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CSCI-Auto-China Auto Sector：NEV sales hike continues, with subsidy reduction overhang - 20171221

NEV sales hike continues, with subsidy reduction overhang

• ICE shipment continued to slow down in Nov-17 dragged by decelerating sales of CV trucks. However, PV sales remained stable during the same period, particularly underpinned by rising sales of A0 class sedan models. Given that the tax hike will become effective in FY18E, we believe small-engine sedans shipment will maintain strong during the remainder of 2017.
• NEV accumulated shipment in 11M17 have exceeded 600k units and is expected to reach 700k units in FY17E and 900k units in FY18E respectively, according to our estimation on the assumption that the government will keep the subsidies in FY18E at the same level in 2017.
• In our view, it is still possible for the government to slash NEV subsidies in FY18E, which is one year earlier than the schedule, citing expenditure increase as a result of shipment surge during the year. Nevertheless, we expect a narrowing reduction in FY18E compared with FY17E, therefore to post limited impact on the NEV shipment in 1H18.

Total ICE shipment dragged by declining CV sales in Nov-17. Growth of total ICE sales in Nov-17 further narrowed down to 0.7% YoY from 2% YoY in Oct-17, which we attributed to the slowing CV truck sales on fading effect of stimulative policy since Sep-16 and a high base in 2H16. On the contrary, PV sales remained stable during the same period. In particular, the A0 class sedan sales growth rose to 15% YoY in Nov-17 from 5% YoY in Oct-17, suggesting strong demand for small-engine sedans. Hence, we estimate the compact sedans will maintain strong shipment in Dec-17, given the upcoming tax hike in FY18E.

NEV shipment highly correlated with subsidy policies in FY17/18. Total NEV sales volumes have exceeded 600k units in 11M17 compared to 500k units in FY16. We witnessed a faster growth particularly after negative policy impacts subsided in 2H17. According to our estimation, total NEV shipment will exceed 700k units in FY17E and 900k units in FY18E on the assumption that the government will keep subsidies and qualified lists in FY18E at the same level in 2017. On industry wise, we forecast total sales growth to rise in 1H18 before slightly slowing down in 2H18 due to a low base in 1H17.

NEV subsidy slash foreseeable in the earlier-than-scheduled FY18E. In our view, it is still possible for the government to kill NEV subsidies in FY18E, which is one year earlier than the schedule, citing expenditure increase as a result of shipment surge during the year. Nevertheless, we expect to see a tender subsidy cut in FY18E compared with FY17E. Therefore, the NEV sector will face limited impact in 1H18 and get alleviated from 2H18.