2022 CICC Automotive White Paper: Looking into the future and gaining insights into product changes

In 2022, the penetration rate of new energy vehicles in the global mainstream market will exceed the 10% critical point and enter the steep stage of the S-shaped growth curve. China is one of the world's most important markets and production bases. We expect the penetration rate of new energy passenger vehicles in China to reach 30%/61%/90% in 2025/30/50, corresponding to an output of 7.47 million/17.36 million/36.29 million.

As the penetration of new energy vehicles accelerates, we expect that the number of fuel-powered passenger cars will peak in 2025, and the number of new energy passenger cars will exceed that of fuel-powered cars in 2034. This may lead to major changes in assumptions about industries such as automotive fuel, automotive services, charging and swapping facilities, and residential electricity consumption.

As the number of fuel vehicles has peaked ahead of schedule and the power load of electric vehicles has surged, we expect that the demand for automotive fuel will decline rapidly, and electric vehicles are expected to become an important carrier of grid energy storage technology.

As the penetration of new energy vehicles accelerates, we believe that charging facilities will lag behind and the contradiction of energy replenishment may become more serious starting in 2022. We believe that this contradiction will directly promote: 1) the commercialization of "battery swapping", 2) national regulations will promote the acceleration of "slow charging" into communities, and 3) car companies will accelerate the construction of "fast charging" networks to form user experience differences.

Benefiting from the accelerated penetration of new energy vehicles, we believe that Chinese independent brands will benefit the most. By leveraging the electric intelligence trend and leveraging localization and talent advantages, the market share of China's independent brands is expected to reach 52%/58%/73% in 2025/2030/2050.

From a large automobile country to a powerful automobile country, Chinese automakers are expected to enjoy the dividends of energy transformation, industrial upgrading and technological innovation, and realize the globalization of Chinese brands. We predict that by 2050, China's passenger car exports will account for 35%, and leading independent automakers will open up long-term growth space.

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Automobile production and sales are lower than expected, and the penetration of new energy is lower than expected.

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In the era of great changes in the global automotive industry, where will China's automobile consumption and automobile industry go?

Summary: Automobile consumption is steadily rising, and multiple trends are driving China towards becoming an automobile powerhouse

The first wave of automobile consumption has ended, and the industry has shifted to replacement/increase purchases, younger people and women's car purchases, and overall consumption has been stable and upward. From the demand side, with the rapid increase in the number of cars in use, China's family car purchases have begun to show a characteristic of new purchase demand dominated by men, and gradually shifted to younger people, "her economy" and replacement/increase purchases, and car purchases in low-tier cities, which has also brought about a general trend of consumption upgrades for automobile products. In the long run, we believe that China's domestic automobile consumer market will remain stable and upward, and automobile sales are expected to reach 22.41 million/24.19 million/26.21 million in 2025/2030/2050.

We believe that against the backdrop of slow and steady growth in the automobile industry, the industry is facing major changes, and the changing trends are worthy of attention: intelligent electrification drives changes in the market structure; we expect new energy to enter a steep growth phase of the S-shaped growth curve, with penetration accelerating, driving major changes in the aftermarket, including oil consumption, residential electricity consumption, energy replenishment routes, and infrastructure; riding on the accelerated upward momentum of new energy, domestic brands are expected to achieve a breakthrough in overall market share by virtue of their leading advantages in new energy; in terms of internationalization, the export market is expected to achieve multiple-fold growth in the long run, correspondingly opening up room for doubling growth for leading domestic automakers, and are expected to achieve a sales breakthrough and go global.

Specifically:

In this era of great changes in the global automotive industry, where will the future of China's automotive industry go?

China's private car ownership per thousand people exceeds 150, and first-time purchase demand in new car consumption has dropped to 50%. The first wave of popularization of automobile consumption has basically ended. In the long run, we believe that China's passenger car consumption demand will continue to grow steadily, maintaining a low single-digit growth rate. We expect that automobile sales in 2025/2030/2050 are expected to reach 22.41 million/24.19 million/26.21 million.

New energy penetration has broken through the critical point. How do you view future growth drivers and consumption trends?

We believe that the penetration rate of new energy vehicles has exceeded the key node of 10%, and will enter the stage of steep growth of the S-shaped growth curve in the future. From "tasting" to "popularization", consumer habits are cultivated and improved + supply-side products are "blooming in multiple places". We expect the penetration rate of new energy vehicles to reach 30%/61%/90% in 2025/2030/50, corresponding to 7.47 million/17.36 million/36.29 million units.

