Oregon, Pennsylvania, Rhode Island, Vermont, and
Washington.
Policy and incentives. The federal government and a number of
states that do offer tax credits to encourage higher EV
adoption rate. The tax credit on plug-in EVs is US$2,500 to
US$7,500 per new EV purchased. The size of the tax credit
depends on the size of the vehicle and its battery capacity. This
tax credit will be available until 200,000 qualified EVs have
been sold in the US by each manufacturer. At present, no
manufacturers have been phased out yet.
California has separate rebate programs for buyers of green
cars. Consumers enjoys US$1,500 to US$5,000 of rebates for
plug-in hybrid, battery EVs and hydrogen fuel cell EVs. The
state also has one of the most extensive charging infrastructure
in the US. The California government also requires automakers
to comply with the “zero emission vehicle regulation” by
earning credits from sales of EVs or plug-in hybrid vehicles.
EV sales projections till 2030. The US EV market is largely
dominated by California, which accounts for about half of the
total EVs sold in the US. The overall EV adoption rate in the US
is still low, at about 1.2% in 2017. We estimate total EV sales
in the US will reach about 4m units by 2030, with a large
portion coming from California.
North America: EV sales projections
Source: Global EV outlook 2017; DBS HK
Residential 5%
Commercial6%
Agriculture9%
Industry22%
Transportation29%
Electricity29%
Light-Duty Vehicles
60%
Medium and Heavy
Duty Trucks23%
Aircraft9%
Other4%
Rail2%
Ships & Boats2%
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Europe – Set timeline to exit from ICE vehicle productions
EU to phase out ICE vehicles. Several EU governments are
taking steps to phase out petrol and diesel cars. Currently, the
European Union has imposed CO2 emission taxes on vehicles
to discourage fossil fuel vehicles on the roads.
Timetable to phase out ICE vehicles in Europe
Source: European Governments
Tax scheme. The EU member countries have a comprehensive
tax exemption scheme to encourage car owners to switch to
EVs. The top European countries with the highest EV sales are
France, Germany, the United Kingdom and Norway. Their
governments have incentives in place for buyers to purchase
electric vehicles and new electric and hybrid car sales have
been rising in the past few years.
New electric and hybrid car registrations in Europe
Source: ACEA
Electric car sales by country (2017)
Source: ACEA
EV growth projections, one of the fastest. Sales of electric cars
in Europe have grown at a rapid rate in recent years, thanks to
the government policies and incentives to encourage the
industry development. We project EV sales to reach 8m units
by 2030, up from approximately 0.5m units in 2016.
EV projections
Source: Global EV outlook 2017; DBS HK
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France
UK
Germany
The Netherlands
Switzerland
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Unit: 000
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Electric vehicle policy and incentive schemes in Europe
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV
PV
Registration
AUSTRIA Electric vehicles are exempt from fuel
consumption/pollution tax and ownership tax. In addition,
a deduction of VAT is applicable for zero-CO2 emission
cars (eg electric and hydrogen-powered cars).
The Austrian automobile club ÖAMTC publishes the
incentives granted by local authorities on its website
(www.oeamtc.at/elektrofahrzeuge ).
20% VAT on all vehicles
Fuel consumption/pollution tax for PV: [(CO2
emissions in g/km - 90) / 5] - NoVA deduction
€300 + NoVA malus fee €20 for each g/km of
CO2 emission exceeding 250g/km
Ownership tax for vehicles < 3.5t: 30.62 × (kW
– 24) × f (for the first 66kW) + 0.66 × (kW – 24)
× f (for the next 20kW)+ 0.75 × (kW-24) × f (for
each exceeding kW)
7,154
BELGIUM Electric vehicles pay the lowest rate of tax under the
annual circulation tax in all three regions.
In the Brussels-Capital region, financial incentives apply to
companies electric, hybrid or fuel-cell vehicles.
Electric and plug-in hybrid (until 31 December 2020)
vehicles are exempt from registration tax in Flanders.
Incentives (“Zero Emission Bonus”) for the purchase of
battery electric and hydrogen-powered cars and vans are
granted.
The deductibility rate from corporate income of expenses
related to the use of company cars is 120% for zero-
emissions vehicles.
N.A. 14,299
BULGARIA Electric vehicles are exempt from ownership tax. Ownership tax for PV:
BGN1.02/kW for engine power less than 37 kW,
BGN1.20/kW for power between 37kW and 55
kW, BGN1.62/kW for power between 55kW
and 74 kW, BGN3.30/kW for power between
74kW and 110 kW, BGN3.69/kW for power
more than 110kW
The above tax is multiplied by 1 for more than
14 years of production, 1.5 for 5-14 years of
production and 2.8 for less than 5 years of
production
106
CYPRUS Vehicles emitting less than 120g CO2/km are exempt from
registration tax and pay the lowest rate of tax under the
annual road tax.
Registration tax for PV:
€0 for CO2 emission lower than or equal to 120
g/km, €25/g CO2/km emitted > 120 for CO2
emission 121-150g/km, €750 + €50/g CO2/km
emitted > 150 for CO2 emission 151-180g/km,
€2,250 + €400/g CO2/km emitted > 180 for
CO2 emission more than 180 g/km
Annual road tax:
€0.5/g CO2/km for CO2 emission lower than or
equal to 120 g/km, €3/g CO2/km for CO2
emission 121-180g/km, €8/g CO2/km for CO2
emission >180g/km
NA
Source: ACEA
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Electric vehicle policy and incentive schemes in Europe (con’t)
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV
PV
Registration
CZECH
REPUBLIC
Electric, hybrid and other alternative fuel vehicles are
exempt from the road tax.
Road tax rates are assessed as annual fixed rates
and range:
from CZK 1,200 for vehicles with engines up
to 800cc,
to CZK 50,400 for heavy-duty vehicles over
36t with three axles.
Tax rates increase by 25% for vehicles that were
first registered before 31 December 1989.
307
DENMARK Electric vehicles (BEVs) pay only 40% of the registration tax
(in 2017). This percentage will be gradually increased at
65% in 2018, 90% in 2019 and 100% in 2020. Hydrogen
and fuel cell-powered vehicles are exempt from
registration tax until the end of 2020.
N.A. 1,342
FINLAND Pure electric vehicles always pay the minimum level of the
CO2 based registration tax.
Min registration tax rate for PV: 3.3 % 1,430
FRANCE Regions have the option to provide an exemption from the
registration tax (either total or 50%) for alternative fuel
vehicles (ie electric, hybrids, CNG, LPG, and E85).
Electric vehicles and vehicles emitting less than 60g
CO2/km are not subject to the tax on company cars.
Electric and hybrid electric vehicles emitting 20 g/km or
less of CO 2 benefit from a premium of €6,000 under a
bonus-malus scheme.
An incentive scheme grants an extra €4,000 for switching
an eleven year or more diesel vehicle for a new BEV (or
€2,500 in case it’s a PHEV).
Registration tax: €27 - €51.2 36,835
GERMANY Electric vehicles are exempt from the annual circulation tax
for a period of ten years from the date of their first
registration.
From July 2016, the government granted an environmental
bonus of €4,000 for pure electric and fuel-cell vehicles and
€3,000 for plug-in hybrid and range-extended electric
vehicles.
After the tax exemption, the car tax will amount
to 50% of €11.25 (up to 2,000kg), €12.02 (up
to 3,000kg) or €12.78 (up to 3,500kg) for each
100cc or part thereof.
54,617
GREECE Electric and hybrid vehicles are exempt from registration
tax, luxury tax and luxury living tax. Electric and hybrid cars
(with an engine capacity of up to 1,549cc and first
registration date before 31 October 2010) are exempt
from circulation tax.
Registration Tax for PV = taxable value x basic
coefficient x CO2 emissions coefficient
Luxury living tax:
5% of presumed income annually for cars
with an engine capacity greater than 1,929cc
andup to 2,500cc;
13% of presumed income annually for cars
with an engine capacity greater than
2,500cc.
199
HUNGARY Electric cars and plug−in hybrids are exempt from
registration tax, annual circulation tax and company car
tax.
Company Car Tax: 7,700 HUF/month - 22,000
HUF/month
1,192
Source: ACEA
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Electric vehicle policy and incentive schemes in Europe (con’t)
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV
PV
Registration
IRELAND Electric vehicles qualify for VRT (purchase tax) reliefs of
€5,000 until 31 December 2021 (€2,500 for plug−in
hybrids until 31 December 2018). In addition, electric
vehicles and plug−in electric hybrids entitle the buyer to a
grant of up to €5,000 on purchase until 31 December
2021 for electric vehicles and December 2018 for plug−in
hybrid electric vehicles.
Electric vehicles pay the minimum rate of the road tax
(€120).
N.A. 948
ITALY Electric vehicles are exempt from the annual circulation tax
(ownership tax) for a period of five years from the date of
the first registration. After this five-year period, they
benefit from a 75% reduction of the tax rate applied to
the equivalent petrol vehicles.
N.A. 4,827
LATVIA Pure electric vehicles pay the lowest fee for technical
annual inspections and the lowest amount for the
company car tax (€10).
N.A. 56
LUXEMBOURG Electric and fuel cell vehicles benefit from a tax allowance
on the registration fees of €5,000. Electric vehicles also pay
the minimum rate of the annual circulation tax.
Pure electric and hydrogen cars pay the lowest tax on
benefit in kind for private use of a company car.
N.A. NA
MALTA Registration tax is based on length of vehicles, emissions
and age. For pure electric vehicles the emission tax is zero.
Total Registration Tax = (X% x CO2 x RV) + (Y%
x length x RV)
Where:
X% is the percentage depends on the CO2
value
Y% is the percentage depends on the length
NA
NETHERLANDS Zero emission cars are exempt from paying registration tax.
Passenger cars with zero CO2 emissions are exempt from
motor vehicle tax up to and including 2020.
Zero emission cars pay the lowest percentage (4%) of the
income tax on the private use of a company car.
Registration tax: €0 - €458 per g CO2/km 11,079
POLAND Electric and plug-in electric vehicles exempt from
registration tax.
Registration tax: PLN 180.50 1,068
PORTUGAL VAT is deductible for electric vehicles (with acquisition cost
<€62,000) and plug-in hybrids (with an acquisition cost
<€50,000).
Pure electric cars are exempt from the registration tax
(Imposto Sobre Vehículos or ISV). Plug-in hybrid cars with
all-electric mode up to 25km benefit from a 75%
reduction of the tax.
VAT at the rate of 23% is calculated on the net
price after all discounts, but inclusive of ISV.
4,082
ROMANIA An incentive scheme grants €10,000 for the purchase of a
new pure electric vehicle (plus €1,500 for scrapping a
vehicle older than eight years) and €4,500 for the purchase
of a new hybrid vehicle.
Electric vehicles are exempt from the ownership tax.
Ownership tax for PV: RON 8 - RON 290 for
each 200cc engine displacement
188
Source: ACEA
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Electric vehicle policy and incentive schemes in Europe (con’t)
OVERVIEW ON TAX INCENTIVES FOR ELECTRIC VEHICLES IN THE EU Tax details 2017 NEV
PV
Registration
SLOVAKIA Pure electric vehicles pay the lowest amount for the
registration tax (€33) and are exempt from motor vehicle
tax. Hybrids and natural gas (CNG) vehicles benefit from a
50% reduction of the tax.
N.A. 209
SLOVENIA An incentive scheme grants:
• €7,500 for a new electric vehicle with zero emissions
or a BEV (M1)
• €4,500 for a new electric vehicle with zero emissions
or a power-driven vehicle (N1 or L7e)
• €4,500 for a new plug-in hybrid or a new electric
vehicle with a range extender, with emissions < 50g
CO2/km (M1 or N1)
• €3,000 for a new electric vehicle with zero emissions
or a power-driven vehicle (L6e)
• €1,000 for a new electric vehicle with zero emissions
(L3e, L4e or L5e)
• €500 for a new electric vehicle with zero emissions
(L1e-B or L2e)
• €200 for a new electric vehicle with zero emissions
(L1e-A)
BEV's pay the lowest (0,5%) rate of tax on motor vehicle.
N.A. 456
SPAIN Main city councils (eg Madrid, Barcelona, Zaragoza,
Valencia etc) are reducing the annual circulation tax
(ownership tax) for electric and fuel-efficient vehicles by
75%. Reductions are applied on company car taxation for
pure electric and plug-in hybrid vehicles (30%), and for
hybrids, LPG and CNG vehicles (20%).
N.A. 7,476
SWEDEN ‘Climate bonus’ (Klimatbonus) is available for the purchase
of new vehicles with CO2 emissions of maximum 60g/km.
It ranges from SEK 60,000 for electric vehicles (BEV) with
zero emission to plug-in hybrids (PHEV) with emission of
60g/km. Electric cars and plug-in hybrids are exempted
from paying annual circulation tax for five years. 40%
reduction is applied on company car taxation for electric
cars and plug-in hybrids.
N.A. 19,678
UNITED
KINGDOM
From April 2018 until March 2021, cars that emit less than
50g/km qualify for 100% first year writing down
allowances (FYAs). Zero emission vehicles attract a zero
rate of vehicle excise duty (VED)
Ultra-low emissions and electric vehicles pay reduced
company car tax rates.
VED 12 months: £10 - £2,000 47,298
Source: ACEA
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Asia –China leading in EV adoption
China leading Asia’s EV market development. Asia’s rapid
economic development is pushing its eco-system to the rims,
especially the transportation sector. The automobile market in
Asia is the largest in the world, and dominated by China, while
India and Indonesia, though both have a population size as big
as China, their automobile markets are much smaller. Against
this backdrop, China has been moving fast into the EV space in
recent years, and its EV companies are emerging as one of the
largest in the world in terms of production volumes.
Asia car population on the rise, pressing environmental issues
ahead. Globally, demand for fossil fuel is rising, especially from
the automobile market. China is also experiencing the same
trend. China’s crude oil imports amounted to approximately
420m tons in 2017, or 10.1% y-o-y expansion. As at end of
2017, China had 210m vehicles, and we forecast the vehicle
population to exceed 270m units by 2020 and hit about 500m
vehicles by 2030. To address the growing crude oil demand
from the automobile market, the Chinese government made a
big commitment to develop the EV industry several years ago.
The Chinese government saw a window of opportunity in
green car development and launched the green initiative in
2009, when 13 cities were selective to pilot the electric car
program. Since then, there has been no turning back and
China became the largest EV market in the world in 2016.
Under the Paris Agreement, China has also committed to
reduce its carbon intensity to 60-65% by 2030 from 2005’s
level of carbon emission. Part of the plan is to implement the
green car initiative vigorously. The rising number of vehicles on
the road has created a major environmental issue, especially in
tier 1 cities such as Beijing, Shanghai, Guangzhou, and
Shenzhen. As such, the governments in these cities have
imposed auto sales restrictions in place for several years already
to cap vehicle population growth. In addition, EV is highly
encouraged as part of the governments’ initiative to slow
environmental pollution.
CO emissions by vehicle sector in China (2017)
Source: China Vehicle Environment Management Annual Report
The Department of Atmospheric Environment Management
has released a document that shows that soot and vehicle
exhaust fumes from fast-growing vehicle population in China
has contributed to air pollution. As shown in the chart below,
some of the Chinese tier 1 cities have poor air quality in the
past three years. Shenzhen has a relatively low reading given
the government’s strong promotion of EVs in the city.
China PM2.5 index of major cities
Source: China National Environmental Monitoring Centre
Low speed vehicles0.30% Motorcycles
11.90%
Motor vehicles87.80%
0
10
20
30
40
50
60
70
80
Beijing Shanghai Guangzhou Shenzhen
Apr-16 Apr-17 Apr-18
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China: Proactive policy to accelerate EV development
Regulations and policies main tools to promote EV market
development. Since 2009, the Chinese government has relied
heavily on various regulations and policies (carrot and stick
approach) to promote the EV market development. This carrot
and stick approach in our view has successfully led to
significant progress in the Chinese EV market. Since the start of
EV development in 2009, the Chinese government has offered
generous financial incentives to electric car buyers. By the end
of 2017, there were approximately 1.2m electric cars in China,
making it the largest in the world.
New EV quota and carbon credit policy to accelerate EV
development. The introduction of the EV dual credit policy
(including meeting the minimum EV quota and carbon credit
scheme) in September 2017 signals another major
transformation in the EV market. The latest electric car quota
policy requires passenger vehicle manufacturers to generate EV
credit points starting from 2019. Automakers are required to
earn credit points from EVs, equivalent to 10% of the total
passenger vehicles produced in 2019, and rising to 12% in
2020.
