Jefferies expects the sale of Chinese New Energy Vehicles (NEVs) will grow 30% YoY in 2024 as affordability improves and supply continues to be strong, driving NEV penetration up to c.44%.
Jefferies released their “Top Picks” in the Chinese EV segment, favoring OEMs with product lineups in blue ocean markets, advanced development in smart driving, and initiatives in overseas expansion.
Jefferies likes Changan and SERES from the Huawei partnerships. For OEMs outside Huawei’s ecosystem, Jefferies chose BYD, XPeng (NYSE:XPEV), and Li auto (LI) as their top picks.
Huawei has announced the spin-off of its auto business unit through a joint venture with Changan. The company is encouraging other partners to invest in the JV to enhance the profitability of its auto business. This strategic move is expected to bring advantages to Huawei's partnerships with local OEMs and suppliers.
The launch of 18 Huawei-backed EVs in 2024, coupled with the positive response to its full-stack ADS solution, indicates growing interest in smart driving technology. This development is anticipated to contribute to the overall advancement of China's smart car ecosystem.
In terms of sales, Huawei-backed models are projected to reach 733,000 units in 2024, with 55% of the volume attributed to the AITO brand co-developed with SERES.
Additionally, channel checks indicate that many dealers affiliated with joint venture (JV) brands are operating at a loss. There's a potential risk of some dealers exiting the network in 2024. Jefferies suggests that any reduction in production for A0/A segment JV cars might be advantageous for BYD.
With more competition in the Chinese electric vehicle market, a key factor for choosing EVs is likely to be their Advanced Driver Assistance Systems (ADAS). Analysts believe XPeng is ahead by about 1-2 years compared to others, as the company is currently making progress with their AD initiatives.
Jefferies maintained a Buy rating on Li Auto (NASDAQ:LI) as the company leads in Extended Range Electric Vehicles and has successful models in the RMB300k segment. However, analysts are uncertain about Li Auto's BEV strategy due to the delayed launch of MEGA and a lack of information on new BEV products.
Shares of XPEV are down 1.05% in early trading while LI trades up 1.83% Thursday morning.