During the energy transition period, the gap between charging supply and demand is widening, and the number of fuel vehicles has peaked ahead of schedule. How will the automotive aftermarket evolve?

We expect the number of fuel-powered passenger cars to peak in 2025, and the number of new energy vehicles to exceed that of fuel-powered passenger cars in 2034. The early peak of fuel-powered vehicles may lead to major changes in the logic of industries such as automotive fuel, automotive services , charging and battery swapping facilities, and residential electricity consumption. We believe that the gap between charging supply and demand will surge next year, and the contradiction between energy replenishment may become more serious. The country will promote the acceleration of slow charging into residential areas, and automakers will accelerate investment in fast charging, which will also benefit the rapid deployment of battery swapping technology.

How will the Chinese automobile supply market structure present itself under the trend of intelligent electrification?

With the accumulation of multi-dimensional capabilities, domestic brands have a mature opportunity to rise based on new trends. Riding the wave of electric intelligence, we expect the market share of Chinese brands to reach 52%/58%/73% in 2025/2030/2050 respectively.

From a major automobile country to a powerful automobile country, how can Chinese brands achieve breakthroughs in overseas markets?

Revisiting Toyota's overseas expansion, Chinese automakers are expected to seize the energy transition period, which is also a strategic opportunity period. We expect that by 2050, China's passenger car exports will account for 35% of total production, and leading independent automakers will open up long-term growth space and go global.

Chart: Based on the experience of Japan and South Korea, China is in the mid-level competition stage of the automobile industry with a per capita GDP of US$4,000-17,000

New energy: Global electric vehicles have broken through the critical point and entered the S-shaped curve period of steep growth

Summary: Global electric vehicle industry has reached a critical point and may enter an S-shaped growth curve

We believe that the rapid growth of China's new energy vehicle industry comes from the resonance of the consumer and supply sides, and may usher in accelerated expansion after breaking through the critical point . Based on the experience of the S-shaped growth curve, we judge that China's automobile electrification has broken through the critical critical point (10% penetration rate) and may enter a period of steep growth. We predict that the penetration rate of new energy passenger vehicles will reach 30%/61%/90% in 2025/2030/50, respectively, and the corresponding production will reach 7.47/17.36/36.29 million vehicles respectively.

Chart: Global new energy passenger vehicles are expected to enter an S-shaped growth curve

Growth Outlook: From "first-mover advantage" to "popularization", entering the S-shaped growth curve, with multiple product developments

From "tasting new products" to "popularization", China's new energy penetration rate has entered an S-shaped growth curve. Since 2021, global new energy vehicle sales and penetration rates have accelerated: in 9M21, new energy sales in China, eight European countries, and the United States were 2.14 million/1.31 million/43 million vehicles, respectively, up 193%/105%/101% year-on-year. Looking forward, we believe that the main driving force of the new energy industry has shifted from policy subsidies to supply-side improvements to stimulate the release of the C-end market. As new energy vehicles cross the 10% penetration rate mark, we expect them to show an S-shaped growth curve, and move from the "tasting new products" to the "popularization" stage, and gradually enter the mainstream car consumption.

Chart: New energy breaks through the key nodes of the S-shaped growth curve

On the supply side, products are blooming in multiple places, the penetration of the sinking market is accelerating, and the product structure is "strengthening the middle section" and moving closer to traditional fuel vehicles. On the supply side, we expect that the current pattern of Tesla and first-tier new car-making forces will shift to a "multi-super and multi-strong" pattern of "traditional car companies' advantageous new energy brands, first- and second-tier new car-making forces brands, and other new entrants", and drive new energy products to bloom in multiple places and accelerate the popularization of new energy. On the demand side, with the gradual penetration of new energy in the B-class car market, coupled with the endogenous growth brought about by the price reduction and improved battery life of new energy models, it is expected to drive the new energy sales structure from the current "dumbbell type" to "spindle type".

Chart: New energy sales structure: The gap between cities without license plate restrictions and cities with license plate restrictions continues to widen, and low-tier cities are accelerating penetration

Changes in the structure of car ownership drive significant changes in the aftermarket

Summary: Changes in the structure of car ownership determine major changes in the aftermarket

Overall, we expect China's car ownership to grow steadily upward in line with the continuous consumer demand for cars. Previously, the market generally expected that the number of fuel vehicles would peak in 2040; but based on our expectation that the penetration rate of new energy vehicles will enter an S-shaped growth curve, with the accelerated advancement of electrification, we expect China's fuel vehicle ownership to peak 10 years earlier than the market expects, or even peak in 2025 within 5 years. We expect the passenger car-fuel vehicle ownership to peak in 2025, and the number of new energy vehicles in passenger cars will begin to exceed the number of fuel vehicles in 2034. The early peak of fuel vehicles may lead to major changes in the valuation logic of industries such as the automotive oil market, the automotive service market (maintenance, distribution, etc.), and automotive trust insurance leasing.