Apart from the electric car quota policy, automakers have to
meet the stringent fuel standard policy. Based on the individual
gasoline car model, the automakers are required to generate
sufficient carbon credits from meeting the minimum fuel
consumption standard. By 2020, they are required to meet the
corporate average fuel consumption (CAFC) target of 5 litres
per 100km (5L/100km), under a step-down system formally
established in 2015. Meeting these two standards is a major
hurdle for the automakers. Based on 2017 sales statistics,
majority of the automakers have made only a small quantity of
EV sales. Many automakers are lining up their EV pipelines to
meet the EV quota that will be implemented in 2019.
CAFC becoming more stringent. China is moving to National
Fuel Standard VI in phases as part of its effort to reduce CO2
emissions. By 2020, the average fuel consumption target is
5L/100km (or 0.021 gallon per mile), as set out under the
Corporate Average Fuel Efficiency Accounting Method for
Passenger Cars regulations released in March 2013.
Corporate Average Fuel Consumption policy
Source: MIIT
Latest EV subsidy scheme encourages technology upgrade.
From 2013 to 2017, the total subsidies on EVs amounted to
some Rmb50bn. In February 2018, the Chinese government
released the latest subsidy scheme, which aims to encourage
technology upgrades, shifting subsidies to the higher end of
the EV market. Electric passenger cars must meet the minimum
driving range of 150km or above on a per charge basis to be
entitled for subsidy (100km previously). Also, the subsidies on
electric passenger cars with driving range of 300km and above
have been raised.
2018 electric car subsidy scheme
Note: R refers to drive range Source: MIIT
To lift electric car battery technology, the government has also
made changes to the battery density standard, as shown in the
table below. So far, car batteries provided by the Chinese
companies are entitled for subsidies.
EV subsidy based on battery density
Note: p refers to power density Source: MIIT
EV purchase tax waiver extended to 2020. EV buyers will enjoy
a 10% vehicle tax exemption until 2020. Assuming a
Rmb200,000 price tag, the EV buyer will save about
Rmb17,000 of purchase tax. The tax exemption covers battery
electric vehicles (BEV), plug-in hybrid vehicles (PHEV) and fuel
cell vehicles (FCV).
Flexibility in usage and availability of licence plates. Tier 1 cities
such as Beijing and Shanghai are providing EV car buyers with
Ye a r Ac tua l CAFC/ta rge t CAFC re qui re me nt
2016 134%
2017 128%
2018 120%
2019 110%
2020 100%
Driv e range
2017
subsidy
(Rmb)
2018
subsidy
(Rmb) % change
Bat tery elect ric car
100km ≤ R < 150km 20,000 0 -100%
150km ≤ R < 200km 36,000 15,000 -58.3%
200km ≤ R < 250km 36,000 24,000 -33.3%
250km ≤ R < 300km 44,000 34,000 -22.7%
300km ≤ R < 400km 44,000 45,000 2.3%
R ≥ 400km 44,000 50,000 13.6%
Plug- in hy brid v ehic le
R ≥ 50km 24,000 22,000 -8.3%
Bat tery densit y Rat ios
p < 105Wh/kg 0
105Wh/kg ≤ p < 120Wh/kg 0.6
120Wh/kg ≤ p < 140Wh/kg 1
140Wh/kg ≤ R < 160Wh/kg 1.1
p ≥ 160Wh/kg 1.2
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Page 18
easier access to car plates and there is no restriction on EV
usage during peak hours. As tier 1 cities are restricting the
number of new licence plates each year, some buyers have
switched to EVs instead.
Huge potential in China’s EV industry
Huge investment poured in to develop EV market. The Chinese
government is making another big push into the EV market
with its latest policy announced in September 2017. Since the
EV initiative was first launched in 2009, the government has
poured over Rmb50bn into its EV industry, creating the largest
EV market in the world in 2016. Sales of EVs soared from
about 2,000 units in 2009 to 777,000 units in 2017. Of this,
electric passenger and commercial vehicles comprised
75%/25% of the total EV market last year. To-date, China has
produced a total of approximately 1.7m units of EVs, including
both electric cars and buses.
Huge potential attracts tech companies to develop EVs. The
huge potential in the electric car market has attracted some
tech companies to venture into the Chinese EV market. New
start-ups such as NIO and Byton to launch their products in
China. NIO has featured its first EV car, the ES8 model, in
Shanghai recently. Also, following the government’s removing
the foreign ownership cap on EV companies this year, it should
attract more players to enter the industry, such as Tesla.
Robust electric car market outlook. The EV penetration rate is
still low in China, below 3% in 2017. Following the
implementation of the new EV quota policy, the roll-out of EV
models is expected to accelerate in the coming few years to
comply with the regulations as well as increase in proportion of
energy efficient vehicles sales to meet the Corporate Average
Fuel Consumption (CAFC) target, which is getting more
stringent going forward. We estimate EV sales to reach 2m
units in 2020 and by 2030, China’s EV sales are expected to
touch approximately 15m units, translating to penetration rate
of around 33%.
China: EV sales projections
Source: CAAM; DBS HK
In 2017, Beijing Electric Vehicle Co topped the production list
at over 100,000 units of electric cars, followed by BYD with
approximately 93,000 units. These two EV manufacturers are
focused on the full size passenger car segment, while Zhejiang
Geely Group produces mainly the small electric cars.
Electric vehicles productions by automakers
Source: MIIT, Gasgoo
2017 automakers’ carbon credits ranking. Automakers unable
to meet the credit points required would have to buy the credit
points from the open market. This could increase the cost for
these companies. For large automaker groups, they might be
able to transfer some of the excess credits to business units
within the group that are facing deficits.
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2016
2017
2018F
2019F
2020F
2021F
2022F
2023F
2024F
2025F
2026F
2027F
2028F
2029F
2030F
Unit: 000
0 20 40 60 80 100 120
Changan Auto Group
FAW Group
Changan-Ford Auto
Huatai Auto
Great Wall Motor
Guangzhou Auto
Dongfeng Group
Chery Auto Group
Jianghuai Auto
Zotye Auto
SAIC Group
Geely Group
BYD Auto
BAIC Group
unit: 000
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Page 19
Chinese automakers’ credit points (2017)
Source: MIIT
EV supply chain
In China, electric car sales are highest in the tier 1 and 2 cities,
largely due to auto sales restriction and limited supply of car
plate licenses as the local government strives to cut car
pollution. Buyers of electric cars have easier access to license
plates, as the local governments want to promote the EV
industry. Hence, Beijing, Shanghai, and Shenzhen were the top
three on the 2017 EV sales list.
NEV sales in major Chinese cities
Source: CPCA
Infrastructure network still lacking in China. Based on statistics
from China Electric Vehicle Charging Infrastructure Promotion
Alliance, at end 2017, there were 213,903 charging piles
installed by the alliance members. These charging networks are
largely located in tier 1 and 2 cities. Including 231,820
charging points by private entities, total charging network in
China amounted to 445,723 units. This translates to an EV to
charging point ratio of 4:1. Under the Chinese government’s
plan, the target is to have 4.8m charging points across China
by 2020.
Charging networks in major cities (2017)
Source: Government
-500,000 500,000 1,500,000
Changan-Ford
Great Wall Motor
GAC-FCA
Beijing-Benz
GAC-Toytoa
SAIC-VW
SAIC-GM
BMW Brilliance Auto
SAIC-GM-Wuling
FAW-Toyota
Jiangling Motor
BAIC
Jianghuai Auto
FAW-VW
Changan Auto
Beijing New Energy…
Cheery Auto
Zhejiang Haoqing Auto
Zhejiang Geely Auto
SAIC
BYD Auto
NEV credits Fuel consumption credits
0
10
20
30
40
50
60
70
Beiji
ng
Shanghai
Shenzh
en
Tain
jin
Hangzh
ou
Hefe
i
Guangzh
ou
Ch
ongqin
g
Qin
gdao
Ch
angsh
a
Units ('000)
BEV PHEV
0 10000 20000 30000 40000
Beijing
Guangdong
Shanghai
Jiangsu
Shandong
Anhui
Hebei
Zhejiang
Tianjin
Hubei
units
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Page 20
Energy source for EV. With an objective to ‘Make the skies blue
again’, China has embarked on various policies to reduce the
proportion of dirtier fuels in its energy mix, while boosting the
usage of cleaner fuels. In particular, as part of the 13th Five-
Year Energy Development Plan issued in January 2017 by the
NDRC and the NEA, a mandatory target was introduced for the
first time for coal, with the aim of reducing its proportion of
the energy mix to below 58% in 2020 (that number was about
62% in 2016 and 60% in 2017, so China may very well
overshoot the target if this trajectory continues). Meanwhile,
China plans on ramping up usage of natural gas to 10% by
2020 and 15% by 2030. Renewable energy percentage is also
expected to increase from 13% in 2016 to 20% by 2030.
2016 China energy mix 2030 China energy mix
Source: BP Data Source: DBS Bank estimates
Coal62%
Crude Oil19%
Natural Gas6%
Renewables & Others
13%
Coal50%
Crude Oil15%
Natural Gas15%
Renewables & Others
20%
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Page 21
New energy vehicle quota and fuel credit policy
NEV credit policy Fuel consumption credit policy i) The NEV credit policy is applicable to every passenger vehicle
company in China which has a production volume or import volume of over 30,000 units per year.
The fuel consumption credit policy is applied to passenger vehicle makers and passenger vehicle importers in China.
ii) The required NEV credits in 2019 and 2020 are set at 10% and 12% of total volume production, respectively. Post 2020 NEV creditrequirements will be announced at a later stage. The calculation ofNEV credits is shown in the table below.
Each PV maker is required to meet the fuel consumption target by 2020. If actual fuel consumption is below the required fuel consumption standard, it creates a credit and vice versa. The fuel consumption standard is based on the corporate average fuel consumption (CAFC) target multiplied by the CAFC ratio (see table below). The CAFC target is derived from the sales volume of every PV model and its fuel consumption target.
iii) Automakers can use the excess NEV credits in 2020 to cover theirdeficit in 2019, or carry forward any excess credits in 2019 to 2020.Automakers unable to meet the NEV credit requirements by 2020,would have to purchase NEV points from the open market.
Excess fuel consumption credits can be transferred within three years.
iv) Excess credits can be transferred in full at 100%. The excess credits accumulated up till 2018 will be transferred at a 20% discount to cover the deficit in the earlier years; while credits generated post-2018 will be transferred at a 10% discount to cover the following years.
V) NEV credits can be freely traded on the credit trading platform.Companies with negative NEV credits should purchase NEV creditsfrom the market to meet the requirement.
Shortfall in fuel consumption credits can be offset by NEV credits.
Source: MIIT
NEV Credits calculation Corporate Average Fuel Consumption (CAFC) requirement
Note: R refers to drive range Source: MIIT
Source: MIIT
NEV ty pe
Credit s
calculat ion
Max
credit Remark s
Battery electric vehicle
(BEV)
0.012*R+0.8 5 R is the mileage of
BEV (unit km)
HEV (Hybrid electric
vehicle)
2 2
FCV (Fuel cell vehicle) 0.16*P 5 P is the power of
FCV (unit kW)
Year
A ctual CA F C/target CA F C
requirement
2016 134%
2017 128%
2018 120%
2019 110%
2020 100%
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Page 22
Detailed EV policies
Release Date Major Contents
Feb-2018 Starting from August 2018, EV makers are required to set up centres to collect, process and recycle EV batteries. They may have to
collaborate with battery companies and scrap operators to provide a proper channel for battery recycling.
Feb-2018 Electric vehicle subsidies being adjusted down for the low-end EVs while the more advanced EVs will entitle to higher subsidy.
Dec-2017 Waiver of 10% vehicle purchase tax on new energy vehicles (NEV) from 1 Jan 2018 till 31 Dec 2020. The NEVs (pure electric, plug-in
hybrid and fuel cell) have to be approved by the government.
Sep-2017 To implement a point-based system to car manufacturers with more than 30,000 traditional vehicles produced or imported. Credits
will be given to all vehicles produced, with NEV getting higher points. By 2019 and 2020, car manufacturers are required to have at
least 10 and 12 percent of credit score generated from NEVs.
Sep-2017 To promote energy storage research, focus on tackling a number of key energy storage technologies and materials. Experiment on
potential industrialised products, as well as improving energy storage products standard and quality assurance.
Apr-2017 To develop new energy vehicles industry with technology breakthrough and enhanced industry facilitation. Target to produce 2
million new energy vehicles and achieve energy capacity of 300Wh/kg in single automotive batteries by 2020, as well as requiring
new energy vehicles to account for 20% of all vehicles production and sales by 2025.
Feb-2017 To develop the automotive batteries industry, including research and production of high quality lithium battery by 2018,
industrialisation and new battery research by 2020, and revolutionary technology development by 2025.
Jan-2017 To provide the definition for new energy vehicles, as well as the strengthening safety requirements, including manufacturing
enterprises and products market access and legal responsibilities.
Jan-2017 To kick-start the new energy vehicle batteries recycle pilot project, and establish a comprehensive automotive batteries recycle
standard to enhance the re-use of batteries resources.
Dec-2016 The 13th Five-Year Plan set the strategic direction for emerging industries growth and missions. The goal is a rapid expansion in the
new energy vehicles industry and the establishment of a globally competitive vehicle batteries supply chain.
Dec-2016 To update the requirement for NEV specifications (such as energy per 100 km driving range per full charge) for subsidy, provided the
subsidy standard based on automotive battery cost and specification, and changed the subsidy payment from prepaid to yearly
settlement.
Nov-2016 To establish standard for the automotive vehicle battery industry. For example, lithium ion battery automotive battery manufacturers
are required to have yearly production capacity of 8GWh.
Jan-2016 To provide guidance on automotive batteries recycling technology development, requiring the establishment of coding system on
automotive batteries and support upstream and downstream battery industry to achieve an orderly development on the industry.
Sep-2015 To state the requirements for lithium ion battery industry, including production scale, technology, production specification, resources
re-usage, environmental protection, safety management, health and social responsibility, and management supervision.
Jun-2015 To play the role of market participant and support social capital and enterprises with technological innovation capacities in
participating in the scientific research and production of pure electric passenger vehicles.
May-2015 To reinforce the importance on new energy vehicles as a development area, providing continuous support on electric vehicles and
fuel cell vehicles from parts to whole vehicles in order to establish Chinese brands competitiveness in the international market.
Apr-2015 To continue the subsidy policy of promotion and application of new energy vehicles. The subsidy standards are mainly based on the
effectiveness of energy conservation and emission reduction, and will gradually reduce, taking into account the production costs and
economies of scale.
Mar-2015 To regulate the automotive battery manufacturers including the requirements on production capability, technology, products,
quality assurance, post-sales service and corporate management. Authorised automotive batteries manufacturer will be included in
the official approved list.
Mar-2015 To provide guidance on the development scale of new energy vehicles in the public transport industry. By 2020, NEV in public
transport, taxis and lorries should reach 300,000 units. The infrastructure on NEV should also be established with high efficiency and
safety.
Jul-2014 To provide strategic direction on local government and corporate cooperation in order to develop a sustainable eco-system on new
energy vehicles, and policies, including infrastructure network, new companies introduction and industry subsidy.
Jan-2014 To adjust the subsidy standard on new energy vehicles, and ensure the sustainability of the industry after the current subsidy scheme
ends.
Sep-2013 To announce the continuous support on selected cities on the promotion of new energy vehicles, as well as the subsidy on NEV
purchase. The subsidy is based on difference between NEV and traditional vehicle prices, as well as other factors such as technology
advancement.
Jun-2012 To establish a long term goal on the development on new energy vehicles. In particular, the industrialisation of pure electric vehicles
and plug-in hybrid vehicles. Source: Government
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Page 23
India: U-turn on full electric adoption by 2030
Under the Automotive Mission Plan (AMP) 2026, the Indian
automotive industry will be among the top three in the world
in engineering, manufacture and export of vehicles and
components. The output value from the automobile industry in
India is estimated to account for 12% of Gross Domestic
Product (GDP) and generates some 65 million jobs for the
population.
1. Fuel standard on emission cuts
Cleaner vehicle fuel as an interim solution. The Modi
government has announced various measures to curb
vehicular pollution. The Bharat Stage (BS) IV fuel emission
standard came into effect on 1 April 2017 for all new
four-wheelers sold in the country. The Indian government
is taking a firm stand and will jump from BS IV emission to
BS VI by 2020.
