摩根士丹利-中国-汽车行业-中国汽车与共享汽车：零补贴时代-2019.7.2-30页 (2).pdf

FOUNDATIONMMorgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research.Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures,refer to the Disclosure Section,located at the end of this report.+=Analysts employed by non-U.S.affiliates are not registered with FINRA,may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company,public appearances and trading securities held by a research analyst account.China Autos&Shared MobilityPreparing for Zero Subsidy EraDeep cuts to EV subsidies flag imminent risk to profits.Instead of waiting for falling battery prices,the EV supply chain will need to be proactive on costs and productivity.We study how EV players could enhance profitability and the consequent impact on the whole supply chain.July 2,2019 09:00 PM GMTFOUNDATIONM Contributors MORGAN STANLEY ASIA LIMITED+Tim HsiaoEquity Analyst+852 2848-1982Tim.HMORGAN STANLEY ASIA LIMITED+Shelley Wang,CFAResearch Associate+852 3963-0047Shelley.WMORGAN STANLEY ASIA LIMITED+Frank WanResearch Associate+852 2239-1229Frank.WMORGAN STANLEY ASIA LIMITED+Jack YeungEquity Analyst+852 2239-7843Jack.YMORGAN STANLEY&CO.LLCAdam Jonas,CFAEquity Analyst+1 212 761-1726Adam.JMORGAN STANLEY ASIA LIMITED+Rachel L ZhangEquity Analyst+852 2239-1520Rachel.ZMORGAN STANLEY ASIA LIMITED+Shawn KimEquity Analyst+852 3963-1005Shawn.KMORGAN STANLEY ASIA LIMITED+Jack LuEquity Analyst+852 2848-5044Jack.LMORGAN STANLEY ASIA LIMITED+Eva HouEquity Analyst+852 2848-6964Eva.HMORGAN STANLEY MUFG SECURITIES CO.,LTD.+Shinji KakiuchiEquity Analyst+81 3 6836-5416Shinji.KMORGAN STANLEY MUFG SECURITIES CO.,LTD.+Masahiro OnoEquity Analyst+81 3 6836-8410Masahiro.OMORGAN STANLEY&CO.INTERNATIONAL PLC,SEOUL BRANCH+Young Suk ShinEquity Analyst+82 2 399-4994Young.SMORGAN STANLEY&CO.INTERNATIONAL PLC,SEOUL BRANCH+Ryan KimEquity Analyst+82 2 399-4939Ryan.G.KMORGAN STANLEY&CO.INTERNATIONAL PLC+Charles L WebbEquity Analyst+44 20 7425-0234Charlie.WFOUNDATIONMChina Autos&Shared MobilityPreparing for Zero Subsidy EraDeep cuts to EV subsidies flag imminent risk to profits.Instead of waiting for falling battery prices,the EV supply chain will need to be proactive on costs and productivity.We study how EV players could enhance profitability and the consequent impact on the whole supply chain.Get ready for the zero-subsidy era:The 47-60%cuts to EV subsi-dies,effective from 26 June 2019,serve as a wake-up call,suggesting that full cancellation will come sooner than the market expects.Most OEMs wouldnt make profit by selling EVs without the subsidy support today,and the whole supply chain is subject to cost pressure.EV players dont have the luxury of waiting for battery suppliers to make progress on costs.They need to reconsider their production and operating strategies.2019 will be a bumpy year,but we remain optimistic on the long-term growth trajectory of EVs:Strong pre-buying in 1Q19 ahead of the subsidy cuts will cannibalize demand in 2Q/3Q,but we view this as a transitional hiccup rather than long-term disruption.The Chinese government still has multiple levers to power the EV growth trajec-tory over time,such as relaxation of NEV license plate restrictions,credit scores,and stricter emission standards.We also expect a strong EV model pipeline and OEMs pursuit of volume scale to underpin market expansion.But escalating margin pain is inevitable.The substantial subsidy cuts in 2019 will likely bring major losses to the EV supply chain again,assuming no material price hikes for EV models in view of growing competition from a broad set of EV options.Our study of profit distri-bution suggests that the impact across the supply chain is likely to diverge.Aside from OEMs,which bear the brunt,we expect the bat-tery supply chain and metals to suffer more.and battery prices alone arent enough for EVs to thrive 15-20%cost savings from other optimization initiatives are more crucial than ever:Simply relying on battery cost improvement to offset the subsidy cuts would require current battery prices to drop 40-50%or possibly 4-6 years of effort,which wont meet the immediate need.Therefore,EV makers will need to find ways of alle-viating the impact from subsidy removal in the next 12-18 months.We look for optimization initiatives in EV production,design,and sourcing to bring 15-20%cost savings.Changes to model portfolio mix(e.g.LFP batteries)would be an effective bridging solution.Beneficiaries and vulnerable players within our regional EV supply chain coverage:lGlobal battery(Asia based)and local infrastructure groups should profit from the changes in the subsidy scheme.lGeneral auto parts should stay relatively resilient with a bigger addressable market.lLocal EV OEMs,the battery supply chain,and upstream metals will likely face mounting pricing/margin challenges from subsidy removal.However,we still think bellwethers in sub-categories