Chart: Forecast of China's passenger car ownership by energy structure

New energy vehicles will truly become a carrier of energy storage technology

We expect that in the near future, new energy vehicles will become an important carrier for the application of residential electricity storage technology. Based on our calculations of China's new energy vehicle ownership, we expect China's new energy vehicle ownership to reach 340 million in 2050. In terms of structure, the number of new energy passenger vehicles is 310 million and the number of new energy commercial vehicles is 35.14 million. By 2050, we expect that the total amount of electricity carried by China's new energy vehicles is expected to reach 19,000 Gwh, and the on-board energy storage capacity is basically equivalent to China's current total daily electricity consumption.

Chart: We estimate that China's new energy vehicle ownership may reach 340 million by 2050

Chart: We estimate that by 2050, the total electricity consumption of China's new energy vehicles is expected to reach 19,000 GWh

Power consumption will not become a bottleneck in the development of new energy vehicles

Based on our above-mentioned calculation of the number of new energy vehicles in China, we estimate that the annual electricity consumption of new energy vehicles in China is expected to reach 1.65 trillion kWh in 2050, and the annual electricity consumption of new energy vehicles in China is expected to exceed 10% of the total electricity consumption in society in 2050. The annual electricity consumption of new energy private cars in urban and rural residents is expected to exceed 25% in 2050, and the annual electricity consumption of new energy vehicles (excluding private cars) in the tertiary industry is expected to exceed 25% in 2050. In summary, we expect that in the short term, the proportion of electric vehicle electricity consumption to residential electricity consumption is not high, and it is not the cause of the power shortage; of course, with the increase in the proportion of new energy vehicle electricity consumption in the future, it means that the demand for corresponding distribution investment is obvious.

Chart: We estimate that China's annual electricity consumption of new energy vehicles will reach 1.65 trillion kWh in 2050

Chart: We estimate that the proportion of electricity consumption of new energy vehicles in the total electricity consumption of the society will exceed 10% in 2050

As the number of fuel vehicles quickly peaked, the demand for automobile fuel declined rapidly

Based on our above-mentioned calculations of China's fuel vehicle ownership, we expect China's fuel vehicle ownership to peak at 290 million in 2025, and to be less than 50 million by 2050. Based on the number of fuel vehicles, China's fuel vehicle ownership will drop by 89% from its peak in 2025 by 2050, and we simply estimate that the corresponding fuel consumption will also drop by 89%. Considering that China's current automobile oil consumption accounts for about 70-80% of the country's total gasoline consumption, we believe this may trigger a new round of "energy revolution."

Chart: We expect China's fuel vehicle ownership to peak in 2025

Chart: We expect that by 2050, China's fuel vehicle ownership and fuel consumption will drop by 89% from the peak in 2025

The car-to-pile ratio has increased sharply, and the difficulty of charging has become prominent, bringing new opportunities for fast charging and battery replacement

According to data from the State Grid, in the three days before the National Day holiday this year, the total charging volume of the State Grid charging and swapping service network increased by 59% year-on-year, and the charging volume of highway charging facilities increased by 56.5% year-on-year, setting a record high. We believe that with the sharp increase in new energy sales, the number of private piles is limited, and public piles are difficult to meet the demand for usage, and first- and second-tier cities may face charging difficulties next year.

We estimate that China's charging pile ownership will reach 2.65 million in 2021, a year-on-year increase of 730,000, of which the number of public charging piles and private charging piles will be 1.2 million and 1.45 million respectively. Structurally, the increase in the ownership of new energy private cars will drive the growth of demand for private charging piles, but due to the restrictions on the number of private parking spaces and the installation of private charging piles in residential areas, the gap between the sales of new energy private cars and private charging piles continues to widen. Based on our forecasts for the ownership and sales of new energy vehicles, we expect the gap to widen to 2.53 million in 2021, corresponding to 2.53 million new energy private car owners who can only use public charging piles for charging. The charging problem of new energy car owners next year may be more severe.

Looking ahead, we believe that after new energy enters the S-shaped growth curve, the two main development lines of the charging pile industry will become increasingly clear: 1) Relax the policy on private charging piles entering residential areas to reduce the price gap between private car owners and private charging piles; 2) Public charging facilities such as supercharging stations are difficult to maintain due to location and economic considerations. From the perspective of battery standardization, the battery replacement model should be promoted .

Chart: Charging piles lag behind new energy vehicle ownership in terms of ownership

Chart: Annual sales volume shows a rapid rebound in 2021

Chart: We expect sales of new energy private cars and private charging piles to continue to expand

Policies catalyze the development of the battery swap model, which may become the next mainstream track for new energy. From the policy perspective, starting from 2020, policies will gradually promote the battery swap model and include it in the government work report. This year, the group standard "Specifications for the Construction of Shared Battery Swap Stations for Electric Passenger Vehicles" has passed the review. Looking forward, we believe that by breaking through the key technologies of battery swap products, opening up the infrastructure approval process, establishing a battery swap vehicle supervision platform, improving the battery swap technology standard system, forming a battery swap model industry ecosystem, and building a battery swap policy support system, we can accelerate the development of the battery swap industry chain, and solve the current pain points in new energy vehicle consumption by connecting battery companies, car companies, power grid companies and battery recycling companies.

Chart: National policies related to battery swapping model from 2019 to 2021

On the basis of accelerating the construction of effectively used private and public charging piles, car companies are the main drivers, and each company is laying out different routes to solve the problem of recharging new energy vehicles. For example, Tesla and GAC Aion use super fast charging solutions, and NIO uses a battery swap model. At present, the influence of the ecological chain in the field of battery swap is gradually expanding. In addition to car companies such as NIO , Changan, Geely, Nezha and Dongfeng starting to get involved in battery swap layout, upstream and downstream companies in the industry chain have begun to enter the market.

Chart: New energy battery replacement industry chain of "vehicle-battery separation"

We believe that the current battery swap industry is on the eve of a period of rapid growth, and the long-term market space is upward. According to data from the China Charging Alliance, as of the end of 2020, there were a total of 555 battery swap stations in China, and the ratio of new energy vehicle ownership to the number of battery swap stations was nearly 10,000. We believe that with the basic establishment of the power battery industry structure, a unified standard for battery packs is in the interests of multiple parties; various car companies have actively responded to policy guidance, and in the future it is expected to break the battery swap model of a single car company and a single model, making the battery swap model more commercially viable. In the long run, we believe that the battery swap industry is on the eve of a period of rapid growth, and the long-term market space is upward.

Chart: Number of battery swap stations based on ownership

Chart: China’s battery swap station market share (March 2021)

The rise of domestic products: China's electric smart transformation will benefit the most

Summary: Riding on the trend of electric and intelligent vehicles, the rise of domestically produced cars is just in time

With the accumulation of multi-dimensional capabilities, domestic brands have matured opportunities to rise based on new trends. Domestic brands have formed competitive advantages in emerging technology reserves for intelligent electrification, supply chain control, and diversified channels/marketing models, and have the soft and hard power to rise. Chinese domestic brands have long been at an annual sales volume of 8 million, with a price of less than 100,000 yuan, and a thin profit margin per vehicle. We expect that Chinese domestic brands are expected to take advantage of the electric and intelligent trend, and annual sales will expand to 32 million vehicles in the future, with a price of more than 150,000 yuan and a net profit of more than 10,000 yuan per vehicle (including services). In this process, leading domestic brands can gain greater growth space by going overseas. In the long run, we expect that the market share of Chinese domestic brand passenger cars will reach 52%/58%/73% in 2025/2030/2050.

Chart: Review of important development nodes of independent brands in the era of fuel vehicles

Chart: We expect domestic brands to take advantage of the opportunities of “electric, intelligent, and national trends” and gradually break through the market share ceiling in the domestic market

The share of domestic brands has increased significantly this year, exceeding 45% in September, up 10ppt year-on-year. From a breakdown perspective, we believe that on the one hand, the advantages of domestic brands are fast product iteration and strong consumer insight, which drives the increase in share; on the other hand, domestic brands started early in intelligence and electrification, and have a clear first-mover advantage in the field of smart electric vehicles, driving their sales share in the new energy market to remain above 70%, far exceeding the share of fuel vehicles. We expect that with the rapid increase in the penetration rate of new energy, the market share of domestic brands is expected to increase rapidly. We estimate that when the penetration rate of new energy reaches 20%/30%, the share of domestic brands is expected to exceed 47%/58%. For leading domestic brands, it is expected to double the growth space under the dual benefits of the rise of new energy + going overseas.

Specifically: Continue to invest in high-level R&D personnel, deepen the Chinese market, and use more scientific product planning methodologies to help accurately understand market demand; platform manufacturing capabilities and a strong domestic supply chain system promote domestic independent brands to compete with traditional multinational automakers; innovate channels and marketing models, focus on full life cycle management from products to services; create brand co-creation and community culture to enhance user stickiness. In addition, we believe that the more important point is that the healthy influx of high-quality human resources in China will become the long-term driving force for the rise of independent brands.

Chart: Market share trends of domestic brands

Chart: Changes in market share of domestic brands

After the first wave of popularization of automobile consumption, with diversified demands and intelligent networking, Chinese automakers have transformation advantages. At present, China's automobile consumption is gradually shifting to a younger age, the rise of the "she economy", and the demand for replacement and additional purchases. The growth of per capita GDP also brings about a general trend of consumption upgrading. With the gradual intelligent networking of automobiles, automakers need to expand from selling cars to focusing on the operation of the entire life cycle of products, and promote the realization of a diversified income structure such as vehicle sales and software payment. In this process, Chinese automakers have transformation advantages in Internet product thinking such as accurately defining products based on market demand and building brands from users.

Chart: Chinese automakers have a leading edge in digital channels and new retail construction

Internationalization: Pressing the fast-forward button for the electric car era, Chinese cars are going global

Summary: The energy transition period is also a period of strategic opportunities. China's independent auto industry is expected to replicate Toyota's globalization path

Reviewing Toyota's overseas expansion, the energy transition period is also a strategic opportunity period, and the overseas market growth trend has begun. Since 4Q20, passenger car exports have shown an accelerated growth trend, with monthly exports significantly higher than the same period in previous years. In April 2021, it exceeded 100,000 vehicles, and we can already see the start of the growth trend. Reviewing Toyota's overseas expansion, we believe that China's independent brands are currently facing a major strategic opportunity period and are expected to replicate Toyota's globalization path.

In the long run, the proportion of exports is expected to reach 35%. Leading domestic automakers will open up long-term growth space, achieve sales breakthroughs, and go global. Domestic brands have accumulated first-mover advantages in China and actively deployed overseas markets, with electric exports to Europe and the United States and independent exports to Asia, Africa and Latin America. We expect that domestic automakers will be able to establish a leading position in the global market through advantages such as range, interior and exterior design, and intelligent networking. In addition, leading domestic brands will deploy localized factories abroad, which will not only enjoy policy benefits, but also be expected to avoid tariffs and the impact of RMB appreciation. Localized production will enable brands to go global. We expect that in 2025/2030/50, overseas export sales will account for 10%/15%/35% of production, corresponding to sales of 2.49/4.27/14.11 million vehicles.

Chart: In the long run, we expect China's passenger car exports to account for 35% of domestic production.

Chart: Review of Toyota's rise

Passenger car exports enter the fast lane, and new energy becomes an important driving force

Exports have entered the fast lane, and new energy vehicles have contributed to the increase in exports . Since 4Q20, passenger car exports have shown an accelerated growth trend, with monthly exports significantly higher than the same period in previous years, exceeding 100,000 vehicles in April 2021. The proportion of new energy has increased significantly, accounting for 17% in total from January to September 2021, becoming an important driving force.

Chart: 4Q20 Passenger car monthly exports enter high growth channel

Chart: New energy passenger car exports account for a significant increase

Export layout is increasingly optimized, with direct export and localized production as dual drivers

Export layout tends to be balanced, and exports to high-end markets are on the rise. As China's automobile trade continues to expand, the trend of diversification of export market layout is becoming increasingly obvious. In addition, China's export market is gradually shifting from developing countries to high-end markets such as Europe and the United States, which have more stringent regulations and technical requirements.

Chart: China’s vehicle exports in 2012 were concentrated in the Middle East market

Chart: China's vehicle export layout is more balanced in 2019 and 2020

China's automobile export mode is gradually switching from direct product export to overseas localized production mode. Most Chinese automobile enterprises adopt the direct product export mode, mainly targeting countries and regions with weak economic foundation and poor automobile industry foundation in the early stage, in order to achieve rapid expansion of sales volume, and gradually shift the focus of development to developed countries such as Europe and the United States. In recent years, leading enterprises have independently expanded the scale of investment and factory construction in key export markets, and the export mode has changed from direct product export to localized assembly production.

Chart: Main models and characteristics of Chinese independent car companies going overseas