2. Policies and incentives on EV development
U-turn on full electric strategy by 2030. The Indian
government had earlier set an ambitious goal to convert
all vehicles to electric and hybrid by 2030, in an effort to
curb vehicular pollution. But in February 2018, the Indian
government made a U-turn against formulating an EV
policy. Instead, certain action plans will remain to move
the country towards 30% electrification by 2030. To push
for EV adoption, the Delhi government plans to buy
electric and hybrid vehicles for the central government
ministries as well as public transport. To encourage the
private sector participation, the Indian government has
rolled out policies and incentive schemes to support the
industry development.
Policies and incentive schemes. There are two major
policies – National Electric Mobility Mission Plan (NEMMP)
and Fast Adoption and Manufacturing of Electric Vehicles
(FAME) – and both aim at accelerating the electric car
market development.
Under the NEMMP that was unveiled in 2013, the Indian
government intends to have approximately 6-7 million
electric vehicles (including hybrid) by 2020.
FAME was implemented on 1 April 2015 and under the
Phase II implementation (effective from 1 April 2018), the
government will spend US$1.3bn (Rs 8,730 crores) to
provide support to EV buyers. For electric 4-wheelers,
FAME II has allocated US$150m; electric buses US$370m;
2-wheelers US$90m; and 3-wheelers US$110m. As FAME
also provides support for the EV eco-system, electric
vehicle components manufacturers also stand to benefit
from the scheme. FAME II is valid till 2020.
Under FAME Phase I, the Indian government has set aside
an annual budget to subsidise EV purchases. In 2017-18,
US$26m has been allotted for this purpose.
Lack of infrastructure support. India is no different from
other countries in terms of lack of infrastructure support.
For FY15-16 and FY16-17, the government has spent a
total of US$4.5m on charging infrastructure for public
buses. India has about 300+ public charging points as at
end of 2016, which is insufficient to support the EV
strategy. More funding is needed to encourage private car
owners to switch over to EV unless charging infrastructure
at public places are being rolled out. The lack of charging
stations is discouraging people from opting for EVs.
3. 2030 EV target
An ambitious target. A survey by the Society of
Manufacturers of Electric Vehicles (SMEV) shows that
these five states in India are top in terms of retail of
electric vehicles - Gujarat, West Bengal, Uttar Pradesh,
Rajasthan and Maharashtra. Around 25,000 EVs were sold
in the country in FY2016-17 and these five states
accounted for about 14,000 EVs, or c.56% of the total. In
India, about 90% of the EVs sold are 2-wheelers and the
balance 4-wheelers. Under NEMMP, the Indian
government intends to achieve an EV population of 6-7
million (including hybrids) by 2020.
Therefore, the government’s mission to go fully electric by
2030 is a big challenge for the industry. Perhaps, the
immediate action is to bring forth more investments on
infrastructure network.
EVs incentives
FAME II Allocated subsidy
Electric buses US$370m
4-wheelers US$150m
3-wheelers US$110m
2-wheelers US$90m Source: FAME
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Page 24
South Korea: EV market still in an early stage but has huge potential
Accelerating EV market growth but still small
Rapid growth of Korea’s EV market in 2017, driven by
increased EV incentives from government. The number of EVs
sold in Korea amounted to 14k units in 2017, up 130% y-o-y.
This satisfies the target set by the Korean government in early
2017 (14k units), and is equivalent to 0.8% of newly-registered
vehicles. Until 2016, annual EV sales had failed to meet the
distribution target, but the pace of EV distribution has now
accelerated, attributable to the government’s increased
financial incentives for EV purchases. In 2016, the government
provided EV purchase subsidies to 5k units of EVs, and the
number increased to 16k units in 2017. Also, the number of
local governments providing EV purchase grants rose sharply
from 31 in 2016 to 101 in 2017.
Consumers reacting sensitively to government’s EV support
policies. With i) EV purchase grant per vehicle set to decline
from KRW14m in 2017 to KRW12m in 2018 and ii) only 20k
units of EVs (lower than expected) set to receive the grant in
2018, EV sales volume surged in 2017 as consumers wanted to
buy EVs before 2018. Meanwhile, due to the heated
competition for EV purchase grants, EV purchase reservations
exceeded the limit of 20k units even before the end of January
2018, indicating consumers’ increased interest in EVs. This led
to the government providing EV purchase grants for additional
8k units through a supplementary budget.
Korean EV market is still small, below the government’s goal. It
is true that monthly EV sales volume has increased to c.1.5k
units since 2H17, but cumulative sales volume indicates that
the Korean EV market is still small. Until 2017, a total of 26k
units of EVs (PHEV + BEV + FCEV) had been sold in Korea,
which is just 1.1% of registered vehicles as of end-2017
(22.53m units) and a far cry from the government’s EV
distribution target of 46k units. If this trend continues, the
target of 250k units by 2020 seems difficult to reach.
Annual EV (PHEV+EV+FCEV) sales volume in Korea
Note: The table is based on factory shipment data, and may be different from actual retail sales data Source: Marklines, KTB Investment & Securities
Ma ke r/Bra nd Mode l 2014 2015 2016 '17/01 '17/02 '17/03 '17/04 '17/05 '17/06 '17/07 '17/08 '17/09 '17/10 '17/11 '17/12 2017 '18/01 '18/02 '18/03
Audi Audi A3 PHEV 0 0 35 0
Porsche Panamera PHEV 0 3 0 0
Porsche 918 PHEV 0 3 0 0
Porsche Cayenne PHEV 0 12 19 0
Toyota Prius PHEV 0 0 0 17 6 8 12 3 11 3 4 3 67 3 6 5
Chevrolet Volt PHEV 0 0 40 0 27 10 16 7 60 0 0 0
Hyundai Ioniq PHEV 0 0 0 0 5 11 0
Hyundai Sonata PHEV 0 128 117 4 5 6 9 9 1 3 7 3 4 2 53 1 4 4
Kia K5 PHEV 0 0 0 1 2 1 2 2 8 2 0 3
Kia NIRO PHEV 0 0 0 2 39 58 37 25 17 22 25 225 27 12 43
Mercedes-Benz GLC PHEV 0 0 0 0 0 0 0
BMW i8 PHEV 0 127 70 1 5 6 2 5 2 10 4 10 45 78 10 22
BMW X5 PHEV 0 0 0 8 8 25 11 1
Plug-in Hybrid Subtota l 0 273 281 5 37 22 44 25 47 73 49 45 33 36 50 466 141 54 78
Hyundai Nexo FCV 0 0 0 0 11
Hyundai Tucson (ix35) FCV 0 0 80 5 9 1 6 18 10 4 1 7 61 17 0 0
Hydroge n Fue l Ce l l EV Subtota l 0 0 80 5 0 9 1 6 18 10 4 1 0 7 0 61 17 0 11
GM Spark EV 70 151 100 0 5 5
GM Bolt EV 0 0 0 121 120 39 55 57 24 41 82 24 563 0 5 160
Nissan Leaf EV 16 100 88 26 5 13 1 2 47
Renault Twizy EV 0 0 14 1 5 100 153 432 691 1 50 399
Renault Samsung SM3 EV 309 1,043 623 39 56 55 85 69 100 209 356 266 334 309 136 2,014 9 64 88
Hyundai Ioniq EV 0 0 3,749 255 304 732 607 517 524 810 959 846 649 961 768 7,932 1,086 949 886
Kia Ray EV 202 198 81 3 5 1 10 9 6 4 4 5 47 5 2
Kia Soul EV 414 1,166 729 37 116 86 49 138 206 121 117 259 161 663 98 2,051 7 97 215
BMW BMW i3 EV 170 367 369 8 3 91 51 23 15 191 2 10 3
Ba tte ry EV Subtota l 1,181 3,025 5,753 369 486 874 862 854 972 1,371 1,499 1,494 1,240 2,042 1,478 13,541 1,105 1,180 1,753
Gra nd Tota l 1,181 3,298 6,114 379 523 905 907 885 1,037 1,454 1,552 1,540 1,273 2,085 1,528 14,068 1,263 1,234 1,842
y-y growth 65% 179% 85% 673% 607% 499% 220% 292% 293% 111% 247% 343% 99% 44% 2% 130% 233% 136% 104%
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Page 25
Number of EVs in Korea (until Mar 2018) and the government’s goals
Note: The table is based on factory shipment data, and may be different from actual retail sales data Source: Marklines, KTB Investment & Securities
South Korea EV policies, not harmonised and yet proactive
Korea’s EV purchase incentives are the world’s highest. Among
various EV promotion policies, purchase incentives, i.e.
purchase grants, are known to be the most effective. In Korea,
the central government provides a grant of KRW7m-12m for
an EV purchase depending on types of cars, and local
governments provide an additional KRW4m-11m (as of 2018).
A subsidy of up to KRW23m can be provided depending on
the region and type of car, although only a small number of EV
purchases would be eligible for the subsidy. Korea’s EV
purchase grants, along with those in Norway, are the world’s
highest (above US$10,000).
EV purchase grant policies in Korea in 2018 (unit: KRW’000)
Source: The Ministry of Environment, KTB Investment & Securities
0
50,000
100,000
150,000
200,000
250,000
300,000
2012 2013 2014 2015 2016 2017 2018 2019 2020
(units, cumulative)
PHEV BEVFCEV Gov'ts Goal
Hyundai Kona EV (basic) 12,000 Seoul 5,000
Hyundai Kona EV (economic) 12,000 Busan 5,000
Hyundai Ioniq (18, HP) 11,260 Daegu 6,000
Hyundai Ioniq (18, PTC) 11,190 Incheon 6,000
Hyundai Ioniq (`17) N, Q trim 11,270 Gwangju 7,000
Hyundai Ioniq (`17) I trim 11,190 Daejeon 7,000
Kia Soul EV (18, PTC) 10,270 Ulsan 5,000
Kia Soul EV (`18) 10,440 Sejong 7,000
Kia Ray EV 7,060 Gyeonggi Province 5,000
Renault Samsung SM3 Z.E (`18) 10,170 Gangwon Province 6,400
Renault Samsung SM3 Z.E (`17) 8,390 North Chungcheong Province 800~1000
BMW i3 94ah (`18) 10,910 South Chungcheong Province 800~1000
BMW i3 (`17) 8,070 North Jeolla Province 6,000
Nissan Leaf 8,490 South Jeolla Province 440~1100
GM Bolt EV 12,000 North Gyeongsang Province 600~1000
Tesla Model P 100D 12,000 South Gyeongsang Province 600~900
Tesla Model S 75D 12,000 Jeju Province 6,000
Tesla Model S 90D 12,000
Tesla Model S 100D 12,000
Cent ral gov ernment 's grants
(v aries by t y pe of cars)
Local gov ernments' grants
(v aries by region)
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Page 26
Shortage of EV infrastructure hindering EV distribution. In
Norway, EVs account for over 25% of the car market thanks to
the government’s active supports, including financial
incentives. However, in Korea, the percentage is a mere 1%.
This is because the Korean government has been passive in
establishing EV charging infrastructure so far, and there have
been a lack of incentives to lure consumers into EVs other than
purchase grants. As of end-January 2018, public EV charging
stations in Korea amounted to 3,404. While this is quadruple
the number tallied last year (849), it is still not enough for the
EV population in Korea (26k units in cumulative terms).
Currently, a total of 5,773 chargers (2,369 slow chargers,
2,495 fast chargers) are in operation, which equates to one
charger per 4.5 EVs. Moreover, considering that some charging
stations are used by government cars or internal-combustion
cars as their parking spaces, the number of EV chargers
actually in service would be even lower.
Why the Korean government is not aggressive in increasing EV
penetration. The government ministries are showing mixed
stances towards EV subsidies: The Ministry of Environment of
Korea initially set the EV purchase grant quota for 2018 at 30k
units, but due to opposition from the Ministry of Strategy and
Finance, the quota was eventually set at 20k units. Moreover,
there is no comprehensive control tower for EV policies. We
think that there are not enough incentives to encourage the
Korean government to be more aggressive in EV penetration.
What drive EV distribution and expansion policies are mainly
two factors, as follows.
First, reducing greenhouse gas emissions? In the case of
Norway, where renewable energy makes up 98% of energy
source, the government is aggressive in increasing EV
penetration in line with its policy to wean away from oil.
However, Korea is heavily reliant on fossil fuels, with renewable
energy accounting for less than 8% of its power mix.
Therefore, any increase in EV sales in Korea would mean higher
demand for electricity generated from thermal power plants,
thus not amounting to an eco-friendly solution. As such, the
argument that promoting EV penetration is good for the
environment is not very convincing in Korea.
Second, securing competitive edge in the future car industry?
In the case of China, considering that coal makes up more than
70% of China’s power generation mix, its active support for EV
market growth is not intended for improving the environment.
Up until now, China has failed to have the upper hand in
competition for internal-combustion vehicle production.
Therefore, we believe that its aggressive moves in promoting
EV distribution are for securing dominance in the EV market.
Battery companies, rather than carmakers, have the hegemony
over production of EVs that do not require engines and
powertrains, and thus the capability to source various materials
is critical. This is why China has been aggressive in securing
metals such as cobalt, lithium, and other resources. However,
Korea is already a powerhouse in terms of finished cars, and
production of internal-combustion vehicles contribute a great
deal to the national economy, especially to employment.
Korea’s self-sufficiency rate for secondary battery-related
resources is not high. As such, Korea shows weaker initiative in
EV policies and lower EV penetration compared to other
countries.
Huge potential for Korea EV backed by strong IT sector.
Korean carmakers’ strategies to deal with the EV era: Beyond
BEV. Korean automakers are not posting high sales numbers in
pure EVs, but are doing well in the eco-friendly car markets
(including hybrid cars). According to IHS Markit, Hyundai
Motor/Kia Motors ranked 2nd in the eco-friendly car market in
terms of sales volume in 1H17. Hyundai Motor Group has
recently announced its goal to increase BEV models from two
to 14 by 2025 and to become the third-largest EV maker in the
world.
Hyundai Motor is the only global carmaker to produce mass-
production models for four types of green cars (hybrid vehicles,
plug-in hybrid vehicles, electric vehicles, hydrogen fuel cell
vehicles). Currently, only Hyundai Motor, Toyota, and Honda
produce hydrogen fuel cell vehicles. Toyota is expected to
launch its first all-electric vehicle in 2019, Honda to launch its
first plug-in hydrogen-powered hybrid EV in 2018. Hyundai
and Kia plan to release a diverse range of eco-friendly cars,
launching 10 hybrid models, 11 plug-in hybrid models, eight
EV models, and two hydrogen fuel cell car models until 2020.
Contrary to Tesla and Chinese automakers who are focusing
on EVs, Hyundai thinks that the most advanced form of eco-
friendly vehicles is hydrogen fuel cell vehicle and is making
substantial investments to popularise them, while also
expanding its EV line-ups. Hyundai’s extensive green-car
strategy may seem somewhat behind the industry’s moves
towards EVs. There are also concerns that diversified
investments could lead to weak marketability for its individual
green-car model, a lagging response to industrial changes, or
an excessive investment overlap.
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Page 27
Hyundai Motor Group’s eco-friendly vehicle roadmap
Source: Hyundai Motor, Kia Motors, KTB Investment & Securities
Hyundai Motor Group’s EV Launch Plan
Source: Hyundai Motor, Kia Motors, KTB Investment & Securities
Korea to benefit from EV market growth, supported by its
strengths in the IT industry. EVs use 20% fewer components
than internal-combustion vehicles, and half of them would be
automotive-electronics components. The EV market, in turn,
will be a blue ocean for the semiconductor and electronic parts
industries. The roles of internal combustion engine parts will be
replaced by motors, motor components, and motor controlling
devices. Almost all major components such as electric current
controllers, batteries, battery chargers, and auxiliary power
supply will require semiconductors. Applying self-driving
function to EVs would also require more semiconductors to
enable driving information input/output and sensors. Vehicles
will increasingly adopt IT technologies like IoT (Internet of
Things) and transform into smart cars. Against this backdrop,
Korean IT companies are expected to benefit from the growth
of EVs in the long term. Some companies have already been
preparing for such EV expansion, and LG Electronics is the
most advanced among them.
