China's Auto Recovery Is Hitting A Speed Bump - ClaireYuan Director Stephen Chan Associate Director China Manufacturing Team Corporate Ratings ...
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China’s Auto Recovery Is Hitting Claire Yuan Director
Stephen Chan Associate Director
A Speed Bump China Manufacturing Team
Corporate Ratings
Oct. 19, 2021
This report does not constitute a rating actionSupply Chain Disruption Hits Sales
– China's monthly auto production and sales have been declining (year-on-year) since May, off a high base, mainly due to supply chain
disruptions.
– We believe demand remains healthy, as shown by a sales-to-production ratio of over 100%, declining dealer inventories, narrowing
discounts, and surging used car sales.
– With auto-chip shortages continuing, we now anticipate China's light vehicle (LV) sales to grow by 1%-3% in 2021, compared with our prior
assumption of 5%-9% growth, and down from the 9.0% growth seen in the first nine months.
– We expect a 3%-5% growth next year, slightly improved from our prior 2%-4% estimate, on deferred demand and a gradual easing of chip
shortages.
China's LV Sales To Grow Modestly In 2021-2022 Used Car Sales Surging Amid Tight New Car Supply
Used car sales (left scale) New car sales (left scale)
China light vehicle sales (left scale) Year-on-year change (right scale)
Used car sales YoY (right scale) New car sales YoY (right scale)
29 20% 30 45%
28 15%
25 35%
27 10%
20 25%
Units (mil.)
Units (mil.)
26 5%
15 15%
25 0%
-5% 10 5%
24
23 -10% 5 -5%
22 -15% 0 -15%
2015 2016 2017 2018 2019 2020 2021e 2022e 2018 2019 2020 9M 2021
Note: LV--Light vehicles include passenger vehicles and light commercial vehicles. e--Estimate. mil.-- Note: 9M 2021 refers to the first nine months of 2021. mil.--Million. Sources: S&P Global Ratings, China
Million. Sources: S&P Global Ratings, LMC Automotive. Automobile Dealers Association (CADA), China Association of Automobile Manufacturers (CAAM).
2Chip Supply Shortage May Extend Into 2022
– Carmakers have seen chip shortages since late 2020, due to a faster-than-expected recovery in auto consumption, increasing demand for
chips for consumer electronics, geopolitical tension, and extreme weather.
– The pandemic outbreak in Southeast Asia, which is a global hub for chip packaging and testing, has intensified the shortage since June
2021.
– In our view, the chip shortage will linger into 2022 and supply may only normalize in the second half of 2022.
Selected Events Hitting Chip Supply How Chip Shortages Have Affected Chinese Carmakers
Event Affected chip producers Change in
February Storm hit Texas, causing - Samsung Electronics Co. 2021 Sales 2021 Sales Rate of Change in sales from
2021 power disruption - NXP Semiconductors NV target (in '000 target implied completion sales in 9M May-Sept
- Infineon Technologies AG, etc. units) growth, YoY in 9M 2021 2021, YoY 2021, YoY
March Fire at the Naka plant of - Renesas Electronics Corp. (a major chip supplier China FAW
4,000 7.9% 64% (3.0%) (29%)
2021 Renesas Electronics Corp. of Japanese carmakers) Group Co. Ltd.
Geely
April Drought in Taiwan - Micron Technology Inc. Automobile 1,530 15.9% 60% 5.3% (13%)
2021 - Taiwan Semiconductor Manufacturing Co. Ltd. Holdings Ltd.
(TSMC)
- United Microelectronics Corp. Beijing
Automotive N/A N/A N/A (5.2%) (27%)
June Pandemic outbreak in - Intel Corp. Group Co. Ltd.
2021 Southeast Asia - Texas Instruments
- Renesas Electronics Corp. Dongfeng Motor
- STMicroelectronics 3,292 14.8% 61% 4.6% (21%)
Group Co. Ltd.
- Infineon Technologies AG, etc.
Source: S&P Global Ratings, The Wall Street Journal. Note: Beijing Auto did not publish a 2021 sales target. 9M 2021 refers to the first nine months of 2021.
YoY--year-on-year. Source: S&P Global Ratings, China Association of Automobile Manufacturers (CAAM).
3German and Japanese Brands Suffer More
– German and Japanese joint-venture (JV) brands took a greater hit from the chip shortage mainly because:
– Production suspension at Renesas severely affected chip supply to Japanese brands during March-May 2021;
– German brands have higher exposure to mid-to-high end models, which normally require more chips;
– Finished car inventories at carmakers and dealers were initially lower for the JV brands versus the proprietary brands due to good
demand;
– Component procurement for JV brands may be less flexible as compared with proprietary brands.
– Nevertheless, they are likely to regain market share once chip supply normalizes.
German And Japanese Brands Are Losing Market Share Proprietary Brands Are Less Affected By The Chip Shortage
China proprietary German brands Japanese brands U.S. brands Other JV brands Imported & high end brands Proprietary brands
100% 2.6
8% 7% 5% 4%
Dealers' inventory to sales ratio
12% 12% 9% 2.4
90% 10% 8% 9% 10%
11% 2.2
80% 13% 12%
20% 22% 24% 23% 2.0
70% 17% 18%
17% 1.8
60%
(months)
20% 22%
1.6
50% 19% 25% 26% 24%
20% 1.4
40%
1.2
30% 1.0
20% 37% 41% 41% 41% 38% 36% 39% 0.8
10%
May-18
May-19
May-20
May-21
Jul-18
Jul-19
Jul-20
Jul-21
Mar-18
Sep-18
Mar-19
Sep-19
Mar-20
Sep-20
Mar-21
Sep-21
Nov-18
Nov-19
Nov-20
Jan-19
Jan-20
Jan-21
0%
2015 2016 2017 2018 2019 2020 8M 2021*
*8M 2021 refers to the first eight months of 2021. Source: S&P Global Ratings, China Passenger Car *Data in Feb 2020 are not shown as the month was an outliner due to pandemic disruptions. Source: S&P
Association (CPCA). Global Ratings, China Automobile Dealers Association (CADA).