e.g.,separator/anode and lithium can buck the downturn,with strong support from their substantial lead on the cost curve.Industry ViewChina Autos&Shared Mobility-In-LineFOUNDATIONM4 Contents 5Key Charts6Investment Thesis 9Key Debate#1:Will Subsidy Removal Pull the Plug on EVs in China?11Key Debate#2:Which Players Are More Vulnerable to EV Subsidy Cancellation?16Key Debate#3:Is Battery Cost the Only Element That Defines EV Success?20 Stock Implications22Stock Investment ThesisFOUNDATIONMMORGAN STANLEY RESEARCH5Exhibit 1:We view global battery,general parts,and local infrastructure groups as better positioned amid subsidy cutsMetals Materials Battery General parts OEM Infrastructure Ganfeng Lithium (1772.HK,EW)China Molybdenum(3993.HK,UW)Energy New Materials(002812.SZ,OW)Putailai (603659.SS,OW)Beijing Easpring(300073.SZ,EW)Umicore(UMI.BR,UW)L&F(066970.KS,UW)LG Chem(051910.KS,OW)Samsung SDI(006400.KS,OW)Panasonic(6752.T,OW)Guoxuan High-Tech(002074.SZ,EW)CATL(300750.SZ,EW)Huayu Auto(600741.SS,OW)Xingyu Auto(601799.SS,OW)Aisin Seiki(7259.T,OW)Denso(6902.T,EW)BYD(1211.HK,UW)NARI Tech(600406.SS,OW)Vulnerable Neutral Resilient Sensitivity to subsidy cuts:Source:Morgan Stanley ResearchKey ChartsExhibit 2:Profit distribution:OEMs and battery cell makers take larger profit in 2018 thus have more room to be squeezed35-40%30-35%15-20%10-15%BatteryOEMGeneral partsMetalsOthersSource:Company data,Morgan Stanley Research estimatesExhibit 3:Supply-demand dynamics:General supply surplus in the battery chain would favor only select blue chips050100150200250300350400Gwh Source:CRU,Roskill,chyxx,Morgan Stanley Research estimatesExhibit 4:Historical margin trend:Battery mineral and cell makers could be further squeezed10%15%20%25%30%35%40%45%50%55%60%201420152016201720181Q19MetalsMaterialCellOEMInfrastructureGross margin by EV supplier Source:Company data,Morgan Stanley ResearchExhibit 5:We expect EV makers optimization to save Rmb30-35K per vehicle and look for the supply chain to digest Rmb30-35K subsidy shortfall (34)10 (20)(40)(65)-80-60-40-20020Before2019.3.25TransitionperiodAfter2019.6.25ZerosubsidyTraditionalBoME-powertrainBatteryOPEXManufactureSubsidyshortfallOptimization efforts by EV OEMs Operating profit per EV(Rmb 000)Widening losses after subsidy cuts To be digested by supply chain Source:Morgan Stanley Research estimatesFOUNDATIONM6growing competition from a broad set of EV options coming to the market.3.Even if prices of EV models were lifted,OEMs might not be immune to margin pressure from subsidy cuts.This is because to ensure sales scale up,OEMs would need to incrementally spend on either specification upgrades or marketing expenses,which would eventually dampen margins.We look for local EV OEMs,the battery supply chain,and upstream metals to bear the brunt of EV subsidy cuts.Assuming no material price hikes for EV models in view of growing competition from a broad set of EV options,our simulations suggest the 47-60%subsidy cuts effective from June 26 would lead to about 9-11ppt gross margin contraction to the EV supply chain and erode the majority of profit at the operating level.The upcoming removal of all subsidies could further erode the supply chains gross margin by another 6-8ppt and will likely bring major operating losses if everything else related to the EV economy remains as it is today.Dont place all hope on falling battery prices initiatives to opti-mize EV production and operations would make a difference:Most discussions about cost parity and EV profitability focus on bat-tery costs.We agree that this is the key factor in reshaping the EV economy but it wont be a quick cure to offset the immediate impact of subsidy removal.It might require more individual efforts in EV pro-duction and operations to diminish the cost gap and speed up profit-ability.We look for 15-20%cost savings from EV makers optimization initiatives.Companies that take active strategies should have a better chance to weather the headwinds from subsidy removal and win market share amid the accelerating reshuffle.Its less effective to try to judge the scale and timing of EV sub-sidy cuts or the potential for the government to extend fiscal incentives:Market debate persists about the timing and scale of the next round of EV subsidy cuts and the associated impact on EV demand.However,lessons from previous cycles of EV subsidies and auto purchase stimulus suggest that stock selection based on guess-timates about the timing and scale of regulatory push or retreat turn out to be ineffective in most cases,particularly as the scale-back of EV subsidies is inevitable over time.Instead,we cut to the chase and identify potential beneficiaries as well as vulnerable players from when subsidies go to zero:10 Investment Thesis The Chinese government plans to fully remove subsidies for electric vehicles by 2020 to ensure healthy industry