LGE Vehicle Component Revenue Trends
Source: LG Electronics, KTB Investment & Securities
2016 2020
HEV 6 models Sonata,
Grandeur,
Ioniq, K5,
K7, Niro
10 models To develop EVs with the
best fuel economy
PHEV 2 models Sonata, K5 8 models To expand line-ups to mid-
size cars beginning with
2015 Sonata PHEV
BEV 3 models Ioniq, Soul,
Ray
7 models To develop EVs with
higher milage on one
charge,
to increase next-generation
battery research
to release an EV with a
milage over 300km in 2018
F CEV 1 model Tucson 3 models To develop next-
generation fuel cell cars
610
4
11
2
14
1
2
0
5
10
15
20
25
30
35
40
2017 2025F
(no. of models)
HEV PHEV BEV FCEV
0
0.032
0.05
0.056829065
0%
1%
2%
3%
4%
5%
6%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2014 2015 2016 2017
(%)(KRW bn)
Revenue Revenue share (R)
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Page 28
Oil sector – EV unlikely a demand shock
Transport end-use sector is a major component of global
energy demand. The industrial sector has been the biggest
consumer of energy over the last five decades, as can be seen
below, with a share of almost 50% to begin with, but the
share of transport in the energy consumption pie has increased
from about 17% in 1970 to around 20% currently. The
increasing prosperity in developing economies has been the
major driver for this, as the demand for transport has increased
manifold. Demand for both passenger and freight services has
fuelled an increase in energy demand of close to 2.5% CAGR
since 1970 from the transport sector.
Primary Energy Consumption by end-use sector
* Industry excludes non-combusted use of fuels Source: BP Energy Outlook 2018, DBS Bank
Transport sector energy demand has been dominated by oil.
Energy sources for meeting demand from the transport sector,
typically passenger vehicles, trucks, aviation, marine and rail,
have been dominated by oil almost completely till the start of
the 21st century, before the emergence of concerns over
emissions that sparked the move towards cleaner options.
However, while the proportion of oil-powered transportation
has fallen from around 98% in 2000 to around 92% currently,
oil is still clearly the dominant fuel and electricity, as a power
source, has not made much of a dent on oil’s dominance for
now. The use of gas has picked up, though again not
presenting much of a challenge to oil yet. As the adoption of
electric vehicles increases over the next 10-15 years, this is
likely to change, especially as much of the increase in electric
vehicle adoption is likely to be in China, which has been one of
the key drivers of transport energy demand over the last 15
years.
Transport energy consumption by fuel type
* includes bio-fuels, gas-to-liquids, coal-to-liquids, hydrogen Source: BP Energy Outlook 2018, DBS Bank
Contribution to incremental energy demand over 2000-2015
Source: BP Energy Outlook 2018, DBS Bank
Conversely, for oil, demand from transport sector makes up
the majority of demand. As of 2015, BP estimates that close to
56% of oil demand is driven by transportation – which includes
cars, trucks, and non-road transport (aviation, marine and rail).
Around 13% in used in industry, 15% as feedstock for
petrochemicals, 11% for buildings (heating) and 5% for power
generation. We do not expect demand from the trucks or
aviation, marine, rail segments to be significantly affected by
the electrification of vehicles, hence the cars segment or
around 20% of oil demand will be vulnerable to the rise of
electric vehicles, in our opinion.
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1970 1980 1990 2000 2010 2020
MTOE
Industry* Non-combusted Buildings Transport
0
500
1,000
1,500
2,000
2,500
3,000
2000 2005 2010 2015
MTOE
Oil Gas Electricity Other*
OECD10%
China31%
India8%
Other Non-OECD51%
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Contribution to demand for liquid fuels (oil and condensates)
Source: BP Energy Outlook 2018, DBS Bank
Demand from cars and trucks the highest growth drivers for
oil. While global oil demand has risen at a CAGR of around
1.4% over the last 15 years, demand from cars and trucks have
been rising faster at CAGRs of 2.5% and 2.0%, respectively,
and hence, their share of the pie has been increasing. Demand
from industry and buildings is largely flattish, while demand
growth from the power generation sector has been negative,
owing to the high costs involved, and the increasing use of
natural gas.
Strong growth in EV unit sales expected. Our autos analyst
Rachel Miu expects global EV yearly unit sales to grow from
c.1.26m units in 2016 to over 26m units in 2030, representing
an almost 15x increase in yearly sales volumes. Much of the
increase in sales will come from Asia, with China in particular
being the dominant driving force, pun intended.
EV impact to oil demand: 6% of annual oil demand could
disappear by 2030. We estimate EVs will absorb c.285mtoe or
around 5.3mmbpd of oil demand by 2030, which represents
around 6% of the total demand for oil in that year, assuming
that EVs were non-existent. That is not insignificant, but when
you consider that global energy intensity is expected to
improve every year from 2017 till 2030 – we expect a global
energy demand CAGR of 1.7% compared to global GDP
growth of 3.2% over the same timeframe – we believe that
changes in energy intensity trends and policies are as or more
important than sales of EVs, which tend to dominate news
headlines with regard to future oil and energy demand.
Impact of Electric Vehicles on oil demand
Source: DBS Bank forecasts
Industry13%
Non-combusted
15%
Buildings11%
Power5%Aviation,
Marine, Rail
12%
Trucks23%
Cars21%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Oil demand impact from EVs: EV detraction from oil demand as a % of total demand
(mtoe)
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Page 30
Energy intensity trends are very important in determining oil
demand. Energy intensity is defined as the primary energy
consumed per unit of GDP. A diverse number of factors can
influence energy intensity, including a secular shift away from
energy-intensive industries in certain countries, technology
improvement and evolution (e.g. the proliferation of smart
meters, which enables more accurate control of consumption;
or a shift to electric vehicles, which are more energy efficient),
government policies and so on. Energy intensity has declined at
a CAGR of 1.55% from 1990-2015 (based on World Bank
Data), with that number accelerating to 2.4% from 2010-
2015, led by the middle- and high-income countries, and
notably China and Japan, which are two of the top 10
consumers of energy, and saw their energy intensity decline by
23% and 21%, respectively, over that 5-year period. Numbers
by the IEA indicate 2016 saw a further 1.8% decline in energy
intensity globally; that is US$2.2tr when translated to dollar-
savings – a sizeable figure. There is a similar trend in growth of
consumption of oil vis-à-vis global economic growth, and this
will increasingly be felt for passenger vehicles’ oil consumption,
which has been the key driver of oil demand in recent years, as
highlighted earlier.
Increasing fuel efficiencies of passenger vehicles will be a
limiting factor for oil demand. Fuel efficiencies of cars have
been improving in developed countries, especially the EU, with
its tougher emission norms, as can be seen below. This trend is
expected to continue in the future and we believe will be a
bigger driver for oil demand than the evolution of electric
vehicles. In our estimation, oil demand from passenger vehicles
will be flattish or slightly lower in 2030 than the reference
2016 levels of 18.7mmbpd (BP Energy Outlook data).
Fuel economy of new cars
Source: BP Energy Outlook 2018, DBS Bank
Oil demand from cars forecast to 2030 (all numbers in mmbpd)
Source: BP Energy Outlook 2018, DBS Bank estimates
Thus, overall, we are projecting oil demand to be growing
quite slowly till 2030. Despite the impact on oil demand from
cars/passenger vehicles owing to improving efficiencies, and
shared mobility and electric vehicles, we must remember that
this accounts for only 21% of global oil demand and other
drivers of oil demand – trucks, aviation, marine, rail and
petrochemicals – will continue to grow as the global economy
expands over time. India, for one, will be a bright spot for oil
demand, and we see significant additions to oil demand from
India, on the back of the strong growth in energy demand as
its economy grows at a clip of close to 6% from 2017-2030,
while efficiency gains remain modest. In addition, India’s Draft
National Energy Policy (2017) – which lays out the expected
energy mix until 2040 – actually sees oil assuming an
increasing role in the energy mix (from 24.5% in 2012 to
26.8% in 2040). Thus, we see slow growth in overall oil
demand, with no signs of decline or plateauing in the 2030
timeframe. Peak oil demand cannot be ruled out in the 2030-
40 timeframe though.
Global crude oil demand forecast
Source: BP Energy Outlook 2018, DBS Bank Forecasts
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2000 2005 2010 2015 2020 2025 2030
Litres/100 km
EU China USA
2016 oil demand fromcars
Growth in demand for travel till 2030
Tightening in vehicle efficiency standards
Impact from switch to EVs
2030 oil demand fromcars
18.7 10.8 6.1 5.3 18.1
4,000
4,100
4,200
4,300
4,400
4,500
4,600
2013
2014
2015
2016
2017F
2018F
2019F
2020F
2021F
2022F
2023F
2024F
2025F
2026F
2027F
2028F
2029F
2030F
(mtoe)
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
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Page 31
Demand growth being muted; supply will be the key
determinant for oil prices in medium to long term. We do not
expect a huge spurt in oil demand growth over the 2030
timeframe, as explained above. Neither do we expect a
demand shock from electric vehicles as the evolution, growth
and adoption of electric vehicles is unlikely to be an overnight
phenomenon which would suddenly wipe out a couple of
million barrels of oil demand from the world. Thus, restraints or
constraints in supply as a result of industry investment trends
and geopolitics will be the major factor in determining oil
prices in the future.
In the near term, we expect 2018 Brent crude oil price to
average in the range of US$70-75/bbl and our 2019 average
forecast for Brent is slightly lower at around US$65-70/bbl, as
we expect some moderation from increasing US shale supplies
as well as a gradual exit from the OPEC production cuts in
2019. Given that OPEC and its allies are likely to raise
production caps in its latest Vienna meeting to offset losses
from Venezuela and Iran, we are unlikely to see supply
shortages in the near term, which could lead to the
moderation of oil prices back to US$70/bbl levels, in our view.
Longer-term forecasts remain sanguine owing to huge
underinvestment over 2014-18. Capex budgets worldwide
have been cut substantially since the onset of the 2014 oil
price collapse. Capex budgets for 2015 and 2016 declined by
an average of about 25% each year across our sample of super
oil majors, and even 2017 saw around 10% decline in capex
eventually, though we were initially expecting 2017 capex to
remain flat. In 2018, projections from global oil majors point to
only minor increases in capex – low single-digit growth, which
is not exciting. In any case, we do not expect oil capex levels to
recover back to the highs seen in the 2012-14 timeframe
anytime soon. This represents quite an unprecedented period
of low capex compared to the years preceding 2014, when oil
& gas capex grew at a CAGR of 12% between 2000 and 2014
for an almost five-fold increase.
As a result, industry consultant Wood Mackenzie believes close
to US$1tr of capex meant for 2015-2020 timeline has been
taken out of the system so far, since the oil price crash of
2014, and while project sanctions activities are seen to be
picking up now, all the deferrals will mean that more than
3mmbpd of supply that was supposed to come onstream by
2020 will now only come in the years after that. This will help
the supply-demand equation in the medium to long term. Also,
the need to develop oil production in more expensive areas –
as the most expensive last barrel may need to be called upon
to meet incremental demand – will continue to support oil
prices. According to estimates from independent oil & gas
consultancy Rystad Energy, the marginal sources of supply in
2020 will be currently non-producing shale fields (new shale)
and oil sands, with a weighted average breakeven price of
around US$63-66/bbl. Imputing some cost inflation to these
numbers, we peg our longer-term oil price forecast to around
US$65-70/bbl.
Brent Crude oil price – DBS view
Source: Bloomberg Finance L.P., DBS Bank Forecasts
2016 Global energy mix 2030 Global energy mix
Source: BP Data Source: DBS Bank estimates
(US$ per barrel) 2013 2014 2015 2016 2017 2018F 2019F
Average Brent crude oil price 109 99 54 45 55 70-75 65-70
Long-term Brent crude oil price 65-70
Coal28%
Crude Oil33%
Natural Gas24%
Renewables & Others
15%
Coal25%
Crude Oil27%
Natural Gas26%
Renewables & Others
22%
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 32
Metals sector: Key beneficiary from the EV growth
Substantial impact on demand and prices expected
Strong and positive impact on metal prices already being seen.
The development of electric vehicle (EV) industry is set to
substantially impact the metal market. In recent years, EV has
been one of the most discussed topic in the metal market,
triggering bullish sentiments for related metals. More
specifically, the price of lithium – the key raw material for
lithium-ion batteries, has more than doubled (+135%) since
the beginning of 2016. Similarly, cobalt prices have also
explosively grown by more than triple (+278%) during the
same period, due to its importance in the manufacture of
batteries and expected growth in global EV market.
LME Cobalt price & Lithium price index
Source: Bloomberg Finance L.P., DBS Bank
What are the winning and losing metals? We break down our
analysis of the EV’s impact on metal market into two broad
parts; metal demand arising from i) batteries and ii) non-
battery parts, the car chassis as well as the infrastructure
needed in a scenario of full-fledged adoption of EVs globally.
The biggest beneficiaries should be the metals used in batteries
including lithium, cobalt, nickel and copper. Meanwhile, steel
will face a negative impact because of car body lightening, and
platinum and palladium would see lower demand as the
requirement to reduce air pollutant emissions is not applicable
to EVs.
Impact on metal demand:
Batteries Non-batteries
Positive Lithium
Cobalt
Nickel
Copper
Lead*
Aluminum
Copper
Negative Platinum
Palladium
Steel
*Positive for near term but negative over the long term. Source: DBS Bank
Copper: demand growth powered by EV, from battery to infrastructure
More copper consumption along with more electricity usage
Copper, batteries and the growing EV market. Copper, the
irreplaceable metal for electric conductivity, will enjoy greater
demand than ever in the production of EVs. This is because
EVs, which use an electric motor powered by batteries or fuel
cells, require more copper in their manufacture than the
conventional internal combustion engine vehicles (ICEVs),
which are powered by gasoline or diesel. The greater the
reliance on electricity, the more copper is needed to make the
vehicle. So, a battery-operated vehicle (BEV), which operates
exclusively on battery power, requires more copper than a
plugged-in hybrid electric vehicle (PHEV), which has a battery
that can be recharged by plugging into an external electric
power source and also operates on gasoline or diesel. Among
BEVs, buses would use up more copper than cars as they need
bigger batteries to run.
BEVs consume four times more copper than ICEVs. According
to research commissioned by the International Copper
Association (ICA), EVs require a substantial amount of copper
in their batteries, windings and copper rotors used in their
electric motors, and in wiring, busbars and the charging
infrastructure. It takes 83kg of copper to make one BEV, and
40kg to make one HEV, which is four and two times
respectively the amount required for an ICEV. The BEV battery
pack alone contains 40kg of copper (half of its total copper
content) and is the single biggest component of copper
consumption.
50
100
150
200
250
300
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
12.1 13.1 14.1 15.1 16.1 17.1 18.1
LME COBALT SPOT ($) Lithium Price Index
(US$/to (pt)
Asian Insights SparX Regional Automobile Sector
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Page 33
Copper demand in EV
Source: ICA; IDTechEX; BYD, DBS Bank
Copper usage per unit of car by component
Source: Copper Alliance, IDTechEX; BYD, DBS Bank
Copper demand from EV to drive long term growth.
Contribution of copper demand from EVs to rise to 6.6% in
2030 from 0.9% in 2017. Based on our EV forecasts, we
project that copper demand from EVs will rise from 208,000
tons in 2017 to 1.91m tons in 2030, up 19% annually. Copper
demand from EVs is estimated to make up 8.2% of total
copper consumed in 2017 by 2030, up from an estimated
0.9% in 2017. For next five years, copper demand from EVs
will register the strongest growth of 29% in CAGR, in line with
our EV forecasts. In 2022, copper usage in EVs should
contribute to 2.3% of total copper demand. In our pessimistic
scenario, we have factored in the possibility of oil prices staying
low and leading to slower adoption of EVs globally. We
assume that HEVs’ contribution in terms of unit sales to the
total HEV and EV market will gradually fall to 49% in 2030
from 64% in 2017. Where EVs’ contribution exceeds this
premise, we expect a positive impact on copper demand.
EV infrastructure an additional spur to copper demand growth.
Outside of the copper demand projections based on usage in
EVs, we also expect copper usage associated with
infrastructure. First, each 3.3kW charger will add 0.7kg of
copper demand with fast chargers, say a 200kW one, adding
up to 8kg of copper each. On top of that, copper will be
needed in power generation and grid infrastructure, and grid
storage and charging infrastructure. Copper consumption in
these areas, although negligible in the early stages, is set to
grow strongly as EVs become more popular. According to
industry experts, copper demand from EV infrastructure is likely
to register 29% growth during 2020-30, with share of
consumption expanding to 37% in 2030 from 29% in 2020.