4New Energy Vehicle Market Remains The Bright Spot
– We raise China's NEV annual wholesale volume to 3.0 million–4.2 million units for 2021-2022, from our prior estimate of
2.4 million–3.4 million units.
– Our revised assumption implies year-on-year growth of 35%-125% and an NEV penetration rate of 12%-16%.
– China's NEV sales soared 185% in the first nine months of 2021, due to a low base, improving product offerings and
increasing consumer acceptance.
– NEV penetration rate in terms of light vehicles rose to 12% in the first nine months of 2021 (17% in September), from
5.6% in 2020.
– With strong NEV growth, China's battery installation volume also grew 169% in the first nine months of 2021. We expect
CATL to remain as the leading global NEV battery player. Despite aggressive capacity expansion plans, the company will
remain in net cash in 2021-2022. We expect its rising operating cash flow to cover growing capital spending by 2022. A
proposed RMB58.2 billion share placement provides additional buffer.
5New Energy Vehicle Market Remains The Bright Spot
NEV Sales To Grow Substantially During 2021-2025 Battery Demand Will Remain Solid
NEV Sales (left scale) YoY (right scale) 2020 (left scale) 2021 (left scale) 2021 YoY (right scale)
18 1050%
8,000 140%
16
7,000 900%
120%
14
6,000 750%
100%
12
Gigawatt hours
5,000
In '000 units
80% 10 600%
4,000
60% 8 450%
3,000
6
40% 300%
2,000
4
1,000 20% 150%
2
0 0%
0 0%
2019 2020 2021e 2022e 2023e 2024e 2025e
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
NEV--New energy vehicle. YoY--Year on year. Source: S&P Global Ratings, China Association of YoY--Year on year. Source: S&P Global Ratings, China Industry Technology Innovation Strategic Alliance
Automobile Manufacturers (CAAM). For Electric Vehicle (CAEV).
6Rated Issuers' Credit Strength Is Largely Intact
– The rating outlook on rated carmakers and suppliers has been stabilizing through the year, benefiting from a better demand prospect.
– Higher sales volume, continuous restructuring of nonperforming proprietary brands, and stringent cost control are likely to mitigate rising
raw materials costs and chip shortages, helping them to improve profitability.
– We believe the impact from power shortages will be limited, when chip shortages are currently constraining carmakers’ capacity
utilization, and power supply should gradually increase as the government increases coal supply.
– Key things to monitor: sales momentum, supply chain disruption, margin and leverage trends.
Average Profitability Should Improve When Supply Chains
Rating Outlook On Issuers Is Stabilizing
Normalize
Auto OEMs Issuer credit rating
YoY revneue growth of rated carmarkers (left scale) EBITDA margin (right scale) China FAW Group Co. Ltd. A/Stable/--
8% 11.5% Dongfeng Motor Group Co. Ltd. A/Stable/--
Beijing Automotive Group Co. Ltd. BBB/Stable/--
6% 11.0% BAIC Motor Corp. Ltd. BBB/Stable/--
Geely Automobile Holdings Ltd. BBB-/Negative/--
Zhejiang Geely Holding Group Co. Ltd. BBB-/Negative/--
4% 10.5%
Auto suppliers
2% 10.0% Contemporary Amperex Technology Co. Ltd. BBB+/Stable/--
Johnson Electric Holdings Ltd. BBB/Stable/--
Nexteer Automotive Group Ltd. BBB-/Negative/--
0% 9.5% Yanfeng International
2018 2019 2020 2021e 2022e 2023e BBB-/Stable/--
Automotive Technology Co. Ltd.
e--Estimate. Source: S&P Global Ratings. Source: S&P Global Ratings.
7Related Research
- Coal Crunch Won't Leave China's Power Firms In The Cold, Oct. 5, 2021
- Bulletin: Beijing Automotive Group's Luxury Sales To Stave Off Losses, Sept. 2, 2021
- Bulletin: Yanfeng International Automotive's Higher Sales And Margins To Strengthen Rating Buffer, Sept. 2, 2021
- Bulletin: Contemporary Amperex Technology's Fast Growth To Boost Rating Buffer, Aug. 27, 2021
- Research Update: Dongfeng Motor Group Outlook Revised To Stable On Anticipated Profitability Recovery; 'A' Ratings
Affirmed, Aug. 19, 2021
- Bulletin: Nexteer's Margin Recovery Could Steer Off Course On Supply Chain Stress, Aug. 19, 2021
- Bulletin: Zhejiang Geely's Deleveraging Still Hinges On Equity Raising, Aug. 19, 2021
- The Future Is Increasingly Electric for China's Automakers, Aug. 4, 2021
- High-Flying Battery Makers Have Much To Win And Lose, June 20, 2021
- Credit FAQ: How The Chip Shortage Will Shake Up China's New Energy Vehicle Market, April 29, 2021
8Analytical Contacts
Claire Yuan Stephen Chan
Director Associate Director
(852) 2533-3542 (852) 2532-8088
claire.yuan@spglobal.com stephen.chan@spglobal.com
Chloe Wang Lawrence Lu
Associate Director Senior Director
(852) 2533-3548 (852) 2533-3517
chloe.wang@spglobal.com lawrence.lu@spglobal.com
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