investment:On 26 June 2019,China officially cut central subsidies 47-60%and fully removed local subsidies on EVs.Instead,government subsidies will likely switch to local charging infrastructure in-line with the per-sistent regulatory push.This is part of efforts to enhance the product quality and technological standards of Chinese EV models to a global level.The aggressive cuts might not come as a complete surprise,but they still exacerbated market concerns about the growth of the EV market and profitability of the EV supply chain.Whats more,inves-tors see a stronger likelihood of faster and more aggressive subsidy cuts vs.the previous plan of expiration by the end of 2020.We are still constructive on EV growth trajectory in the long run,despite likely speed bumps in the near term after subsidy cuts:We expect EV demand in China in 2Q/3Q19 to be cannibalized by strong pre-buying in 1Q19 ahead of the subsidy cut.This,together with an unfavorable macro backdrop,should rein in near-term EV growth after the 110%CAGR over 2014-18.We forecast 1.2mn units of EV sales in 2019 vs.consensus at 1.4-1.6mn units.However,we regard subsidy cancellation as a near-term hiccup rather than structural disruption of EV growth in China.We look for a strong EV model pipeline and the governments regulatory push(dual-credit scheme,stricter emission standards,free license plates,removal of plate quotas for NEVs,etc.)to propel EV volume sales.Whats more,global OEMs and tier-1 suppliers have made significant investment across the whole supply chain and revamped the project development roadmap.We think this will hinder the supply chain from changing course back to internal combustion engines(ICE).We project a 22%CAGR in EV sales in China in 2018-25,and look for EV penetration to reach 18%by end-2025,at the high end of Street esti-mates.Escalating margin risk after subsidy removal is well anticipated,but our study suggests that the impact across the EV supply chain is likely to diverge:We believe the subsidy cuts will hurt EVs profitability more than volume for three reasons:1.Our checks suggest that the supply chain would still priori-tize volume scale as well as market share.2.We dont believe price hikes on EV models are a commercially feasible way to mitigate the subsidy cancellation given FOUNDATIONMMORGAN STANLEY RESEARCH7Morgan Stanley Research Pan Asia teams across sectors collabora-tively explored the opportunities and risks in the wake of imminent changes to the EV subsidy scheme in China.We highlight 18 stocks that should benefit or suffer from the unprecedented disruption to the EV supply chain.Our views are follows:lWe think the global battery and local infrastructure groups will profit from the changes in the subsidy scheme.After EV subsidies are fully cancelled,we think global battery makers such as LG Chem(051910.KS,Overweight),Samsung SDI(006400.KS,Overweight)and Panasonic(6752.T,Overweight)will have a window of opportunity to gain share in China in a more open market environment.A persistent regulatory push and local sub-sidy shift to the charging facilities will benefit infrastructure names such as Nari Technology(600406.SS,Overweight).lGeneral auto parts should stay relatively resilient with a bigger addressable market,thanks to more reasonable profit levels and diversified non-EV exposure.Our regional picks are Huayu(600741.SS,Overweight),Xingyu(601799.SS,Overweight),Aisin Seiki(7259.T,Overweight)and Denso(6902.T,Equal-weight).lLocal EV OEMs and the battery supply chain will bear the brunt from EV subsidy removal.We rate BYD(1211.HK/002594.SZ)as Underweight.Our regional team stays Underweight on both L&F(066970.KS)and Umicore(UMI.BR)as it believes further capacity additions along with EV subsidy cuts in China leave little room for optimism.However,our China EV batteries analyst Jack Lu rates both Putailai(603659.SS)and Energy New Materials(002812.SZ)as Overweight as he thinks bellwethers in sub-cate-gories e.g.,separator/anode can buck the downturn,with strong support from their substantial lead on the cost curve.lUpstream battery metals may also face near-term headwinds from EV subsidy cuts,among which we think lithium plays will be relatively more defensive than cobalt,and thus our basic mate-rials team rates Ganfeng Lithium(1772.HK)H-share as Equal-weight after the significant margin/stock price correction YTD,but stays Underweight on China Molybdenum(3993.HK).Exhibit 6:China EV Subsidy Cuts:Stocks AffectedOverweightEqual-weightUnderweightBYD(1211.HK)OEM Energy New Materials(002812.SZ)Putailai(603659.SS)Beijing Easpring(300073.SZ)Umicore(UMI.BR)L&F(066970.KS)Materials Huayu Auto(600741.SS)Xingyu Auto(601799.SS)Aisin Seiki(7259.T)Denso(6902.T)General parts NARI Tech(600406.SS)Infrastructure LG Chem(051910.KS)Samsung SDI(006400.KS)Panasonic(6752.T)Guoxuan(002074.SZ)CATL(300750.SZ)Battery Ganfeng Lithium(1772.HK)China Moly(39