Car body materials: Light weighting matters
Lightweighting is rising in importance for EVs as the current
technology has limitations in driving range per charge because
batteries are still heavy. A lighter body would allow a vehicle to
travel further on less power; generally, a 10% drop in vehicle
weight leads to an 8% improvement in fuel economy.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
0
500
1,000
1,500
2,000
2,500
15 16 17 18F 19F 20F 21F 22F 23F 24F 25F 26F 27F 28F 29F 30F
(k tons)
Ebus hybrid (LHS) Ebus BEV (LHS)
Car HEV (LHS) Car BEV (LHS)
Car PHEV (LHS) Contribution to total copper demand((RHS)
(kg) ICEV HEV PHEV BEVEbus
Hy brid
Ebus
BEV
Bat tery 1.0 22.0 40.0 12.0 292.0
Inv erter 0.3 0.3 0.3 1.0 1.0
Elect ric Motor 5.0 5.0 9.9 20.0 20.0
HV Wire 5.0 5.0 5.0 11.0 11.0
Others 5.0 5.0 5.0 5.0 5.0 5.0
LV Wire 18.0 23.0 23.0 23.0 40.0 40.0
Total 23.0 39.3 60.3 83.2 89.0 369.0
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 34
Steel – intensifying competition but to remain as key autobody material
Auto manufacturers’ efforts in lightweighting vehicles are
generally viewed as negative for steel, as they will continue to
explore alternative materials such as aluminium, magnesium
and carbon fibre.
Steel is fighting back with new and better products. However,
we expect continuous demand for steel in the auto sector, on
the back of i) new steel products with high strength being
developed to meet automakers’ requirements, and ii) steel’s
price competitiveness against other materials. Steel makers
have been working to improve products; AK Steel, together
with General Motors, are trying to use nanotechnology to
make lightweight vehicle bodies, and ArcelorMittal and Tata
Steel Europe are also developing lighter, stronger alloys to fend
off the competition. Advanced high-strength steel (AHSS) is
not only lightweight but also engineered specifically to meet
the stringent safety regulations, emission reduction and solid
performance for use in vehicles.
Appealing to automakers as the lowest-cost option. Besides,
steel boasts price competitiveness against other materials; to
reduce 1kg of weight in car body and applications, it is
estimated that AHSS would cost c.US$2-2.5, lower than the
US$3-6 for aluminum alloys, US$5-12 for magnesium and
US$16 or higher for carbon fibre. Especially amid the EV
makers’ concerns over cost savings, steel will likely remain in
demand as part of the material mix for vehicles.
Aluminium – the lighter the better
Apart from steel, aluminium also appeals to automakers as an
alternative car body material for its lightweight property vs.
steel, which allows cars to travel further on less power.
Aluminium producers such as Alcoa, Novelis and Aleris, have
developed aluminium alloys that are stronger than steel, at
only about one-third the weight. Aluminium producers are
boosting capacity to meet the rising demand.
Asian Insights SparX Regional Automobile Sector
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Page 35
Automakers peer valuation
# FY18: FY19; FY19: FY20 Source: Thomson Reuters, *DBS HK
Mkt PE PE Yield Y ield P/Bk P/Bk EV /EBITDA ROE ROE
Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F
Company Name Code Currency Local$ US$m Yr x x % % x x x x % %
Hong Kong
Guangzhou Automobile Gp. 'H' 2238 HK HKD 7.04 13,917 Dec 4.4 3.9 6.7 7.6 0.7 0.6 6.3 5.5 17.4 17.4
Sinotruk (Hong Kong) 3808 HK HKD 11.66 4,119 Dec 8.6 9.0 6.0 5.7 1.1 1.1 3.4 3.5 13.4 12.0
Dongfeng Motor Gp.'H'* 489 HK HKD 7.73 8,521 Dec 3.9 3.6 3.5 3.5 0.5 0.4 2.0 1.9 12.6 12.2
Brilliance China* 1114 HK HKD 11.4 7,358 Dec 7.0 5.7 1.1 1.4 1.5 1.2 7.7 5.9 23.2 22.7
Great Wall Motor Co.'H'* 2333 HK HKD 5.24 10,401 Dec 5.1 4.3 5.9 7.0 0.7 0.6 3.2 2.7 14.8 15.6
BYD 'H'* 1211 HK HKD 45.3 17,354 Dec 25.6 18.5 0.6 0.8 1.8 1.6 9.8 8.4 7.2 9.2
Geely Automobile Hdg.* 175 HK HKD 20.4 23,430 Dec 12.5 10.7 1.6 1.9 3.5 2.8 7.8 6.3 32.1 29.0
Baic Motor 'H'* 1958 HK HKD 6.52 6,686 Dec 6.2 5.1 5.6 6.9 0.9 0.8 2.3 1.9 15.5 16.0
A v erage 9.2 7.6 3.9 4.4 1.3 1.1 5.3 4.5 17.0 16.8
China
Saic Motor 'A' 600104 CH CNY 35.05 61,933 Dec 10.9 10.0 5.5 6.1 1.7 1.5 7.0 6.3 16.0 15.9
Faw Car 'A' 000800 CH CNY 7.23 1,780 Dec 55.6 48.2 0.0 0.0 1.4 1.4 9.7 9.3 4.8 5.2
Chongqing Changan Autmb. 'A'* 000625 CH CNY 8 5,811 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0
Chongqing Changan Autmb. 'B' 200625 CH HKD 6.8 4,178 Dec 4.1 3.9 8.8 9.0 0.5 0.5 0.5 0.5 14.4 14.4
Beiqi Foton Motor 'A' 600166 CH CNY 1.95 1,967 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Tianjin Faw Xiali Autmb. 'A' 000927 CH CNY 3.49 842 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Dong Feng Automobile 'A' 600006 CH CNY 3.87 1,171 Dec 15.4 12.3 2.0 2.4 1.1 1.0 n.a. n.a. 7.4 8.8
Anhui J ianghuai Automobile 'A' 600418 CH CNY 6.41 1,835 Dec 19.6 15.4 1.5 2.0 0.8 0.8 5.2 4.6 4.8 5.8
Zhengzhou Yutong Bus 'A' 600066 CH CNY 17.73 5,937 Dec 10.8 9.9 3.9 4.7 2.2 1.9 8.2 7.6 21.2 20.6
Haima Automobile Group 'A' 000572 CH CNY 3.12 776 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Great Wall Motor 'A'* 601633 CH CNY 9.13 10,401 Dec 10.5 8.9 2.9 3.4 1.5 1.3 6.7 5.8 14.8 15.6
Guangzhou Automobile Gp. 'A'* 601238 CH CNY 10.34 13,917 Dec 5.2 4.6 5.7 6.5 1.1 0.9 3.1 2.5 22.7 21.9
BYD 'A'* 002594 CH CNY 43.95 17,354 Dec 29.1 21.0 0.5 0.7 2.0 1.9 11.0 9.5 7.2 9.2
A v erage 17.9 14.9 3.1 3.5 1.4 1.3 5.7 5.1 11.3 11.7
US
Ford Motor F US USD 10.85 43,238 Dec 7.0 7.1 6.2 6.0 1.1 1.0 2.2 2.1 18.9 16.0
General Motors GM US USD 39.56 55,749 Dec 6.2 6.1 3.9 4.1 1.4 1.2 3.0 3.1 26.0 22.3
Tesla TSLA US USD 310.1 52,653 Dec n.a. 115.1 0.0 0.0 10.8 10.0 46.9 18.5 (16.9) (2.0)
A v erage 6.6 42.8 3.3 3.4 4.5 4.1 17.4 7.9 9.3 12.1
Korea
Kia Motors 000270 KS KRW 32150 11,983 Dec 7.3 6.0 3.1 3.5 0.5 0.4 3.4 3.0 6.4 7.2
Hyundai Motor 005380 KS KRW 126500 33,204 Dec 8.4 7.0 3.4 3.8 0.5 0.5 8.6 7.9 5.5 6.3
A v erage 7.8 6.5 3.3 3.6 0.5 0.5 6.0 5.5 5.9 6.8
J apan
Toyota Motor# 7203 JP JPY 7320 212,124 Mar 9.4 8.9 3.1 3.3 1.1 1.0 4.6 4.4 11.6 11.4
Honda Motor# 7267 JP JPY 3296 53,024 Mar 8.3 7.7 3.5 3.8 0.7 0.6 5.6 5.0 8.7 9.0
Nissan Motor# 7201 JP JPY 1032 38,684 Mar 7.3 6.7 5.5 5.7 0.7 0.7 2.0 1.9 9.8 9.9
Suzuki Motor# 7269 JP JPY 6389 27,861 Mar 12.4 11.5 1.2 1.4 1.9 1.7 3.6 3.3 16.1 15.1
Mitsubishi Motors# 7211 JP JPY 892 11,806 Mar 11.9 10.3 2.3 2.7 1.5 1.4 3.9 3.2 13.5 13.9
A v erage 9.9 9.0 3.1 3.4 1.2 1.1 3.9 3.6 11.9 11.9
Europe
Bmw BMW GR EUR 79.4 61,747 Dec 6.9 6.7 5.1 5.3 0.9 0.8 2.4 2.2 13.6 13.1
Volkswagen VOW GR EUR 141 83,589 Dec 5.2 4.9 4.2 5.0 0.6 0.6 1.8 1.8 11.5 11.9
Saab 'B' SAABB SS SEK 376.3 4,621 Dec 22.8 18.0 1.6 1.8 2.6 2.4 12.2 10.2 11.9 14.0
Peugeot UG FP EUR 20.95 22,417 Dec 7.6 6.7 3.2 3.7 1.2 1.0 1.8 1.6 15.7 15.7
Porsche Aml.Hldg.Pref. PAH3 GR EUR 54.1 19,593 Dec 4.1 3.8 4.6 5.6 0.5 0.4 278.1 287.7 12.0 11.9
Daimler DAI GR EUR 57.15 72,305 Dec 6.3 6.1 6.3 6.4 0.9 0.8 2.7 2.6 15.9 15.3
Fiat Chrysler Autos. FCA IM EUR 16.534 30,300 Dec 4.9 4.7 2.0 2.4 1.0 0.8 2.1 2.0 20.6 18.8
Audi NSU GR EUR 730 37,122 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Renault RNO FP EUR 73.64 25,753 Dec 4.7 4.5 5.2 5.6 0.6 0.6 0.7 0.7 13.4 13.0
Ferrari RACE IM USD 120.6 22,788 Dec 32.6 29.4 0.8 1.0 16.5 12.0 21.3 19.4 61.0 46.3
Volvo 'B' VOLVB SS SEK 148.65 35,592 Dec 11.9 11.4 3.4 3.5 2.4 2.2 5.6 5.5 22.5 20.8
Astra International ASII IJ IDR 6700 20,064 Dec 12.9 11.9 3.4 3.9 2.0 1.8 9.9 9.1 16.2 16.2
A v erage 10.9 9.8 3.6 4.0 2.7 2.1 30.8 31.2 19.5 17.9
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 36
Auto parts peer valuation
# FY18: FY19; FY19: FY20 Source: Thomson Reuters, *DBS HK
Mkt PE PE Yield Y ield P/Bk P/Bk EV /EBITDA ROE ROE
Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F
Company Name Code Currency US$m Yr x x % % x x x x % %
Hong Kong
Changan Minsheng Apll Logistics 'H' 1292 HK HKD 92 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
China F irst Capital Gp. 1269 HK HKD 2,829 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Fortunet E-Commerce Gp. 1039 HK HKD 174 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Fuyao Glass Industry Gp. Co.'H' 3606 HK HKD 8,781 Dec 16.2 13.8 3.7 4.3 2.8 2.6 11.2 9.6 18.4 19.7
Huazhong In-Vehicle Hdg. 6830 HK HKD 317 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Launch Tech 'H' 2488 HK HKD 431 Dec 13.5 12.0 n.a. n.a. 2.2 2.2 n.a. n.a. 16.2 18.0
Minth Group 425 HK HKD 4,726 Dec 13.1 11.0 3.2 3.8 2.2 1.9 8.8 7.3 18.4 19.5
Nexteer Automotive Group* 1316 HK HKD 3,698 Dec 10.5 9.4 1.9 2.1 2.2 1.8 4.6 4.1 22.7 21.3
Perennial Intl.* 725 HK HKD 35 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0
Shougang Concord Century Holdings 103 HK HKD 46 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Weichai Power 'H' 2338 HK HKD 9,719 Dec 9.5 9.3 5.0 5.1 1.5 1.4 4.3 4.2 18.1 16.2
Wuling Motors Holdings 305 HK HKD 119 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Xinchen China Power Holdings 1148 HK HKD 125 Dec 4.0 3.2 0.0 0.0 0.3 0.2 n.a. n.a. 6.4 7.8
Xingda Intl.Holdings* 1899 HK HKD 425 Dec n.a. n.a. 0.0 0.0 n.a. n.a. 0.0 0.0 0.0 0.0
Xinyi Glass Holdings 868 HK HKD 4,423 Dec 7.6 6.8 6.4 7.0 1.7 1.5 8.2 7.4 22.9 22.3
A v erage 10.6 9.4 2.5 2.8 1.8 1.7 5.3 4.7 13.7 13.9
China
Anhui Quanchai Engine 'A' 600218 CH CNY 278 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Aecc Aero Engine Control 'A' 000738 CH CNY 2,646 Dec 70.7 59.2 0.2 0.2 3.0 2.9 n.a. n.a. 4.3 4.3
Beijing Wkw Autv.Pas.'A' 002662 CH CNY 1,044 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Changchai 'B' 200570 CH HKD 206 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Fangda Special Stl.Tech. 'A' 600507 CH CNY 2,504 Dec 5.9 5.6 4.5 6.3 2.3 1.8 n.a. n.a. 38.3 31.9
China Shipbldg.Ind.Gp. Pwr.'A' 600482 CH CNY 4,844 Dec 23.0 18.1 1.3 1.6 1.2 1.1 n.a. n.a. 5.0 5.9
Fuyao Glss.Ind.Group 'A' 600660 CH CNY 9,520 Dec 17.9 15.1 3.3 4.1 3.1 2.8 11.7 10.1 18.1 19.2
Guizhou Guihang Autv. Components 'A' 600523 CH CNY 512 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Harbin Dongan Auto Enn. 'A' 600178 CH CNY 342 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Huayu Automotive Sys.'A' 600741 CH CNY 10,871 Dec 9.0 8.9 5.5 5.7 1.6 1.4 5.0 4.6 17.9 15.9
Shai.J ialeng Songzhi Autmb.Aircondition 'A' 002454 CH CNY 516 Dec 6.5 5.8 n.a. n.a. 0.9 0.8 n.a. n.a. 11.8 11.7
J iangnan Mould & Plastic Tech. 'A' 000700 CH CNY 452 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
J iangsu Pac.Precn.Frgg. 'A' 300258 CH CNY 826 Dec 17.2 13.5 0.9 1.1 2.8 2.4 10.8 8.8 16.8 18.0
Kunming Yunnei Pwr. 'A' 000903 CH CNY 748 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Liaoning Sg Autv.Gp. 'A' 600303 CH CNY 513 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Lingyun Industrial 'A' 600480 CH CNY 619 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Ningbo Huaxiang Elt.'A' 002048 CH CNY 1,149 Dec 10.0 7.9 0.8 1.0 0.9 0.7 4.8 4.3 10.4 11.1
Shai.Aeros.Autos.Elec. 'A' 600151 CH CNY 861 Dec 44.1 28.4 n.a. n.a. 1.0 0.9 n.a. n.a. 2.0 3.0
Shanghai J iao Yun Group 'A' 600676 CH CNY 775 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Shenyang J inbei Autv.'A' 600609 CH CNY 778 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Sic.Chengfei Intg.Tech. 'A' 002190 CH CNY 973 Dec n.a. n.a. n.a. n.a. 4.0 4.6 73.9 (245.6) (8.9) (11.6)
Sichuan Haowu Erml.'A' 000757 CH CNY 399 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Steyr Motors 'A' 000760 CH CNY 335 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Wanxiang Qiangchao 'A' 000559 CH CNY 2,831 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Weifu High Tech.Gp.'B' 200581 CH HKD 2,228 Dec 5.5 5.1 8.6 9.2 0.9 0.8 3.6 3.4 17.2 n.a.
