Challenges Faced by China's Auto Sector Revealed in S&P Analysis
In the ever-evolving world of automotive manufacturing, China's auto market is experiencing a significant shift, with some entities facing increased risks while others maintain stability.
According to a recent report, Geely entities are at an increased risk of rating downgrades. This risk is attributed to the anticipated deceleration of electric vehicle (EV) sales in China over the next two years, estimated to be around 15%-25%.
Meanwhile, other companies such as Beijing Auto, BAIC Motor, Johnson Electric, and Yanfeng International are expected to maintain stable credit ratings. S&P Global predicts a slight increase of 0%-2% in China's domestic light vehicle sales in 2023-2024, suggesting these companies may weather the storm.
The slowdown in EV sales is also reflected in the pace of battery installations, which is decreasing. Tier-two battery producers are gaining market share, contributing to this trend. The dominant player in this sector, CATL (Contemporary Amperex Technology Co. Limited), continues to lead the market in manufacturing lithium-ion batteries for electric vehicles in China.
The pricing environment in China's auto market remains unfavourable due to soft demand, with price wars in the electric vehicle segment expected to continue. This is further compounded by the anticipated deceleration in Chinese auto export growth in 2024 due to trade hurdles.
However, there is a glimmer of hope for EV producers. Moderating material costs, particularly in lithium carbonate prices, could alleviate margin strain for EV producers in the second half of 2023.
Amidst these challenges, local brands in China's auto market, especially electric vehicle brands, are gaining traction. Foreign brands are collaborating with Chinese EV automakers to leverage their production platforms and software capabilities.
In conclusion, the Chinese auto market is undergoing a transformation, with Geely entities facing increased risks amidst slowing EV sales and shifting battery market dynamics. However, other companies appear to be more resilient, and there are signs of potential relief for EV producers in the form of moderating material costs.
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