Chinese EV demand expected to remain strong through 2024 end - HSBC

Chinese electric vehicles (EVs) are expected to see strong demand through the end of 2024, although the outlook for the first quarter of 2025 may be challenging, according to HSBC.

October sales data for China, the world’s largest EV market, showed robust growth, with retail sales of EVs surging 55% year-on-year and reaching a penetration rate of 52.9%—up from 46.7% in the same period last year. Overall, the car market also saw strong growth, with total retail sales rising 11% year-on-year in October.

The momentum is expected to continue into the last two months of the year, driven by high seasonality, a steady flow of new model releases, and ongoing policy support, including government subsidies for trade-ins and scrappage programs, analysts at HSBC said in a note.

By November 21, over 2 million subsidy applications had been processed, according to the Ministry of Commerce. As a result, HSBC expects the strong demand to carry through November and December 2024.

Stock recommendations remain positive on leading EV players such as BYD Co (SZ:002594 ) (HK:1211 ), Geely Automobile Holdings Ltd (HK:0175 ), and Xpeng (NYSE:XPEV ) Inc (HK:9868 ), with all three companies holding "Buy" ratings. HSBC also favors Contemporary Amperex Technology Co Ltd Class A (SZ:300750 ) in the battery sector, citing its technological leadership and strong international presence.

“We prefer BYD for its solid margin and volume resilience, supported by its platform refresh and rising exports; Geely on its accelerating EV product cycle and strong sales momentum; and XPEV for its leading autonomous driving (AD) capabilities and continuous ramp-up of new models,” HSBC analysts wrote.

China is also a major market for U.S. EV maker Tesla Inc (NASDAQ:TSLA ), although the firm has been grappling with weakening demand in the country amid heightened competition from local players. Tesla had sparked a price war in EV markets over the past two years, severely denting margins across the sector. Q1 2025 could be challenging

However, HSBC warns that the first quarter of 2025 could be challenging, as demand and pricing typically dip due to seasonal factors. The investment bank also highlighted uncertainty around the potential extension of trade-in subsidies, which could mitigate some of the cyclical decline in the first quarter if extended. Key government meetings in December 2024, including the Central Economic Work Conference, will be pivotal in determining the future of such policies.

In the EV battery sector, HSBC noted signs of consolidation as smaller, less profitable suppliers struggle with pricing pressures. The research highlighted a 2-3% increase in lithium carbonate and lithium iron phosphate (LFP) battery prices over the past month. HSBC believes that this could signal a shift toward more favorable pricing dynamics in 2025, supported by growing demand for batteries in the EU and global energy storage systems.

Source: Investing.com