Xuchang Ynd.Drive Shaft 'A' 002406 CH CNY 490 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Zhejiang Wanliyang Tnsm. 'A' 002434 CH CNY 1,833 Dec 16.0 11.7 1.7 2.1 1.8 1.6 8.1 6.3 11.8 14.2
Chongqing Zongshen Pwr. Machinery 'A' 001696 CH CNY 810 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Weifu High Tech.Gp.'A' 000581 CH CNY 3,357 Dec 8.2 8.1 5.1 4.9 1.3 1.2 5.2 4.8 16.6 15.8
Zhejiang Yinlun Mch.'A' 002126 CH CNY 1,089 Dec 17.9 14.2 0.7 0.8 1.9 1.6 10.7 8.5 10.8 11.6
Changzhou Xingyu Autv. Ltg.'A' 601799 CH CNY 2,374 Dec 25.9 19.6 1.4 1.8 3.5 3.0 16.8 13.1 13.5 15.4
Zhejiang Asia-Pacific Mech.& Elect 'A' 002284 CH CNY 643 Dec 41.1 30.3 2.3 3.0 1.5 1.5 17.2 14.4 3.7 4.8
A v erage 21.3 16.8 2.8 3.2 2.0 1.8 15.3 (15.2) 11.8 11.4
US
China Autv.Sys. CAAS US USD 129 Dec 5.9 4.6 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
China Yuchai Intl. CYD US USD 816 Dec 6.4 5.6 7.0 7.7 0.6 0.5 0.2 0.2 13.2 13.8
Sorl Auto Parts SORL US USD 91 Dec 3.3 3.1 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
5.2 4.4 7.0 7.7 0.6 0.5 0.2 0.2 13.2 13.8
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 37
Auto batteries peer valuation
# FY18: FY19; FY19: FY20 Source: Thomson Reuters
Mkt PE PE Yield Yield P/Bk P/Bk EV /EBITDA ROE ROE
Price Cap F iscal 18F 19F 18F 19F 18F 19F 18F 19F 18F 19F
Company Name Code Currency Local$ US$m Yr x x % % x x x x % %
Contemporary Amperex 300750 CH CNY 83.9 27,566 Dec 55.1 40.7 0.1 0.1 5.8 5.1 26.5 20.1 11.0 12.9
Guoxuan High-Tech Co Ltd 002074 CH CNY 13.64 2,345 Dec 14.3 12.2 0.9 1.2 1.9 1.7 11.8 9.7 13.6 13.8
Sic.Chengfei Intg 002190 CH CNY 17.93 973 Dec n.a. n.a. n.a. n.a. 4.0 4.6 73.9 (245.6) (8.9) (11.6)
Shaanxi J&R F ire Protc 300116 CH CNY 2.18 802 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Panasonic# 6752 JP JPY 1427.5 31,099 Mar 13.0 11.5 2.4 2.6 1.8 1.6 4.5 4.1 14.0 14.4
CBAK Energy CBAK US USD 0.9141 24 Dec n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 38
BYD (1211 HK) PE chart
BYD (1211 HK) PB chart
Minth (425 HK) PE chart
Minth (425 HK) PB chart
Nexteer (1316 HK) PE chart
Nexteer (1316 HK) PB chart
Source: Thomson Reuters, DBS HK
0
5
10
15
20
25
30
35
40
45
50
Nov-
15
Jul-16
Feb-1
7
Sep-1
7
May-
18
Dec
-18
x
Avg: 28.4x
+1SD: 35x
-1SD: 21.8x
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Nov-
15
Jul-16
Feb-1
7
Sep-1
7
May-
18
Dec
-18
x
Avg: 2.1x
+1SD: 2.5x
-1SD: 1.7x
0
5
10
15
20
25
30
Dec
-05
Jul-08
Feb-1
1
Oct
-13
May-
16
Dec
-18
x
Avg: 11.6x
+1SD: 15.4x
-1SD: 7.8x
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Dec
-05
Jul-08
Feb-1
1
Oct
-13
May-
16
Dec
-18
x
Avg: 1.7x
+1SD: 2.3x
-1SD: 1.1x
4
6
8
10
12
14
16
18
20
Oct
-13
Aug-1
4
Jul-15
May-
16
Apr-
17
Feb-1
8
Dec
-18
x
Avg: 10.2x
+1SD: 12.4x
-1SD: 8x
+2SD: 14.6x
-2SD: 5.8x
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Oct
-13
Aug-1
4
Jul-15
May-
16
Apr-
17
Feb-1
8
Dec
-18
x
Avg: 2.5x
+1SD: 2.9x
-1SD: 2x
+2SD: 3.3x
-2SD: 1.6x
Asian Insights SparX Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 39
STOCK PROFILES
Page 40
ed- CK/ sa- CS / AH
H: BUY Last Traded Price (H) ( 16 Jul 2018): HK$45.30 (HSI : 28,481) Price Target 12-mth (H): HK$60.00 (32.45% upside) (Prev HK$92.00)
A: HOLD Last Traded Price (A) ( 16 Jul 2018): RMB43.95 (CSI300 : 3,481)
Price Target 12-mth (A): RMB49.00 (11.49% upside) (Prev
RMB74.00)
Potential Catalyst: Earnings recovery from 2H18 on new subsidy impact
Where we differ: Market liberalisation has limited impact as business
scale is large vis-à-vis peers Analyst Rachel MIU +852 2863 8843 [email protected]
Price Relative
Forecasts and Valuation (H Shares) FY Dec (RMB m) 2016A 2017A 2018F 2019F Turnover 100,208 102,651 117,326 127,882 EBITDA 15,843 15,185 16,323 19,144 Pre-tax Profit 6,568 5,621 5,700 7,766 Net Profit 4,836 3,791 4,120 5,701 EPS (RMB) 1.77 1.39 1.51 2.09 EPS (HK$) 2.08 1.63 1.77 2.45 EPS Gth (%) 57.7 (21.6) 8.7 38.4 Diluted EPS (HK$) 2.08 1.63 1.77 2.45 DPS (HK$) 0.64 0.17 0.27 0.37 BV Per Share (HK$) 22.04 23.65 25.36 27.65 PE (X) 21.8 27.8 25.6 18.5 P/Cash Flow (X) (57.1) 16.5 10.0 8.7 P/Free CF (X) (15.8) (98.6) 23.1 17.1 EV/EBITDA (X) 9.1 10.3 9.8 8.4 Net Div Yield (%) 1.4 0.4 0.6 0.8 P/Book Value (X) 2.1 1.9 1.8 1.6 Net Debt/Equity (X) 0.6 0.8 0.8 0.7 ROAE (%) 11.6 7.1 7.2 9.2 Earnings Rev (%): (29) (20) Consensus EPS (RMB) 1.73 2.23 Other Broker Recs: B:14 S:6 H:8
Principal Business: BYD produces and sells gasoline and new energy vehicles, rechargeable batteries and also provides handset components & assembly services Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX
Well positioned in NEV play Strong new energy vehicle (NEV) products stand out amid
keen market competition and industry liberalisation
Latest NEV products that could benefit from higher subsidy
Anticipate better 2H18 earnings
Maintain BUY with TP of HK$60
Expect better 2H18 earnings on new subsidy scheme. The cut in
electric vehicle (EV) subsidy is expected to weigh on BYD’s 1H18
earnings. But its 2H18 performance is expected to benefit from the
new scheme which came into effect in June 2018. The new scheme
rewards companies with strong electric car technology. BYD’s high-end
EV such as the Yuan EV 360, Qin EV 450, Song EV400 have longer
driving range. BYD has the highest NEV penetration rate of c.30%
compared to peers, and boasts one of the highest credit point levels.
These credit points can be monetised in the future when the new EV
dual system takes effect in 2019.
Can withstand NEV market liberalisation. The Chinese government has
scrapped the foreign ownership cap for the electric car market from
2018 and reduced import tariffs from 25% to 15% on foreign cars
(except from the US). BYD electric vehicle sales should cross the
120,000-mark this year and 1H18 sales volume has hit 60% of our
2018 forecast. The remarkable sales volume despite lower subsidy in
1H18 attests to BYD’s strong market position.
Current valuation factored in 1H18 weak earnings. We cut our
FY18/19F earnings for lower margin assumptions. However, a police
investigation related to fraudulent marketing contracts by someone
posed as BYD employee could affect short-term sentiment. Its mid-term
earnings fundamentals remain unchanged. BUY on dips with new TP of
HK$60, pegged to target PE 25x (historical 1SD) on FY19 earnings as it
should better reflect the new subsidy impact.
At A Glance
Issued Capital - H shares (m shs) 915
- Non H shrs (m shs) 1,813
H shs as a % of Total 34
Total Mkt Cap (HK$m/US$m) 142,738 / 17,354
Major Shareholders (%)
Wang (Chuan Fu) 28.3
Lv (Xiang-yang) 13.2
Youngy Investment Holding Group Co., Ltd. 9.0
Xia (Zuo Quan) 5.9
Major H Shareholders (As % of H shares)
Berkshire Hathaway Energy Company 24.6
Himalaya Capital, L.L.C. 8.2
H Shares-Free Float (%) 67.2
3m Avg. Daily Val. (US$m) 42.7
ICB Industry: Consumer Goods / Automobiles & Parts
46
66
86
106
126
146
166
186
206
22.5
32.5
42.5
52.5
62.5
72.5
82.5
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Relative IndexHK$
BYD Company (LHS) Relative HSI INDEX (RHS)
65
85
105
125
145
165
185
205
31.3
41.3
51.3
61.3
71.3
81.3
91.3
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Relative IndexRMB
BYD Co Ltd - A (LHS) Relative HSI INDEX (RHS)
Asian Insights SparX
BYD Company
Bloomberg: 1211 HK EQUITY | 002594 CH Equity | Reuters: 1211.HK | 002594.SZ
Refer to important disclosures at the end of this report
Asian Insights SparX
BYD Company
Page 41
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Turnover 100,208 102,651 117,326 127,882 Net Fixed Assets 42,970 47,831 47,352 46,366 Cost of Goods Sold (81,189) (84,716) (98,821) (106,538) Invts in Assocs & JVs 2,245 3,065 2,807 3,100
Gross Profit 19,018 17,935 18,505 21,343 Other LT Assets 21,502 24,383 26,824 29,022 Other Opng (Exp)/Inc (9,574) (9,379) (9,751) (10,539) Cash & ST Invts 7,694 9,903 10,754 12,409
Operating Profit 9,444 8,556 8,754 10,804 Inventory 17,378 19,873 21,860 24,046 Other Non Opg (Exp)/Inc (629) (464) (469) (448) Debtors 45,733 53,277 57,539 62,717 Associates & JV Inc (600) (225) (258) (207) Other Current Assets 7,549 19,769 21,209 22,809
Net Interest (Exp)/Inc (1,647) (2,247) (2,327) (2,384) Total Assets 145,071 178,099 188,344 200,469 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 32,928 45,649 48,649 51,649
Pre-tax Profit 6,568 5,621 5,700 7,766 Creditors 34,663 39,527 41,504 43,579 Tax (1,088) (704) (855) (1,165) Other Current Liab 10,726 19,821 20,629 21,695 Minority Interest (428) (850) (484) (660) LT Debt 9,339 10,862 10,862 10,862 Preference Dividend (216) (275) (240) (240) Other LT Liabilities 2,005 2,283 2,283 2,283
Net Profit 4,836 3,791 4,120 5,701 Shareholder’s Equity 51,256 55,004 58,980 64,303 Net Profit before Except. 4,836 3,791 4,120 5,701 Minority Interests 4,153 4,953 5,438 6,098
EBITDA 15,843 15,185 16,323 19,144 Total Cap. & Liab. 145,071 178,099 188,344 200,469 Sales Gth (%) 29.1 2.4 14.3 9.0 EBITDA Gth (%) 45.1 (4.2) 7.5 17.3 Non-Cash Wkg. Cap 25,271 33,570 38,475 44,298 Opg Profit Gth (%) 55.3 (9.4) 2.3 23.4 Net Cash/(Debt) (34,573) (46,608) (48,757) (50,102) Net Profit Gth (%) 73.8 (21.6) 8.7 38.4 Effective Tax Rate (%) 16.6 12.5 15.0 15.0 Cash Flow Statement (RMB m) Rates & Ratio
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Pre-Tax Profit 6,568 0 0 0 Gross Margins (%) 19.0 17.5 15.8 16.7 Dep. & Amort. 7,028 0 0 0 Opg Profit Margin (%) 9.4 8.3 7.5 8.4 Tax Paid (1,152) (1,208) (704) (855) Net Profit Margin (%) 4.8 3.7 3.5 4.5 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 11.6 7.1 7.2 9.2 (Pft)/ Loss on disposal of FAs FAFAsiaries/Investments (-/+)
0 0 0 0 ROA (%) 3.7 2.3 2.2 2.9 Chg in Wkg.Cap. (17,331) (7,857) (5,057) (6,132) ROCE (%) 9.0 6.9 6.1 7.0 Other Operating CF 3,041 15,433 16,323 19,144 Div Payout Ratio (%) 30.7 10.1 15.0 15.0
Net Operating CF (1,846) 6,368 10,563 12,157 Net Interest Cover (x) 5.7 3.8 3.8 4.5 Capital Exp.(net) (4,839) (7,436) (6,000) (6,000) Asset Turnover (x) 0.8 0.6 0.6 0.7 Other Invts.(net) 0 0 0 0 Debtors Turn (avg days) 131.9 176.0 172.4 171.6 Invts in Assoc. & JV (927) (1,010) 0 (500) Creditors Turn (avg days) 160.7 174.4 162.9 158.8 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 81.5 87.6 83.9 85.7 Other Investing CF (7,655) (7,271) (3,856) (3,784) Current Ratio (x) 1.0 1.0 1.0 1.0
Net Investing CF (13,421) (15,717) (9,856) (10,284) Quick Ratio (x) 0.7 0.6 0.6 0.6 Div Paid (1,053) (539) (385) (618) Net Debt/Equity (X) 0.6 0.8 0.8 0.7 Chg in Gross Debt 5,128 17,583 3,000 3,000 Capex to Debt (%) 11.4 13.2 10.1 9.6 Capital Issues 14,369 (9) 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF (2,174) (5,868) (2,471) (2,600) N.Cash/(Debt)PS (RMB) (14.87) (20.04) (20.96) (21.54)
Net Financing CF 16,270 11,168 145 (218) Opg CFPS (RMB) 5.68 5.21 5.73 6.70 Currency Adjustments 97 6 0 0 Free CFPS (RMB) (2.45) (0.39) 1.67 2.26 Chg in Cash 1,100 1,825 851 1,655
Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions
FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F
Turnover 43,745 56,462 43,817 58,834 Revenues (RMB m) Cost of Goods Sold (35,223) (45,967) (35,648) (49,068) Batteries & other products 7,103 8,442 9,708 10,873 Gross Profit 8,523 10,495 8,169 9,766 Mobile handset components 38,083 39,708 42,885 46,315 Other Oper. (Exp)/Inc (4,298) (5,276) (4,365) (5,014) Automobile & related prodts 55,022 54,501 64,733 70,693 Operating Profit 4,225 5,219 3,804 4,752 Total 100,208 102,651 117,326 127,882 Other Non Opg (Exp)/Inc (265) (364) (118) (346) Key Assumptions Associates & JV Inc (115) (485) (19) (206) NEV ('000 units) 96 109 126 145 Net Interest (Exp)/Inc (836) (811) (1,017) (1,229) Traditional cars (‘000 units) 394 296 311 326 Exceptional Gain/(Loss) 0 0 0 0 Pre-tax Profit 3,009 3,559 2,650 2,971 Tax (540) (548) (485) (219) Minority Interest (209) (218) (442) (408) Net Profit 2,146 2,690 1,605 2,186 Net profit bef Except. 2,146 2,690 1,605 2,186 Sales Gth (%) 43.7 19.7 0.2 4.2 Opg Profit Gth (%) 154.2 18.1 (10.0) (9.0) Net Profit Gth (%) 359.9 16.1 (25.2) (18.7) Gross Margins (%) 19.5 18.6 18.6 16.6 Opg Profit Margins (%) 9.7 9.2 8.7 8.1 Net Profit Margins (%) 4.9 4.8 3.7 3.7 Source: Company, DBS HK
Page 42
DBSV's discussion of the issuer in this report (Contemporary Amperex Technology (300750 CH)) will not be continuously followed. Accordingly, this report is being provided as a stand-alone analysis and recipients of this report should not expect additional reports relating to this issuer, unless so decided by DBSV.
ed- CK/ sa- CS / AH
NOT RATED
Last Traded Price (16 July 2018):RMB83.90 (CSI300 : 3,472)
Price Target 12-mth: n.a.
Potential Catalyst: Strong execution of NMC battery orders
Where we differ: High valuation is warranted on robust future earnings
outlook, especially following the commissioning of new capacity
Analyst Rachel MIU +852 2863 8843 [email protected]
Price Relative
Forecasts and Valuation
ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: CATL is one of the largest car battery makers in the world, counting blue chip automakers as its customers.
Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX
Leader in global EV battery market Largest global player in EV battery; secured orders from various
blue-chip automakers
Rapid ramp-up of production capacity on industry uptrend,
expectations of strong earnings delivery
Scale efficiency mitigates potential impact from reduction in
Chinese EV subsidies
Status as fastest-growing EV battery company vs peers should
support high valuations
International automakers rushing to secure battery supply.
Contemporary Amperex Tech Co. Ltd (CATL) is the largest EV battery
producer in China (market share of c.27% in FY17). Its lithium nickel
manganese cobalt (Li-NMC) battery, which is currently the mainstream
technology for many EV makers, is a key strength. The rapid rise of the
EV market, coupled with shortage in Li-NMC battery supply, has
enabled CATL to secure orders from international automakers, such as
Volkswagen, Daimler, and BMW. It was reported that BMW has signed
a US$4.7bn contract with CATL recently. In China, the company also
supplies to BJ Electric Car Co, Geely, Jiangling Motor, and Guangzhou
Auto. To meet the growing demand, CATL is increasing its production
capacity in Ningde, Fujian Province, by 40% to 24GWh by 2021, up
from 17GWh in FY17. By then, it will be able to support 300,000 units
of EVs, based on average battery power of 80KWh.
Production efficiency to mitigate EV subsidy cuts in China. As the
production cost of EV battery comes down with higher efficiency, the
benefit should ease the margin pressure due to the cut in EV subsidy in
China, starting from June 2018. We expect gross margin to decline
from 35.8% in FY17 to 31.3% in FY19, yet core net earnings are
projected to grow at a comfortable CAGR of 24% from FY17-19F,
riding on volume expansion. Earnings growth could accelerate on
ramping up of its production capacity.
Valuation. CATL’s valuation is supported by its high earnings growth
ability. Based on FY19PEG, it is trading at 1.2x vs the industry range of
0.4x-1.0x. Given CATL’s strong market presence in the Li-NMC battery
market and huge growth potential (riding on the world’s largest EV
market), we believe its high valuation is well justified.
At A Glance
Issued Capital (m shrs) 2,172
Mkt Cap (RMB$m/US$m) 184,157 / 27,556
Major Shareholders (%)
NB MEISHAN RUITING INV 26.31
Huang Shilin 12.01
NB UNI INNO NEW ENER INV 7.65
Li Ping 5.15
Free Float (%) 48.88
3m Avg. Daily Val. (US$m) Nil
ICB Industry: Consumer Goods / Automobiles & Parts
0
50
100
150
200
250
300
10
30
50
70
90
11-Jun 18-Jun 25-Jun 2-Jul 9-Jul
Contemporary Amperex Techn (LHS)
Relative CSI300 (RHS)
RMB Relative Index
F Y Dec (RMB m) 2015A 2016A 2017A
Turnover 5,703 14,879 19,997EBITDA 1,239 3,997 5,176Pre-tax Profit 1,100 3,400 4,848Net Profit 931 2,852 3,878Net Pft (Pre Ex.) 931 2,852 2,839EPS (RMB) 0.78 1.87 2.01EPS Gth (%) n.a. 141.6 7.2Diluted EPS (RMB) 0.78 1.87 2.01BV Per Share (RMB) 1.25 10.37 13.54PE (X) 108.2 44.8 41.8P/Cash F low (X) 0.6 1.4 1.2P/Free CF (X) 151.5 60.5 70.1EV/EBITDA (X) 81.7 30.5 31.2Net Div Yield (%) - - - P/Book Value (X) 67.2 8.1 6.2Net Debt/Equity (X) 0.2 Cash CashROAE (%) 33.0 18.4
Asian Insights SparX
Contemporary Amperex Technology
Bloomberg: 300750 CH Equity | Reuters: 300750.SZ Refer to important disclosures at the end of this report
Asian Insights SparX
Contemporary Amperex Technology
Page 43
Income Statement (RMB m) Balance Sheet (RMB m)
Cash Flow Statement (RMB m) Rates & Ratio
Segmental Breakdown (RMB m) Interim Income Statement (RMB m)
Source: Company, DBS HK
F Y Dec 2015A 2016A 2017A
Revenue 5,703 14,879 19,997Cost of Goods Sold (3,539) (8,486) (12,836)Gross Prof it 2,164 6,393 7,161Other Opg (Exp)/Inc (1,010) (3,018) (3,997)Operat ing Prof it 1,154 3,375 3,164Other Non Opg (Exp)/Inc 65 84 1,776Associates & JV Inc (10) 22 (50)Net Interest (Exp)/Inc (109) (80) (42)Exceptional Gain/(Loss) - - - Pre- tax Prof it 1,100 3,400 4,848Tax (149) (482) (654)Minority Interest (20) (67) (316)Preference Div idend - - - Net Prof it 931 2,852 3,878Net Profit before Except. 931 2,852 2,839EBITDA 1,239 3,997 5,176Revenue Gth (%) - 160.9 34.4EBITDA Gth (%) - 222.7 29.5Opg Profit Gth (%) - 192.5 (6.2)Effective Tax Rate (%) 13.6 14.2 13.5
F Y Dec 2015A 2016A 2017A
Net F ixed Assets 2,391 5,676 12,703Invts in Assocs & JVs - 170 791Other LT Assets 777 982 3,136Cash & ST Invts 1,293 2,457 14,081Inventory 1,042 1,360 3,418Debtors 2,816 7,886 12,377Other Current Assets 354 10,059 3,158Total A sset s 8,673 28,588 49,663
ST Debt 577 1,227 2,245Creditors 2,514 7,567 13,791Other Current Liab 2,259 1,389 1,854LT Debt - 302 2,129Other LT Liabilities 1,825 2,312 3,173Shareholder's Equity 1,254 15,489 24,701Minority Interests 245 302 1,770Total Cap. & L iab. 8,673 28,588 49,663
Non-Cash Wkg. Cap 371 5,326 10,507 Net Cash/(Debt) (216) 5,950 2,505
F Y Dec 2015A 2016A 2017A
Pre-Tax Profit 1,100 3,400 4,848 Dep. & Amort. 192 784 1,383 Tax Paid (475) (1,560) (1,493) Assoc. & JV Inc/(loss) 10 (22) 50 (Pft)/ Loss on disposal of FAs - - - Non-Cash Wkg. Cap. 1,433 (10,905) 6,867 Other Operating CF (1,568) 10,464 (9,211) Net Operat ing CF 693 2,162 2,444Capital Exp. (net) (1,554) (2,801) (7,180) Other Invts. (net) (176) (9,705) (1,666) Invts. in Assoc. & JV - - - Div from Assoc. & JV - - - Other Investing CF 1,089 62 759 Net Inv est ing CF (641) (12,443) (8,087)Div Paid (69) (54) (82) Chg in Gross Debt 202 993 3,055 Capital Issues 151 11,132 6,179 Other F inancing CF 157 (1,100) (219) Net F inancing CF 440 10,971 8,933Chg in Cash 491 690 3,290
F Y Dec 2015A 2016A 2017A
Gross Margin (%) 37.9 43.0 35.8Opg Profit Margin (%) 20.2 22.7 15.8Net Profit Margin (%) 16.3 19.2 19.4ROAE (%) 101.5 33.0 18.4ROA (%) 10.7 10.0 7.8ROCE (%) 28.0 15.5 12.2Div Payout Ratio (%) - - -Interest Cover (x) 9.6 39.9 89.9Asset Turnover (x) 0.7 0.8 0.5Debtors Turn (days) 153.2 179.5 126.3Creditors Turn (days) 151.9 136.5 141.6Inventory Turn (days) 107.4 58.5 97.2Current Ratio (x) 1.0 2.1 1.8Quick Ratio (x) 0.8 1.0 1.5Net Debt/Equity (X) Net cash Net cash Net cashCapex to Debt (%) 120.2 114.0 51.0N. Cash/(Debt)PS (RMB) 0.60 0.61 4.96Opg CFPS (RMB) 0.58 1.42 1.25Free CFPS (RMB) (0.74) (0.45) (2.48)
F Y Dec 2015A 2016A 2017A
Rev enuesMain Business 5,661 14,626 19,144 Power Battery System 4,981 13,976 16,657 Lithium Battery Materials 591 611 2,471 Energy Storage System 89 39 16Other Business 42 253 853 Disposal and Material Sales 32 182 397 Technology License 10 70 76 R&D Serv ice 365 Other 0 1 15Total 5,703 14,879 19,997
F Y Dec 1H17 2H17
Revenue 6,295 13,702Cost of Goods Sold (3,959) (8,877)Gross Prof it 2,336 4,825Other Oper. (Exp)/Inc (1,477) (2,520)Operat ing Prof it 859 2,305Other Non Opg (Exp)/Inc 1,535 241Associates & JV Inc (13) (37)Net Interest (Exp)/Inc (48) 6Exceptional Gain/(Loss) - -Pre- tax Prof it 2,333 2,515Tax (312) (342)Minority Interest (164) (152)Net Prof it 1,857 2,021Net profit bef Except. 818 2,021
GrowthRevenue Gth (%) na naOpg Profit Gth (%) na naNet Profit Gth (%) na na
Margins & Rat ioGross Margins (%) 37.1 35.2Opg Profit Margins (%) 13.6 16.8Net Profit Margins (%) 29.5 14.7
Page 44
ed- CK/ sa- CS / AH
BUY Last Traded Price (16 Jul 2018):HK$32.25 (HSI : 28,540)
Price Target 12-mth: HK$39.80 (23.41% upside)
Potential Catalyst: Winning new orders to support earnings growth
Where we differ: Diversification strategy to mitigate potential trade
policy impact Analyst Rachel MIU +852 2863 8843 [email protected]
Price Relative
Forecasts and Valuation FY Dec (RMB m) 2016A 2017A 2018F 2019F Turnover 9,400 11,384 13,289 15,761 EBITDA 2,532 3,002 3,488 4,170 Pre-tax Profit 2,119 2,488 2,926 3,506 Net Profit 1,719 2,025 2,377 2,848 EPS (RMB) 1.54 1.78 2.09 2.51 EPS (HK$) 1.80 2.09 2.45 2.94 EPS Gth (%) 33.4 16.0 17.3 19.8 Diluted EPS (HK$) 1.78 2.07 2.42 2.90 DPS (HK$) 0.74 0.87 1.02 1.22 BV Per Share (HK$) 11.38 13.01 14.69 16.73 PE (X) 17.9 15.4 13.1 11.0 P/Cash Flow (X) 17.9 16.7 12.0 10.0 P/Free CF (X) 52.2 (233.5) 52.6 23.4 EV/EBITDA (X) 11.7 10.1 8.8 7.3 Net Div Yield (%) 2.3 2.7 3.2 3.8 P/Book Value (X) 2.8 2.5 2.2 1.9 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 17.4 17.8 18.4 19.5 Earnings Rev (%): (11) (10) Consensus EPS (RMB) 2.06 2.52 Other Broker Recs: B:19 S:0 H:3
ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: A major automotive producer of exterior car body parts, including trims, body structural parts, decorative parts and car seat frames Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX
Moving in the EV direction EV-related automotive parts business gaining traction
Market and customer diversification mitigate the US-China
trade tension impact
Market volatility should provide accumulation
opportunities; Maintain BUY with TP of HK$39.80
Electric control systems and lightweight parts business
targeting the EV industry. With the growing demand for
lightweight automotive parts, Minth’s aluminium parts business
is getting good order sizes and we expect this success to be
replicated for its electric control systems as well, given the
global EV market is accelerating rapidly. Aluminium automotive
parts account for around 35% of the total Rmb90bn+ backlog
on hand. Margin expansion is possible as economies of scale
kicks in.
Recent trade policy creates some uncertainty, but exposure is
within control. The exposure to the US-China trade and Trump
factor is around 9-10% of Minth’s revenue. Its market and
customer diversification strategy helps to mitigate some
potential risk. Minth is working more with the European
automakers (which accounts for 20-25% of total revenue) to
increase their penetration rate. Any share price corrections
arising from trade uncertainties should present an accumulation
popportunity.
Margin improvement post initial start-up. Minth suffered some
margin compression on the back of higher costs in 2017 (from
raw materials and automation of production processes). We
expect the cost pressure to ease in 2018. For prudent reasons,
we have tweaked our FY18/19F earnings. Its FY17-19F earnings
CAGR of around 20% makes the stock attractive, based on
uncompleted orders of Rmb90bn+. We maintain our BUY call
and TP of HK$39.80, based on 16x FY18 PE. Its strong cash
generation ability implies a generous dividend payout is
possible. Minth has maintained a dividend payout of 40% for
the past seven years.
At A Glance
Issued Capital (m shrs) 1,145
Mkt Cap (HK$m/US$m) 36,079 / 4,726
Major Shareholders (%)
Chin (Jong Hwa) 39.3
First State Investments (HK) Ltd. 7.1
Matthews Int’l Capital Management, L.L.C. 7.1
Free Float (%) 46.5
3m Avg. Daily Val. (US$m) 15.7
ICB Industry: Consumer Goods / Automobiles & Parts
82
132
182
232
282
11.0
16.0
21.0
26.0
31.0
36.0
41.0
46.0
51.0
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Relative IndexHK$
Minth Group (LHS) Relative HSI (RHS)
Asian Insights SparX
Minth Group
Bloomberg: 425 HK EQUITY | Reuters: 0425.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Minth Group
Page 45
Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Turnover 9,400 11,384 13,289 15,761 Net Fixed Assets 4,957 6,246 7,747 8,965 Cost of Goods Sold (6,150) (7,535) (8,744) (10,292) Invts in Assocs & JVs 298 461 492 524
Gross Profit 3,250 3,849 4,545 5,469 Other LT Assets 932 1,345 1,481 1,616 Other Opng (Exp)/Inc (1,179) (1,385) (1,601) (1,927) Cash & ST Invts 2,940 3,850 3,435 3,600
Operating Profit 2,071 2,464 2,943 3,542 Inventory 1,569 2,078 2,286 2,514 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 3,438 4,017 4,623 5,324 Associates & JV Inc 45 30 31 32 Other Current Assets 917 113 113 113
Net Interest (Exp)/Inc 2 (6) (49) (67) Total Assets 15,051 18,109 20,175 22,654 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 1,446 2,494 2,494 2,494
Pre-tax Profit 2,119 2,488 2,926 3,506 Creditors 2,529 2,890 3,236 3,628 Tax (339) (396) (468) (561) Other Current Liab 128 159 232 324 Minority Interest (60) (67) (81) (97) LT Debt 0 0 0 0 Preference Dividend 0 0 0 0 Other LT Liabilities 92 168 168 168
Net Profit 1,719 2,025 2,377 2,848 Shareholder’s Equity 10,598 12,113 13,680 15,577 Net Profit before Except. 1,719 2,025 2,377 2,848 Minority Interests 258 285 366 463
EBITDA 2,532 3,002 3,488 4,170 Total Cap. & Liab. 15,051 18,109 20,175 22,654 Sales Gth (%) 22.8 21.1 16.7 18.6 EBITDA Gth (%) 38.0 18.5 16.2 19.5 Non-Cash Wkg. Cap 3,267 3,159 3,553 3,998 Opg Profit Gth (%) 43.4 19.0 19.5 20.3 Net Cash/(Debt) 1,494 1,356 942 1,107 Net Profit Gth (%) 35.2 17.8 17.3 19.8 Effective Tax Rate (%) 16.0 15.9 16.0 16.0 Cash Flow Statement (RMB m) Rates & Ratio
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Pre-Tax Profit 2,119 2,488 2,926 3,506 Gross Margins (%) 34.6 33.8 34.2 34.7 Dep. & Amort. 416 507 514 597 Opg Profit Margin (%) 22.0 21.6 22.1 22.5 Tax Paid (294) (403) (396) (468) Net Profit Margin (%) 18.3 17.8 17.9 18.1 Assoc. & JV Inc/(loss) (45) (30) (31) (32) ROAE (%) 17.4 17.8 18.4 19.5 (Pft)/ Loss on disposal of FAs FAFAsiaries/Investments (-/+)
0 0 0 0 ROA (%) 12.2 12.2 12.4 13.3 Chg in Wkg.Cap. (462) (529) (467) (537) ROCE (%) 14.6 15.1 15.6 16.8 Other Operating CF 49 67 0 0 Div Payout Ratio (%) 40.0 40.0 40.0 40.0
Net Operating CF 1,723 1,875 2,594 3,133 Net Interest Cover (x) NM 405.9 60.6 52.8 Capital Exp.(net) (1,133) (2,009) (2,000) (1,800) Asset Turnover (x) 0.7 0.7 0.7 0.7 Other Invts.(net) 80 57 0 0 Debtors Turn (avg days) 116.8 119.5 118.7 115.2 Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 131.1 140.7 135.8 129.2 Div from Assoc & JV 11 14 0 0 Inventory Turn (avg days) 88.0 94.7 96.8 90.3 Other Investing CF 566 510 (86) (92) Current Ratio (x) 2.2 1.8 1.8 1.8
Net Investing CF (477) (1,428) (2,086) (1,892) Quick Ratio (x) 1.6 1.4 1.4 1.4 Div Paid (520) (676) (810) (951) Net Debt/Equity (X) CASH CASH CASH CASH Chg in Gross Debt (558) 1,194 0 0 Capex to Debt (%) 78.4 80.6 80.2 72.2 Capital Issues 236 135 0 0 Z-Score (X) 6.9 6.6 6.6 6.4 Other Financing CF (84) (138) (112) (125) N.Cash/(Debt)PS (RMB) 1.60 1.46 1.01 1.19
Net Financing CF (927) 515 (922) (1,075) Opg CFPS (RMB) 1.95 2.12 2.69 3.23 Currency Adjustments (147) (52) 0 0 Free CFPS (RMB) 0.53 (0.12) 0.52 1.17 Chg in Cash 173 910 (414) 165
Interim Income Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions
FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F
Turnover 4,196 5,204 5,266 6,119 Revenues (RMB m) Cost of Goods Sold (2,753) (3,397) (3,487) (4,048) Trims 3,196 3,734 4,294 5,153 Gross Profit 1,443 1,807 1,778 2,071 Decorative parts 2,905 3,450 3,967 4,522 Other Oper. (Exp)/Inc (492) (687) (534) (852) Body structural parts 2,096 2,334 2,614 3,084 Operating Profit 951 1,120 1,245 1,219 Car seat frame 160 262 327 393 Other Non Opg (Exp)/Inc 0 0 0 0 Others 658 820 1,066 1,332 Associates & JV Inc 21 24 17 14 Total 9,400 11,384 13,289 15,761 Net Interest (Exp)/Inc 14 (11) 4 (10) Key Assumptions Exceptional Gain/(Loss) 0 0 0 0 New contract 4,400.0 5,000.0 5,500.0 5,775.0 Pre-tax Profit 986 1,133 1,265 1,223 GP margin 34.6 33.8 34.2 34.7 Tax (145) (194) (180) (215) Minority Interest (28) (32) (31) (36) Net Profit 813 906 1,053 972 Net profit bef Except. 813 906 1,053 972 Sales Gth (%) 22.3 23.3 25.5 17.6 Opg Profit Gth (%) 39.8 46.7 30.9 8.9 Net Profit Gth (%) 30.6 39.6 29.6 7.2 Gross Margins (%) 34.4 34.7 33.8 33.8 Opg Profit Margins (%) 22.7 21.5 23.6 19.9 Net Profit Margins (%) 19.4 17.4 20.0 15.9 Source: Company, DBS HK
Page 46
ed- CK/ sa- CS / AH
BUY Last Traded Price (16 Jul 2018):HK$11.54 (HSI : 28,540)
Price Target 12-mth: HK$15.60 (35.18% upside)
Potential Catalyst: Winning new orders to boost backlogs
Where we differ: Steady increase in new Chinese customer orders
Analyst Rachel MIU +852 2863 8843 [email protected]
Price Relative
Forecasts and Valuation FY Dec (US$ m) 2016A 2017A 2018F 2019F Turnover 3,842 3,878 3,990 4,233 EBITDA 557 584 719 788 Pre-tax Profit 386 405 433 485 Net Profit 295 352 350 393 Net Pft (Pre Ex) (core profit) 295 312 340 393 EPS (US$) 0.12 0.14 0.14 0.16 EPS (HK$) 0.93 1.10 1.10 1.23 Core EPS (HK$) 0.93 0.98 1.07 1.23 Core EPS (US$) 0.12 0.12 0.14 0.16 EPS Gth (%) 43.4 19.2 (0.4) 12.1 Core EPS Gth (%) 43.4 6.0 8.8 12.1 Diluted EPS (HK$) 0.93 1.10 1.10 1.23 DPS (HK$) 0.19 0.22 0.22 0.25 BV Per Share (HK$) 3.33 4.40 5.28 6.29 PE (X) 12.5 10.5 10.5 9.4 Core PE (X) 12.5 11.8 10.8 9.4 P/Cash Flow (X) 7.2 5.9 4.9 6.8 P/Free CF (X) 10.7 9.4 7.3 15.2 EV/EBITDA (X) 6.8 6.2 4.6 4.1 Net Div Yield (%) 1.6 1.9 1.9 2.1 P/Book Value (X) 3.5 2.6 2.2 1.8 Net Debt/Equity (X) 0.1 CASH CASH CASH ROAE (%) 31.2 28.6 22.7 21.3 Earnings Rev (%): Nil Nil Consensus EPS (US$) 0.88 0.99 Other Broker Recs: B:17 S:3 H:1
ICB Industry: Consumer Goods ICB Sector: Automobiles & Parts Principal Business: A leading steering systems producer with international automakers as its customers
Source of all data on this page: Company, DBS HK, Thomson Reuters, HKEX
Penetrating deeper into China Growing presence in China offers more EV business
opportunities
Anticipate 2H18 new orders to rise
Trade tension has limited impact on earnings, as
production is localised
Maintain BUY with HK$15.60 TP
Wider application of electric power steering systems in EVs.
China has the largest EV market and Nexteer’s growing
presence could translate into more EV business opportunities.
Nexteer is stepping up its involvements with Chinese
automakers, such as BYD and Guangzhou Auto. For instance,
BYD is one of the largest EV players in China and this could
lead to more EV business opportunities, acting as a new growth
driver for Nexteer. Currently, the Chinese market accounts for
about 20% of its total revenue and there is upside potential.
New orders from China on the plate; trade policy impact is
limited. Nexteer is negotiating for more business opportunities
in China, which could help lift its order backlog in 2H18. Also,
as Nexteer’s production is highly localised, any trade war
between the US and China is expected to have a limited impact
on earnings. With regard to NAFTA, the outcome is still
uncertain, though this segment accounts for about 20% of
Nexteer’s revenue. But the real impact should be smaller as only
a small portion of its products are shipped back from Mexico to
the US.
Electric-autonomous steering system a long-term strategy; mid-
term earnings from strong contract flows. The successful
implementation of such new products can boost Nexteer’s
long-term development. Based on the new contract flows, it is
expected to post strong earnings growth of 15-20% from FY19
onwards, largely coming from the execution of contracts
secured in FY16. At end-1Q18, the backlog on hand was
US$24bn. We maintain our BUY call with an unchanged TP of
HK$15.60, pegged to 14x FY18PE.
At A Glance
Issued Capital (m shrs) 2,505
Mkt. Cap (HK$m/US$m) 28,909 / 3,698
Major Shareholders
Aviation Industry Corporation of China (%) 67.1
Free Float (%) 32.9
3m Avg. Daily Val. (US$m) 7.1
ICB Industry: Consumer Goods / Automobiles & Parts
82
132
182
232
282
4.9
6.9
8.9
10.9
12.9
14.9
16.9
18.9
20.9
Jul-14 Jul-15 Jul-16 Jul-17 Jul-18
Relative IndexHK$
Nexteer Automotive Group (LHS) Relative HSI (RHS)
Asian Insights SparX
Nexteer Automotive Group
Bloomberg: 1316 HK Equity | Reuters: 1316.HK Refer to important disclosures at the end of this report
Asian Insights SparX
Nexteer Automotive Group
Page 47
Income Statement (US$ m) Balance Sheet (US$ m)
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Turnover 3,842 3,878 3,990 4,233 Net Fixed Assets 779 884 962 1,083 Cost of Goods Sold (3,181) (3,204) (3,280) (3,454) Invts in Assocs & JVs 11 11 9 7
Gross Profit 662 674 710 779 Other LT Assets 476 523 512 491 Other Opng (Exp)/Inc (246) (246) (253) (268) Cash & ST Invts 484 601 981 1,094
Operating Profit 415 428 458 511 Inventory 262 241 262 268 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 590 611 592 684 Associates & JV Inc 1 (2) (2) (2) Other Current Assets 92 108 119 130
Net Interest (Exp)/Inc (30) (21) (23) (23) Total Assets 2,693 2,979 3,436 3,757 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 0 0 0 0 ST Debt 75 77 77 77
Pre-tax Profit 386 405 433 485 Creditors 604 582 658 572 Tax (84) (49) (78) (87) Other Current Liab 180 209 256 284 Minority Interest (7) (4) (5) (5) LT Debt 489 414 464 514 Preference Dividend 0 0 0 0 Other LT Liabilities 253 256 256 256
Net Profit 295 352 350 393 Shareholder’s Equity 1,059 1,402 1,682 2,005 Net Profit before Except. 295 352 350 393 Minority Interests 32 38 43 48
EBITDA 557 584 719 788 Total Cap. & Liab. 2,693 2,979 3,436 3,757 Sales Gth (%) 14.3 0.9 2.9 6.1 EBITDA Gth (%) 28.4 5.0 23.0 9.6 Non-Cash Wkg. Cap 158 169 59 225 Opg Profit Gth (%) 32.7 3.1 6.9 11.5 Net Cash/(Debt) (80) 110 439 503 Net Profit Gth (%) 43.5 19.4 (0.4) 12.1 Effective Tax Rate (%) 21.8 12.1 18.0 18.0
Cash Flow Statement (US$ m) Rates & Ratio
FY Dec 2016A 2017A 2018F 2019F FY Dec 2016A 2017A 2018F 2019F
Pre-Tax Profit 386 405 433 485 Gross Margins (%) 17.2 17.4 17.8 18.4 Dep. & Amort. 140 158 263 280 Opg Profit Margin (%) 10.8 11.0 11.5 12.1 Tax Paid (68) (33) (49) (78) Net Profit Margin (%) 7.7 9.1 8.8 9.3 Assoc. & JV Inc/(loss) 0 0 0 0 ROAE (%) 31.2 28.6 22.7 21.3 (Pft)/ Loss on disposal of FAs FAFAsiaries/Investments (-/+)
0 0 0 0 ROA (%) 11.4 12.4 10.9 10.9 Chg in Wkg.Cap. 19 54 81 (175) ROCE (%) 17.9 18.4 15.9 15.4 Other Operating CF 33 41 28 31 Div Payout Ratio (%) 20.0 20.0 20.0 20.0
Net Operating CF 509 625 756 542 Net Interest Cover (x) 13.8 20.1 19.9 21.8 Capital Exp.(net) (165) (234) (250) (300) Asset Turnover (x) 1.5 1.4 1.2 1.2 Other Invts.(net) (1) (2) 0 0 Debtors Turn (avg days) 55.1 56.5 55.0 55.0 Invts in Assoc. & JV 0 0 0 0 Creditors Turn (avg days) 69.8 71.1 75.0 70.7 Div from Assoc & JV 0 0 0 0 Inventory Turn (avg days) 31.0 30.1 30.4 30.5 Other Investing CF (118) (121) (80) (80) Current Ratio (x) 1.7 1.8 2.0 2.3
Net Investing CF (283) (357) (330) (380) Quick Ratio (x) 1.2 1.4 1.6 1.9 Div Paid (40) (60) (70) (70) Net Debt/Equity (X) 0.1 CASH CASH CASH Chg in Gross Debt (118) (111) 24 22 Capex to Debt (%) 29.2 47.7 46.2 50.7 Capital Issues 0 0 0 0 Z-Score (X) N/A N/A N/A N/A Other Financing CF 3 2 0 0 N.Cash/(Debt)PS (US$) (0.25) 0.34 1.38 1.58
Net Financing CF (155) (169) (46) (48) Opg CFPS (US$) 0.20 0.23 0.27 0.29 Currency Adjustments (3) 18 0 0 Free CFPS (US$) 0.14 0.16 0.20 0.10 Chg in Cash 68 116 380 114
Interim Income Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions
FY Dec 1H2016 2H2016 1H2017 2H2017 FY Dec 2016A 2017A 2018F 2019F
Turnover 1,924 1,918 1,974 1,904 Revenues (US$ m) Cost of Goods Sold (1,589) (1,591) (1,603) (1,601) EPS 2,384 2,482 2,454 2,574 Gross Profit 334 327 371 303 HPS 187 177 192 201 Other Oper. (Exp)/Inc (119) (127) (131) (115) Steering column (CIS) 635 637 696 758 Operating Profit 215 200 240 188 Driveline 637 582 648 700 Other Non Opg (Exp)/Inc 0 0 0 0 Others N/A N/A N/A N/A Associates & JV Inc 1 (1) 0 (2) Total 3,842 3,878 3,990 4,233 Net Interest (Exp)/Inc (16) (14) (13) (8) Key Assumptions Exceptional Gain/(Loss) 0 0 0 0 Revenue (US$m) - North
America2,513.6 2,533.9 2,514.0 2,539.5
Pre-tax Profit 201 185 227 178 Europe and South America 429.2 489.6 518.8 634.9 Tax (48) (36) (44) (5) Asia Pacific 899.4 854.5 957.7 1,058.1 Minority Interest (4) (3) (3) (1) Rest of World 0.0 0.0 0.0 0.0 Net Profit 149 146 180 172 Net profit bef Except. 149 146 180 172
Sales Gth (%) 17.1 11.7 2.6 (0.8) Opg Profit Gth (%) 44.3 22.1 11.5 (6.0) Net Profit Gth (%) 54.2 33.9 20.7 18.0 Gross Margins (%) 17.4 17.1 18.8 15.9 Opg Profit Margins (%) 11.2 10.4 12.2 9.9 Net Profit Margins (%) 7.7 7.6 9.1 9.0
Source: Company, DBS HK
Asian Insights SparX
Regional Automobile, Oil & Metal Sectors
ASIAN INSIGHTS
Page 48
DBS Bank Ltd, DBS HK recommendations are based an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return i.e. > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)
Share price appreciation + dividends
Completed Date: 17 Jul 2018 15:08:02 (SGT)
Dissemination Date: 17 Jul 2018 15:50:39 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified
GENERAL DISCLOSURE/DISCLAIMER
This report is prepared by DBS Bank, DBS HK. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and
associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any
means or (ii) redistributed without the prior written consent of DBS Bank.
The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to
DBS Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents
(collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into
account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any
representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are
subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not
have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the
information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate
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(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in
relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS
Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in
this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or
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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there
can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk
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This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned
schedule or frequency for updating research publication relating to any issuer.
The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and
assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on
which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from
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BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:
(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and
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assessments stated therein.
Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.
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Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)
mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to
the commodity referred to in this report.
DBSVUSA, a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst
(s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer
of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of
the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for
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or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has
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research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment
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COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), or their subsidiaries and/or other affiliates have a proprietary
position in the DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have proprietary positions in Guangzhou
Automobile Group Company Limited (2238 HK), Dongfeng Motor Group Company Limited (489 HK), Brilliance China Automotive Holdings
Limited (1114 HK), Great Wall Motor Company Limited (2333 HK), Byd Company Limited (1211 HK) and Geely Automobile Holdings
Limited (175 HK) recommended in this report as of 29 Jun 2018.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.
Compensation for investment banking services:
3. DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past 12 monthsfor investment banking services from Astra International Terbuka (ASII IJ) as of 29 Jun 2018.
4. DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a
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Disclosure of previous investment recommendation produced:
5. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other
investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by
DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
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RESTRICTIONS ON DISTRIBUTION
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Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.
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11. For any query regarding the materials herein, please contact Carol Wu (Reg No. 8283) at [email protected].
12. Indonesia 13. This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia.
14. Malaysia 15. This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from
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connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or
associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and
may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject
companies. They may also have received compensation and/or seek to obtain compensation for broking, investment
banking/corporate advisory and other services from the subject companies.
16.
Wong Ming Tek, Executive Director, ADBSR
17. Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.
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18. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd.
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24. This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor,
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buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular
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DBS Regional Research Offices
HONG KONG DBS Bank (Hong Kong) Limited Contact: Carol Wu 18th Floor Man Yee Building 68 Des Voeux Road Central Central, Hong Kong Tel: 65 6878 8888 Fax: 65 65353 418 e-mail: [email protected] Participant of the Stock Exchange of Hong Kong
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THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand