China EV Smart NEV Sector Navigator

December 30, 2022
Autos
NEV market: growing fast but competitive
NAVIGATING CHINA
■ We expect China’s 2023F NEV sales to grow 38% and NEV penetration rate
to reach 39% due to rising popularity of smart EVs and new model launches.
■ We believe EV makers would face margin pressure in 2023F due to high
battery costs and keen competition, margins could improve from 4Q23F.
■ Reiterate Overweight on China’s smart EV sector. We initiated coverage on
BYD with an Add (top sector pick); reiterate Add on NIO, XPeng and Li Auto.
Analyst
Ray KWOK
T (852) 2532 1113
E ray.kwok@cgs-cimb.com
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Navigating China
Automobiles and Parts │ Autos │ December 30, 2022
TABLE OF CONTENTS
Fast-growing China new energy vehicle market ........................................................................................ 4

Policy guarantees healthy China NEV industry development ................................................................................... 4
Government NEV penetration target ........................................................................................................................ 5
China NEV sales slowed down since July 2022 ....................................................................................................... 5
China NEV sales growth rate to decelerate in 2023F ............................................................................................... 5
China NEV sales growth momentum to remain strong ............................................................................................. 6
NEV penetration rate to 55% in 2025F and 85% in 2030F ....................................................................................... 7
EV delivery growth slowing .......................................................................................................................... 8
EV delivery trend in 2022 ......................................................................................................................................... 8
EV delivery forecasts for 2023F-2024F .................................................................................................................. 10
EV portfolio comparison by price segment and product type ................................................................................. 14
Profitability under pressure in 2023F ........................................................................................................ 15
EV makers facing huge margin pressure ............................................................................................................... 15
When will smart EV makers turn profitable? ........................................................................................................... 18
Valuation and recommendation ................................................................................................................. 19
China NEV market growth momentum to remain strong but sustained margin pressure likely in 2023F ............... 19
Maintain Overweight on China smart EV sector ..................................................................................................... 19
Risks .............................................................................................................................................................. 23
Appendix: China’s NEV policy.................................................................................................................... 24
China’s NEV Policy: Policy, infrastructure, and technology .................................................................................... 24
1) Government administrative policy – Parallel Credit Administration, Subsidy and Purchasing Tax Exemptions . 24
2) Charging Infrastructure – The expansion of charging facilities ........................................................................... 28
3) Technology – advancements in battery technologies ......................................................................................... 30
Company briefs ............................................................................................................................................ 34
- BYD Co Ltd (1211 HK, Add, TP:HK$333.70).......................................................................................... 35
- Li Auto Inc (2015 HK, Add, TP:HK$142.20)............................................................................................ 41
- NIO Inc (9866 HK, Add, TP:HK$130.30) ................................................................................................ 48
- XPeng Inc (9869 HK, Add, TP:HK$80.10) .............................................................................................. 55
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Sector Note Navigating China │ Autos │ December 30, 2022
China
Autos
Overweight (no change)
Highlighted Companies
■ We expect China’s 2023F NEV sales to grow 38% and NEV penetration rate
BYD Co Ltd
to reach 39% due to rising popularity of smart EVs and new model launches.
ADD, TP HK$333.7, HK$191.0 close
We initiated coverage on BYD with and
■ We believe EV makers would face margin pressure in 2023F due to high
Add due to its rapidly-growing NEV and battery costs and keen competition, margins could improve from 4Q23F.
battery businesses and sustainable ■ Reiterate Overweight on China’s smart EV sector. We initiated coverage on
market share gain in China’s NEV market. BYD with an Add (top sector pick); reiterate Add on NIO, XPeng and Li Auto.
BYD held 27% China NEV market share
and 19.7% Global NEV market in 3Q22. China NEV market to sustain fast growth, but with margin pressure
Li Auto Inc China’s new energy vehicle (NEV) market has entered the full commercialisation stage, in
ADD, TP HK$142.2, HK$74.5 close our view, and hence we do not expect the expiry of the NEV purchase subsidy on 31 Dec
We like Li Auto for its robust EV delivery 2022 to have a material impact on NEV sales in 2023F. However, we expect competition
outlook in FY23F (+92% yoy) and FY24F to intensify among smart electric vehicle (EV) makers BYD, Tesla, NIO, XPeng and Li Auto,
(28% yoy), thanks to its continuous market as well as the EV units of traditional internal combustion engine (ICE) automakers. In
share gain in China’s premium SUV addition to higher battery and semiconductor prices, increased promotion and marketing
market due to its pipeline of strong new expenses and continuous investment in R&D for intelligence feature upgrades and new
models. models rollouts will continue to exert downward pressure on EV sales margins, inevitably
NIO Inc constricting EV makers’ profitability in 2023F, in our view.
ADD, TP HK$130.3, HK$78.2 close China NEV sales to grow 38% in 2023F, penetration to reach 39%
We are positive on NIO due to its We estimate China’s NEV sales to grow 38% to c.9.4m units in 2023F (decelerating from
sustained market share gain in China’s
+164% in 2021 and +105% in 2022F), with NEV penetration rate of 39% (13% in 2021,
premium EV segment, thanks to its strong
new models in the pipeline, and its 26% in 2022F), underpinned by 1) rising popularity of smart EVs, and 2) launch of new
innovative battery services and models. We note that China consumers have been switching from ICE to NEV for the
autonomous driving technologies. intelligent features, improved connectivity, safety and quality, and enhanced overall user
mobility experience. In addition, of the c.90 2023 models that automakers have announced,
Summary Valuation Metrics >80% are NEVs. We expect NEV sales growth of 40-50% yoy in 1Q23F, slower vs +61%
yoy in 4Q22F, due to 1) the short-term impact from the expiry of the NEV purchase subsidy
P/E (x) Dec-22F Dec-23F Dec-24F at end-2022, and 2) the time needed to restore the sector’s supply chain and China’s
BYD Co Ltd
economy. We project stable NEV penetration rate growth starting from 2H23F.
Li Auto Inc NA 118.16 40.81
NIO Inc NA NA 141.19
Challenging to enhance profitability from EV sales in 2023F
Despite expecting strong NEV sales in China in 2023F, we believe EV makers will continue
P/BV (x) Dec-22F Dec-23F Dec-24F to face challenges in raising their profitability from EV sales in the near future, or at least in
BYD Co Ltd 2023F, due to 1) surge in battery costs squeezing their profits, 2) keener competition
Li Auto Inc 2.67 2.73 2.65 leading to higher marketing and promotion expenses, and 3) escalating R&D expenses for
NIO Inc 5.53 5.28 4.36 intelligent feature upgrades and new model rollouts. Nevertheless, we expect margins to
improve from 4Q23F amid production efficiency improvement and better operational scale.
Dividend Yield Dec-22F Dec-23F Dec-24F Reiterate Overweight on China smart EV sector
BYD Co Ltd
We keep our Overweight call on China’s smart EV sector due to the rapid NEV sales
Li Auto Inc 0.00% 0.00% 0.00%
growth, and the booming electrification and intelligence trend. We initiate coverage on BYD
NIO Inc 0.00% 0.00% 0.00%
with an Add and name it our top sector pick due to its rapidly-growing NEV and battery
business and robust net profit growth. We also reiterate our Add calls on NIO, XPeng and
Insert
Li Auto due to their expanding market share, smart EV portfolio, and improving profitability.
Sector re-rating catalysts include robust NEV shipments, soft lithium and commodity prices,
sustained EV profitability growth, and EV battery technological breakthrough. Downside
risks: keen competition, sustained high battery costs and supply chain constraints.
Figure 1: NEV sales of major EV makers in China (Oct 2021 to Nov 2022)
Analyst
Ray KWOK
T (852) 2532 1113
E ray.kwok@cgs-cimb.com SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by EFA
THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFACustomEntityStatement Platform
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Autos │ December 30, 2022

Fast-growing China new energy vehicle market
Policy guarantees healthy China NEV industry development
Favourable government policies continue to support healthy NEV market
development. We expect China’s new energy vehicle (NEV) market to continue
to see fast growth in 2023F-2025F, supported by China’s carbon neutrality targets,
favourable policies for consumers’ subsidies and automakers, introduction of
Parallel Credit Administration (see details in the Appendix P.24), tax benefits from
local governments and development of charging infrastructure.
While the purchase subsidies (Rmbb4,800 for PHEV to Rmb12,600 for BEV,
depending on the type of NEW and New European Driving Cycle range) will be
discontinued on 31 Dec 2022, we believe financial incentives for consumers, such
as government subsidies and purchase tax exemptions (to be discontinued on 31
Dec 2023), are short-term catalysts for China’s NEV market.
We believe China’s NEV market can achieve healthy long-term growth if the
government policies continue to support and/or encourage the development of
charging infrastructure, EV batteries (new types of EV batteries such as sodium-
ion battery) and the supply chain.
On top of these, we believe financial support for automakers, such as the Parallel
Credit Administration and tax benefits, would also play an important role in the
development of China’s NEV market (Fig 2).
Figure 2: Major government policies for consumers (demand side) and automakers (supply side)
Demand-side Policies Description
NEV purchase subsidy Termination of purchase subsidy on 1 Jan 2023
The purchasing subsidy ranges from Rmb4,800 to Rmb12,600, depending on the types of NEV and the NEDC range,
while the decreasing rate of the subsidy is set universally at -10%/-20%/-30% for 2011/2021/2022, deducted from the
previous year's subsidy.
NEV purchase tax exemption The purchase tax exemption first began in 2014, allowing most consumers who buy NEVs to save about Rmb10,000
relative to those who buy traditional vehicles, given that the purchase tax rate for internal combustion engine vehicles was
10%. The policy has been extended to the end of 2022, and recently, the government confirmed that it is further extended
to the end of 2023.
Supply-side Policies
Parallel Credit Administration The policy required automakers to meet the CAFC and NEV credit targets set by the government. The current NEV credit
target is based on 14%/16%/18% of the vehicle output of the manufacturer itself in 2021/2022F/2023F. Automakers can
trade their extra credits to earn income but will be penalised if they do not meet the targets.
Charging network expansion China has the largest charging infrastructure networks for NEVs in the world, with over 1.3m public charging piles. Most
of these charging piles are located in regions such as Guangdong, Shanghai and Beijing. The central government planned
to expand the charging coverage for at least 60% of expressways by 2025F.
Sodium-ion battery developmemt In the 14th Five-Year Plan (2021-2025), the central government encouraged the development of the sodium-ion battery
industry to guarantee a fair EV market structure by offering different types of batteries to the market.
SOURCES: CGS-CIMB RESEARCH, CHINA STATE COUNIL
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Government NEV penetration target

Government’s NEV penetration rate targets for 2025F and 2035F. In 2017, the
central government planned for NEV sales to reach 25% of total vehicle sales
(NEV penetration rate) in 2025F. On 27 Oct 2020, the Energy-Saving and New
Energy Vehicle Technology Roadmap 2.0 (hereinafter referred to as Technology
Roadmap 2.0) was released in Shanghai, under the guidance of the Ministry of
Industry and Information Technology (MIIT). The updated roadmap suggested
that all new vehicles sold in China by 2035F must be powered by 'new energy' –
with 50% coming from electric, fuel cell or plug-in hybrid and the remaining 50%
from hybrid vehicle sales. China’s NEV penetration reached the central
government’s target of 25% in Aug 2022.
China NEV sales slowed down since July 2022

Several short-term headwinds are impacting short-term NEV sales. NEV
sales growth has slowed down since July 2022 due to several short-term
headwinds:
1) weaker consumer demand amid poor economic outlook for China given
the prolonged Covid-19 pandemic and weak Rmb against US$;
2) production and logistical disruptions caused by Covid-19 prevention
measures;
3) sustained global shortage of semiconductor components;
4) phasing out of some subsidies by end-2022 (purchase subsidy of
Rmbb4,800 to Rmb12,600 for NEVs); and
5) NEV sales forming more than 25% of China’s total vehicle sales since
Aug 2022. According to China Association of Automobile Manufacturers
(CAAM), NEV penetration rate increased from 19.1% at Dec 2021 to
33.8% in Nov 2022 (Fig 3).
Figure 3: China NEV sales, monthly (Jan 2020 to Nov 2022)
SOURCES: CGS-CIMB RESEARCH, China Association of Automobile Manufacturers
China NEV sales growth rate to decelerate in 2023F

China NEV sales to grow 105% yoy in 2022F. We project China’s NEV sales to
expand 105% yoy from 3.3m units in 2021 to 6.8m units in 2022F (11M22 NEV
shipment grew 104% yoy), with penetration rate jumping from 16% in 2021 to 26%
in 2022F.
Slower growth rate of 40-50 yoy in 1H23F. We expect China NEV sales growth
will decelerate to 40-50% yoy in 1Q23F (+164%/+105% in 2021/2022F) due to 1)
the short-term impact from the overdraft effect from the expiry of the NEV
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purchase subsidy at the end of 2022, and 2) we believe it will take time to restore
the sector’s supply chain and China’s economy following the easing of Covid-19
restrictions (China government announced it will remove most of the pandemic
prevention restrictions and measures on 8 Jan 2023).
China NEV sales growth to decelerate to 38% yoy in 2023F. We expect
China’s NEV sales growth to decelerate to 38% yoy to 9.4m units in 2023F due to
weak consumer sentiment and shortage of semiconductor components. We still
expect the NEV penetration rate to rise further to 39% in 2023F, thanks to 1) the
abundance of new model launches by EV and ICE automakers, and 2) rising
popularity of smart EVs among young people (Fig 4).
China NEV sales growth momentum to remain strong
The largest NEV market in the world. We remain positive on China’s NEV
market and believe NEV market will maintain strong growth momentum in the
medium to long term, supported by around 26m vehicle sales per annum and the
most complete supply chain for EV production in the world (source: International
Energy Agency estimates China accounted for c.60% of total EV production
globally in 2022).
Smart EVs gaining traction among younger generation. Smart EVs are mainly
used for intra-city travel in recent years amid rapid development of the high-speed
rail network, and abundant new launches with rich, intelligent and connectivity
features such as smart cockpit, autonomous driving systems, intelligent interior
and exterior decoration and architecture that attract younger generations. We
believe sophisticated autonomous driving systems, intelligent operating systems
and battery performance are key factors that consumers take into account while
buying an EV.
Sustainable technology development in China’s NEV industry. This drives EV
makers continue to invest in R&D for intelligent features and make differentiated
products to boost their EV sales. More importantly, it leads to sustainable
technology development in China’s NEV industry.
China NEV sales to reach 13.9m units in 2025F. We estimate China NEV sales
to reach 13.9m units in 2025F, with a CAGR of 27% over 2022F-2025F,
underpinned by 1) stable NEV penetration rate growth, 2) rising popularity of smart
EVs, and 3) sustainable technology development in China’s NEV industry (Fig 4).
Figure 4: China’s NEV sales, by annual (2018 to 2025F), estimate by CGS-CIMB

research
SOURCES: CGS-CIMB RESEARCH ESTIMATES, China Association of Automobile Manufacturers
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NEV penetration rate to 55% in 2025F and 85% in 2030F

China’s NEV penetration to reach 55% in 2025F. We forecast China’s NEV
sales to reach 13.9m units in 2025F, a CAGR of 27% (2022F to 2025F), or an
NEV penetration rate of 55% in 2025F vs. 26% in 2022. We believe this will be
driven by the rising popularity of smart EVs, improvements in autonomous driving
and narrowing price gap between EVs and ICEs, as well as EV infrastructure
expansion (Fig 5).
Figure 5: China’s NEV penetration rate, (2018 to 2025F), annual estimate by CGS-CIMB
research
China NEV penetration to reach 85% in 2030F. We forecast China’s NEV

penetration to reach 85% in 2030F, to c.20m units (19% CAGR over 2021-2030F),
nearing the government’s target of all new vehicle sales by 2035F to be powered
by “new energy” (Fig 6).
Figure 6: China’s NEV penetration rate (2018 to 2030F), annual estimates by CGS-
CIMB research
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EV delivery growth slowing

EV delivery growth is slowing and EV margins are getting squeezed. We
believe automakers’ EV delivery growth and EV margins are key focus for
investors given these two factors enable EV makers to maintain their
competitiveness in the highly competitive NEV industry in China.
EV delivery trend in 2022

Most EV makers missed their 2022 sales targets. In 2022, most EV players in
China achieved robust shipment growth amid rising NEV penetration, supported
by government subsidies and abundant smart EV model launches. Nevertheless,
most of major EV automakers in China missed their sales target set beginning of
2022 due to keener competition and weaker consumer demand in China, along
with production disruptions and semiconductor component shortages (Fig 7).
In our view, only BYD met its sales target of 1.6m units in 2022F, while NIO and
Li Auto only achieved 60-70% of their 2022F EV shipment targets. We believe
XPeng only reached 50% of its EV sales target due to substantially low production
efficiency and increased competition from BYD, Leapmotor and other new players
in the mass market.
BYD (1211 HK, Add, TP: HK$333.70). BYD continues to lead NEV market growth
with its shipments rising 220% yoy to of 1.63m units in 11M22. BYD dominated
China’s NEV market with 29.3% market share in Nov 22, thanks to positive
consumer response to the newly-launch Song DM, Qin Plus DMl, Han and Dlophin
models, as well as its huge production capacity and excellent supply chain
management.
Tesla (TSLA US, Not Rated, CP: US$121.82). According to CNEVPOST (EV
news services provider in China), Tesla’s EV sales increased by 64% yoy to 655k
units in 11M22, driven by strong performance by Model Y (EV deliveries jumped
121% yoy in 11M22), thanks to its renowned brand name in smart EV and
expanded capacity in its Shanghai Gigafactory.
NIO Inc (9866 HK, Add, TP:HK$130.30). NIO shipped about 106k EVs in 11M22,
up 33% yoy the back of three new model launches (ET5, ET7 and ES7) in the
second half of 2022 which boosted its EV sales.
XPeng (9868 HK, Add, TP:HK$80.10). XPeng’s EV deliveries were weak due to
declining demand for old models and slower-than-expected production ramp-up
for the G9 new models. The company delivered 109k units in 11M22, up 33% yoy.
Li Auto (2015 HK, Add, TP:HK$142.20). Li Auto’s EV shipments climbed 47%
yoy to 112k units in 11M22, which was the best performance among the top-3
smart EV makers in China, thanks to the launch of L9 and L8 in 2H22.
Guangzhou Automobile (GAC, 2238 HK, Not Rated, CP:HK$5.20). GAC’s Alon
also saw a big jump in EV sales. It delivered 241k units in 11M21, up 119% yoy.
Figure 7: China EV makers’ NEV sales, by volume (11M21 vs. 11M22)
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, CNEVPOST
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Figure 8: China EV makers’ battery EV sales, by volume and by month (Jan 2022 to
Nov 2022)
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, CNEVPOST
BYD gained market share in China’s NEV market. BYD’s market share has
been rising since the start of 2022 and hit 27% in 3Q22, widening the gap with
Tesla’s 13%, thanks to BYD’s expanded EV portfolio which covers SUVs and
Sedans from low- to high-end price segments (Fig 9).
GAC climbed to No. 3 in China’s NEV market. Leveraging on its long history in
ICE market and strong brand name, GAC’s Alon won c.4% pts market share in
3Q22, which was higher than China’s top-3 smart EV makers’ (NIO, XPeng and
Li Auto) gains of 1-2% pts in 3Q22.
Geely ranked sixth despite relatively short history in EV market. Geely’s
Zeekr (175 HK, Not Rated, CP:HK$11.36) has also witnessed strong growth since
it launched its first EV model in 4Q21, with quarterly deliveries rising from 6k units
in 4Q21 to over 20k units in 3Q22, thanks to its high performance battery and
sound marketing strategy.
China’s top-3 smart EV makers ranked fourth, fifth and seventh, respectively.
NIO and Li Auto are mainly focused on the premium segment and family SUVs
which were inevitably affected by the weakened consumer sentiment. Meanwhile,
XPeng, with a focus on mass market, suffered from fierce competition in the low-
to mid-end EV market and the slowdown in consumer demand (Fig 10).
Figure 9: BYD and Tesla’s NEV market share(1Q20 to 4Q22F), Figure 10: NIO, XPeng, Li Auto, Alon and Zeekr’s NEV market
quarter estimates by CGS-CIMB research share (1Q20 to 4Q22F), quarter estimates by CGS-CIMB research
SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, CNEVPOST
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EV delivery forecasts for 2023F-2024F

EV delivery forecasts for 2023F-2024F. We forecast China’s NEV sales growth
to decelerate to 38% in 2023F after robust shipment growth in 2021 (+164% yoy)
and 2022F (+105% yoy). However, it would still be significantly better than the
overall growth in vehicle sales in China. According to CAAM, China’s total vehicle
sales could decline 10% yoy to c.24m units in 2023F due to the economic
slowdown in China and the expiration of purchase subsidies.
We believe the key drivers for China NEV sales in 2023F include
1) Lower costs. High fuel prices could lead car owners to switch to NEVs
for lower running costs.
2) Abundance of new model launches. Based on EV makers’
announcements on their new models for 2023, more than 80% are NEV
models, compared with 50 new NEV models launched in 2022.
3) EVs becoming more intelligent. The rapid development and
improvement in smart cockpit and autonomous driving technologies in
smart EVs have revolutionised the mobility experience. Smart EV makers
have been paying enormous attention to their products’ technologies and
are trying to differentiate their products and boost EV sales.
4) Fast charging and infrastructure improvement. Fast charging
continues improving the vehicles’ efficiency and the country continues to
increase the number of charging piles/charging stations on expressways
and in cities.
Figure 11: BYD’s EV deliveries (FY21 to FY24F), annual Figure 12: NIO, XPeng and Li Auto’s EV deliveries (FY21 to
estimates by CGS-CIMB research FY24F), annual estimates by CGS-CIMB research
SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS
BYD likely to continue its robust EV deliveries in FY23F and FY24F. We

forecast BYD’s EV shipments to jump 204% to 1.84m units in FY22F (FY21:
+211% to 604k units), supported by the successful launch of new models,
including 1) Dynasty series’ Song DM-I SUV and Tang SUV, and 2) Ocean series’
Destroyer sedan and Seal sedan.
We expect BYD’s EV shipments to rise 60% to 2.93m units in FY23F and 23% to
3.60m units in FY24F, supported by 1) more competitive Ocean series (price
starts at Rmb200k/US$28k, targeting the mass market), and 2) steadily growing
Dynasty series (Rmb230k-300k/US$33k-43k), e.g. Song and Han models (Fig 13
and 14).
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Figure 13: BYD’s EV deliveries (1Q20 to 4Q22F), quarter Figure 14: BYD’s EV deliveries (FY18 to FY24F), annual
estimates by CGS-CIMB research estimates by CGS-CIMB research
NIO’s EV deliveries to grow 40%/93%/31% in FY22F/23F/24F. We estimate

NIO’s EV deliveries to rise 40% yoy to 128k units in FY22F. This would imply
deliveries of 45k units in 4Q22, up 42% qoq, thanks to three new models (ET7,
ES7 and ET5). We believe the deceleration in EV shipment growth in FY22F is
due to production and logistic disruptions amid prolonged Covid-19 measures and
weak consumer sentiment.
NIO will launch two new models in the first half of 2023F and, by Jun 2023, will
have a total of eight available models, which should better cover the different sub-
segments in China’s premium EV market. We expect NIO to deliver 247k/323k
units in FY23F/24F, with annual growth rates of 93%/31%, far outpacing China’s
NEV shipment growth rates of 38%/25% (Fig 15 and 16).
Figure 15: NIO’s EV deliveries (1Q20 to 4Q22F), quarter estimates Figure 16: NIO’s EV deliveries (FY18 to FY24F), annual estimates
by CGS-CIMB research by CGS-CIMB research
XPeng’s FY23F EV deliveries likely to recover strongly. XPeng experienced

relatively slow growth in EV deliveries in 2022F due to a lack of new models. We
estimate FY22F EV shipments to expand 22% yoy to only 119k units, the lowest
growth rate among the key EV players in China, mainly due to poor sales in 4Q22
which could fall 50% yoy due to disruptions to G9 production and weak demand
for its older models during the new model transition period.
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Nevertheless, we expect EV shipments to show a marked recovery in FY23F,

mainly driven by the G9, its first luxury SUV (a direct competitor to Tesla’s Model
Y), which comes equipped with 480kW fast charging technology and an industry-
leading autonomous driving system (second-generation assisted driving system
called XNGP). We are also positive on its two upcoming models, B-class SUV G5
(likely launching in 2Q23F) and large-size C-class sedan P9 (likely launching in
2H23F), which should enrich its EV portfolio and boost EV ASP and vehicle
margins given higher production efficiency on the new EV electric platform. We
forecast EV delivery to reach 166.8k units (+40% yoy) in FY23F and 276.4k units
(+66% yoy) in FY24F, mainly driven by the G9, P9 and G5 (Fig 17 and 18)..
Figure 17: XPeng’s EV deliveries (1Q20 to 4Q22F), quarter Figure 18: XPeng’s EV deliveries (FY18 to FY24F), annual
Li Auto will benefit from wealth of new model launches, EV shipment to jump
92%/28% yoy in FY23F/24F. We estimate Li Auto’s EV deliveries to come to
c.134k in FY22F, up 48% yoy, driven by the launch of L9 and L8 in the second
half of 2022. We believe L8 is the perfect replacement for Li ONE, the model
launched in Dec 19, given the enhanced battery performance, upgraded interior
design, Intelligent Cockpit system and self-developed autonomous driving
capabilities (Li AD Pro). We estimate L9 and L8 to achieve monthly shipments of
9k-10k units and 12k-13k units, respectively, in 2023F. Li Auto also plans to
launch a lower-priced family SUV, the Li L7 (Rmb340k/US$49k), in 1QCY23, to
target young families, which should enrich its EV portfolio in all the sub-segments
of the premium SUV market, in our view.
We estimate Li Auto’s EV deliveries to jump 92%/28% yoy to 258k/331k units in
FY23F/24F, the fastest growth rate among China top 3 smart EV makers, with the
step-up in its EV portfolio from only one model in Aug 22 to four models at end-
Dec 2023 (Fig 19 and 20).
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Figure 19: Li Auto’s EV deliveries (1Q20 to 4Q22F), quarter Figure 20: Li Auto’s EV deliveries (FY19 to FY24F), annual
BYD likely to maintain its leading position in China’s NEV market. We

forecast BYD’s market share in China’s NEV market to reach over 30% in 2023F
and 2024F due to its robust EV shipment growth, thanks to its large EV portfolio
which ranges from low-end to mid-high and premium price segments in SUVs and
sedans, and huge production capacity.
We expect NIO, XPeng and Li Auto to maintain low-single-digit market share in
China’s NEV market in 2023F and 2024F, given they are more focused on the
premium segment (small market size compared with mass-medium price segment)
and need time to build their production capacities (Fig 21).
Figure 21: BYD, NIO, XPeng and Li Auto’s market share in China’s NEV market, annual
estimates by CGS-CIMB research
SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS
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EV portfolio comparison by price segment and product type
Figure 22: EV portfolio by price segment and product type as at 29 Dec 2022
Price Level SUV Sedan
Each bar represent 20,000 units of delivery
Company NIO NIO XPeng Li Auto NIO
Model ES8 ES7 G9 Li L9 ET7
Delivery Date Jun-18 Aug-22 3Q 2022 Aug-22 Mar-22
Luxury
US$62,000 to 77,000
Cumulative deliveries 59,413 Upcoming <10k <10k 6,912
Company NIO NIO Li Auto BYD Tesla NIO

Model ES6 EC6 Li L8 Tang Model Y ET5
Delivery Date Jun-19 Sep-20 Nov-22 2021 and 2022 2021 and 2022 Sep-22
Cumulative deliveries 104,386 47,186 <10k 110,029 303,519 Upcoming

Premium
US$46,000 to US$62,000
XPeng BYD Tesla

P7 Han Family Model 3
Jun-20 2021 and 2022 2021 and 2022
110,716 214,888 214,769
US$31,000 to US$46,000
Mid-to-high end
Company XPeng XPeng BYD XPeng

Model G3 G3i Song P5
Delivery Date Dec-18 Sep-21 2021 and 2022 Oct-21
cumulative deliveries 11,788 53,233 368,281 10,400
US$23,000 to US$31,000
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS
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Navigating China
Profitability under pressure in 2023F

EV makers facing huge margin pressure
Margins eased in 3Q22. We estimate that BYD achieved EV sales profitability in
3Q22, with a net profit of Rmb10,000 per NEV. This is in contrast with major China
smart EV makers, which recorded huge losses from EV sales.
We believe NIO lost almost Rmb130,000 for every EV sold, XPeng lost around
Rmb80,000 on average per EV, and Li Auto lost about Rmb62,000 per EV in 3Q22.
We estimate Leapmotor (9863 HK, Not Rated, CP:HK$27.50), the fourth-largest
China smart EV maker as at 30 Sep 2022, has better profitability among peers
with a loss of around Rmb43,000 per EV in 3Q22 due to its lower R&D expenses
and simple EV portfolio (Fig 23).
Figure 23: Comparison of net profit per EV (2Q22 and 3Q22), quarter estimates by
CGS-CIMB research
Facing huge margin pressure on EV sales. We believe EV makers will continue

to face challenges in raising the profitability of their EV sales in the near future, or
at least in 2023F, due to three reasons:
1) surge in the prices of battery components including lithium, nickel and
cobalt, leading to higher in EV battery costs, erasing profits,
2) keener competition, resulting in an increase in marketing and
promotion expenses,
3) escalating R&D expenses on the back of the electrification and
intelligence trend among auto makers, and continuous rollout of new
models.
1) Higher EV battery costs hurting EV makers’ profitability:

Lithium prices on the uptrend since Jun 2021. The prices of lithium, nickel and
cobalt have risen substantially since Jun 2021, especially lithium prices. As at Oct
2022, the price of battery-grade lithium carbonate in China was more than eight
times that of Jun 2021 – we believe this was due to the booming EV industry
globally. The lithium carbonate price further increased to around Rmb450k per
tonne in 2Q22 due to disruptions in the global supply chain amid the Russia-
Ukraine War. Consequentially, lithium carbonate prices hit an all-time high of
Rmb600k/tonne at one point in Oct 2022 (Fig 24).
Lithium carbonate prices fell to about Rmb550k per tonne in Dec 2022, the lowest
in eight weeks amid speculation among market participants of weaker EV battery
demand in the next few months (1Q23F) due to the termination of NEV purchase
subsides (expired on 31 Dec 2022) and weak consumer demand in view of poor
China economic outlook.
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Navigating China
Sustained pressure on EV sales margin. The continual rise in lithium carbonate

prices has raised the production costs of all China NEV players, squeezing their
margin as EV makers are not able to easily raise their selling prices given the tight
competition.
EV makers reduce reliance on lithium-powered EV batteries. In order to deal
with the surge in EV battery costs, Tesla is shifting to lithium iron phosphate (LFP)
batteries for some variants of its Model Y. Other EV makers such as BYD and NIO
adopted a new cell-to-pack (CTP) technology, which has improved the energy
density of LFP batteries by eliminating the need for modules to house cells in the
battery pack, reducing dead weight in the pack.
Figure 24: Lithium carbonate prices (31 Dec 2019 to 22 Dec 2022)
700,000
Lithium carbonate prces (Rmb / ton)
600,000
500,000
400,000
300,000
200,000
100,000
-
Jun-20
Jun-21
Jun-22
Dec-19
Feb-20
Apr-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Aug-22
Oct-22
SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG
2) Competition intensifies with higher marketing and promotion expenses:

Tesla’s Model Y price cut made competition keener. On 24 Oct 2022, Tesla
kicked off a round of price cuts for its Model 3 and Model Y in China, with price
reductions of Rmb14k to Rmb37k per vehicle. Following that, in Nov, Tesla
announced an auto insurance subsidy of Rmb4k-8k for buyers, in a bid to boost
its weakened car sales.
With the price reduction, the selling price of Model Y dropped to below Rmb300k
after the purchase subsidy and become more competitive in high-end and
premium segments of electric SUVs (Fig 25).
Figure 25: Price comparison of high-end and premium electric SUVs
SOURCES: CGS-CIMB RESEARCH, BYD, AITO, TESLA, XPENG and NIO websites (price as at 30 NOV 2022)
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Navigating China
No direct price cuts among automakers, but offers of promotions extended

to consumers. We do not expect Tesla’s price cut at end-Oct 2022 to lead to
widespread price cuts in China’s NEV market. Most EV makers, including China’s
top 3 smart EV makers, have launched new models in 3Q and 4Q22, with prices
that are higher than prices of existing models due to the improved battery power,
and enhanced autonomous driving system and intelligent cockpit.
Although most of the smart EV markers do not directly cut prices, many offer
purchase incentives for consumers, such as free car insurance coverage or a
discount on the final payment, as well as extension of the NEV purchase subsidy
– some EV makers are providing buyers discounts equivalent to the government
NEV purchase subsidy if the buyer can only get delivery of the new car in 2023.
3) Increasing R&D investment on autonomous driving system and smart

cockpit.
EVs are becoming safer, with improvements in the autonomous driving
system and increase in in-car infotainment. Leveraging on the blooming
electricification and intelligence trend, China NEV market is heading towards the
“smart stage’. China smart EV models are nowadays provide safety, relieve traffic
congestion by intelligent advanced driver assistance system (ADAS) and provide
more in-car infotainment from smart cockpit.
Increasing R&D investment on smart technologies. BYD and some leading
smart EV makers (NIO, XPeng and Li Auto) have been increasing their R&D
budgets on smart technologies, and safety and quality – such as enhancing the
geographical coverage of their ADAS, sending over-to-air (OTA) upgrades, and
improving human-machine interaction (HMI) with augmented reality (AR) and
virtual reality (VR) capabilities, voice assistance (local language) and three-
dimensional (3D) interactive systems (Fig 26 and 27).
EV profit margin continues to be squeezed. Given that sophisticated ADAS
and an intelligent operating system (smart cockpit) are the key deciding factors
for customers in their smart EV purchases, we expect R&D expenses to stay high
for ADAS and smart cockpit upgrades among smart EV makers, and hence we
project their profit margin to remain low in FY23F.
China government has set out its vision for the smart and connected
vehicles in its development plan for the NEV industry (Source: China
State Council).
Strategic goals include:
1) Achieving mass commercialisation of high level of autonomous driving for
specific scenarios by 2025.
2) Strengthening the research and development of the key auto parts and
systems in relation to connected vehicles.
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Navigating China
Figure 26: Comparison on R&D expenses (FY21 to FY24F), Figure 27: Comparison on R&D expenses to sales ratio (FY21 to
annual estimates by CGS-CIMB research FY24F), annual estimates by CGS-CIMB research
30,000 160%
140%
25,000
R&D Expense (Rmb million)
120%
R&D expense to sale ratio(%)

20,000 100%
80%
15,000
60%
10,000 40%
20%
5,000
0%
- FY21 FY22F FY23F FY24F
BYD NIO LI Auto Xpeng
BYD NIO Xpeng LI Auto
FY2 1 FY22F FY23F FY2 4F
When will smart EV makers turn profitable?

When will smart EV makers turning profitable? We believe the biggest
challenge among China smart EV makers in FY23F is how to make their EV sales
profitable in view of 1) higher battery costs, 2) increasing R&D expenses, 3)
weakened consumer demand, and 4) keener competition (Fig 28).
Turning point in 4Q23F. Nevertheless, we expect a turning point for smart EV
makers in 4Q23F or 2024F, on the back of 1) production efficiency improvement
for new models, 2) change in product mix, 3) bigger operational scale, and 4)
softer lithium prices.
BYD. We forecast BYD’s net profit per EV will increase steadily from c.Rmb4,000
in FY21 to c.Rmb8000 in FY24F, as it leverages its integrated production
technology and benefits from a change in product mix.
Li Auto. We expect Li Auto will turn in a positive EV net profit of c.Rmb4,500 in
FY23F, driven by a ramp-up in production for its new models L9 and L8.
NIO. We estimate NIO’s losses will significantly narrow to Rmb20,100 in FY23F,
followed by a profit of Rmb2,600 in FY24F, from a big loss of approximately
Rmb116,000 in FY21, driven by its new NT 2.0 platform-based ES8 and the EC7.
Xpeng. We project XPeng to continue to post losses of Rmb1,000 per EV in
FY24F due to the high competition in the mass market (both NIO and Li Auto are
focusing on the premium segment) and continuous investment in intelligent and
connectivity features.
Figure 28: Comparison of net profit per EV (FY21 to FY24F), annual estimates by CGS-
CIMB research
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Navigating China
Valuation and recommendation

China NEV market growth momentum to remain strong but
sustained margin pressure likely in 2023F
China NEV market sales growth to stay high at 38% in 2023F. We believe
China’s NEV market has entered the full commercialisation stage and hence do
not expect the mild dip in subsidy (NEV purchase subsidy expired on 31 Dec 2022)
to have a material impact on sales in 2023F. We forecast China NEV sales to
grow 38% yoy to 9.4m units and the NEV penetration rate to further increase to
39% in 2023F.
Competition to lead to sustained EV margin pressure. However, we expect
competition to intensify among EV makers’ and internal combustion engine (ICE)
automakers’ EV models. In addition to the increased battery and semiconductor
price, high promotion and marketing expenses and continuous investment in R&D
for intelligence feature upgrades and new model rollouts will continue to exert
downward pressure on EV sales margins, inevitably constricting EV makers’
profitability in FY23F.
Maintain Overweight on China smart EV sector

Maintain Overweight on China Smart EV sector. We retain our Overweight call
on the China smart EV sector due to 1) rapidly-growing NEV sales in China due
to favourable government policy and consumers switching from ICEs to EVs for
better mobility experience, and 2) the booming electrification and intelligence
trend, which should lead to healthy competition between EV makers to
differentiate their products with intelligent features and battery technology.
Initiate coverage on BYD with Add. We initiate coverage on BYD with an Add
rating and name it our top pick in the sector. We are positive on BYD due to its
rapidly-growing NEV and battery business (we estimate EV deliveries to rise from
1.84m units in FY22F to 3.60m units in FY24F) and robust net profit growth of
104% EPS CAGR from FY21 to FY24F, thanks to its increasing market share in
the low-to-mid-range price segment and expanding profitability for its EV and EV
battery manufacturing businesses.
SOP-based TP of HK$333.70. Our SOP-based TP of HK$333.70 for BYD is
equivalent to c.39x FY23F P/E, which we find undemanding as its current
valuation does not fully reflect its growing market share in China’s NEV market
and global EV battery industry. We believe the valuation gap between BYD and
Tesla will narrow in the near future, driven by faster EV shipment growth and
stronger EV battery output.
Share price re-rating catalysts and risks: Re-rating catalysts: 1) sustainable
market share gains in China NEV market, 2) improved profitability in NEV
business, and 3) stronger EV battery output. Downside risks: 1) keener
competition in China NEV market hurting EV business profitability, and 2) surge
in raw material prices affecting its vehicle margin.
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Navigating China
Figure 29: BYD’s P/S, estimates by CGS-CIMB and Bloomberg Figure 30: BYD’s P/E, estimates by CGS-CIMB and Bloomberg
consensus consensus
SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG
Maintain Add on China’s top 3 smart EV makers. We retain our Add ratings on
China’s top 3 smart EV makers (NIO, XPeng and Li Auto) on the back of 1)
expanding market share in price segments ranging from mass to luxury, 2) rollout
of EVs with state-of-the-art intelligent and connectivity features, and 3) improving
profitability from EV sales.
Reiterate Add on Li Auto, DCF-based target price of HK$142.20. We reiterate
our Add rating on Li Auto for its robust EV sales outlook, thanks to strong new
models in the pipeline. Our DCF-based TP of HK$142.2 (WACC: 12.5%, TGR:
3%, COE: 14%, RFR: 5%) is equivalent to 76x P/E and 54x EV/EBITDA in CY24F.
Share price catalysts and downside risks: Share price catalysts are robust
monthly shipments for the Li L9 and Li L8 and pure battery EV rollout. Downside
risks: keener competition in premium smart EV market, sustained high battery
costs, which will hurt its EV profit margin, and lower-than-expected vehicle sales.
Figure 31: Li Auto’s P/S, estimates by CGS-CIMB and Bloomberg Figure 32: Li Auto’s P/BV, estimates by CGS-CIMB and
consensus Bloomberg consensus
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Navigating China
Reiterate Add on NIO, DCF-based target price of HK$130.30. We reiterate our

Add rating on NIO as we believe it should capture more market share in China’s
premium EV segment with new models in its pipeline. Our DCF-based target price
of HK$130.3 (WACC: 9.4%, TGR: 3.0%, COE: 15.1%, RFR: 5.0%) is equivalent
to 242x P/E and 56x EV/EBITDA in CY24F.
Share price catalysts and risks: Share price catalysts are strong deliveries of
the ET7, ES7 and ET5 and sustained improvement in vehicle margins. Downside
risks: keener competition in China’s premium EV segment and higher-than-
expected costs for R&D in battery swap technology which could hurt its profitability
in EV sales.
Figure 33: NIO’s P/S, estimates by CGS-CIMB and Bloomberg Figure 34: NIO’s P/BV, estimates by CGS-CIMB and Bloomberg
consensus consensus
Reiterate Add on XPeng, DCF-based target price of HK$80.10. We reiterate

our Add call on XPeng as we expect its EV shipments to accelerate in FY23F and
its profitability to improve, thanks to a bigger EV portfolio (6 models) and greater
operating efficiency. Our DCF-based TP of HK$80.10 (WACC: 13.6%, TGR: 3%,
COE: 14.0%, RFR: 5%) is equivalent to 97x EV/EBITDA in CY24F.
Share price catalysts and risks: Share price catalysts include strong G9
deliveries and improving vehicle margins. Downside risks: keener competition and
battery costs staying high, which will inevitably hit its EV profit margins and lower-
than-expected EV deliveries in the G9.
Figure 35: XPeng’s P/S, estimates by CGS-CIMB and Bloomberg Figure 36: XPeng’s P/BV, estimates by CGS-CIMB and
consensus Bloomberg consensus
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Navigating China
Figure 37: Peers comparison

Market
Bloom berg Price Target price Cap P/E (x) 3-year P/BV (x) ROE (%) EV/EBITDA (x) Yield (%)
Upside EPS
Com pany Code Recom . (local curr) (local curr) (US$m ) CY2022F CY2023F CY2022F CY2023F CY2022F CY2023F CY2022F CY2023F CY2022F CY2023F
(%) CAGR %
NIO, Li Auto and Xpeng
NIO Inc 9866 HK Add 78.15 130.3 67% 16,752 na na na 5.5 5.3 -43.7% -23.3% na na 0.0% 0.0%
Zhejiang Leapmotor 9863 HK Not Rated 27.50 N/A n.a. 4,030 na na na 4.2 9.8 -42.8% 59.3% na na 0.0% 0.0%
Li Auto 2015 HK Add 74.50 142.2 91% 19,928 na 118.4 na 2.7 2.7 -3.5% 2.3% na 73.5 0.0% 0.0%
XPeng Inc 9868 HK Add 37.55 80.1 113% 8,314 na na na 1.8 2.4 -26.1% -22.9% na na 0.0% 0.0%
Electric vehicle m anufacturers

BYD Co. 1211 HK Add 191.00 333.7 75% 93,182 37.5 22.1 105.2% 5.1 4.5 14.4% 21.5% 14.4 9.8 0.3% 0.5%
Tesla Inc TSLA US Not Rated 112.71 N/A n.a. 355,910 27.5 21.0 47.3% 8.4 6.2 33.9% 32.2% 17.5 12.3 0.0% 0.0%
Average 32.5 21.5 76.2% 6.8 5.3 24.1% 26.8% 15.9 11.1 0.1% 0.2%
China Autom oible m anufacturers

Geely Automobile 175 HK Not Rated 11.36 N/A n.a. 14,653 18.8 13.1 15.8% 1.4 1.3 7.1% 9.6% 7.3 5.4 1.8% 2.5%
Great Wall Motor 2333 HK Not Rated 10.00 N/A n.a. 29,278 8.2 8.1 19.1% 1.2 1.1 15.0% 13.7% 13.3 11.2 5.1% 5.4%
Guangzhou Auto 2238 HK Not Rated 5.20 N/A n.a. 13,657 4.7 4.1 22.8% 0.5 0.4 10.6% 10.9% 86.3 15.4 6.0% 6.7%
Average 10.6 8.4 19.2% 1.0 0.9 10.9% 11.4% 35.6 10.7 4.3% 4.9%
Foriegn autom obile m anufacturers

Kia Motor 000270 KS Add 59,300 80,000 35% 18,963 4.5 3.9 11.4% 0.6 0.5 14.3% 14.6% 1.2 0.6 2.0% 2.0%
Hyundai Motor 005380 KS Add 151,000 190,000 26% 25,452 5.5 4.9 22.7% 0.5 0.5 9.8% 9.9% 7.4 6.1 2.0% 2.6%
Toyota 7203 JP Not Rated 1,817.00 N/A n.a. 221,872 9.1 9.3 13.9% 1.0 0.9 11.6% 10.1% 12.9 11.9 3.2% 3.2%
BMW BMW GR Not Rated 83.13 N/A n.a. 58,228 3.5 6.0 -4.1% 0.7 0.6 20.9% 10.6% 4.1 4.1 9.0% 5.7%
Mercedes-Benz Group MBG GR Not Rated 61.15 N/A n.a. 69,575 4.8 5.3 -5.7% 0.8 0.8 18.1% 15.3% 1.6 1.5 8.1% 7.8%
Volksw agen VOW GR Not Rated 145.30 N/A n.a. 70,792 4.4 4.9 5.3% 0.5 0.5 11.4% 9.7% 0.9 0.9 10.0% 5.9%
Ford F US Not Rated 10.95 N/A n.a. 44,024 5.6 6.0 -2.0% 1.0 0.9 15.2% 12.6% 2.1 2.6 4.5% 4.9%
General Motor GM US Not Rated 32.53 N/A n.a. 46,215 4.5 5.5 -5.3% 0.7 0.6 17.3% 11.2% 2.6 2.5 0.5% 1.6%
Average 5.2 5.7 4.5% 0.7 0.7 14.8% 11.7% 4.1 3.8 4.9% 4.2%
Battery m anufacturers
CATL 300750 CH Not Rated 393.96 N/A n.a. 138,154 36.0 23.9 57.1% 7.3 5.5 21.4% 23.3% 23.6 15.2 0.1% 0.4%
EVE Energy 300014 CH Not Rated 89.91 N/A n.a. 26,356 51.2 27.9 44.9% 8.0 5.8 15.8% 22.5% 50.2 24.3 0.2% 0.4%
Gotion High-Tech 002074 CH Not Rated 29.65 N/A n.a. 7,573 89.8 33.4 108.5% 2.5 2.4 2.8% 7.5% 29.0 16.2 0.3% 1.0%
Shenzhen Desay Battery 000049 CH Not Rated 44.10 N/A n.a. 1,896 15.0 13.1 15.9% 3.4 2.8 22.8% 22.4% N/A N/A 1.5% 1.7%
LG Energy Solution 373220 KS Not Rated 435,500 N/A n.a. 80,368 110.1 60.0 44.6% 5.3 4.9 7.0% 8.8% 31.9 21.3 0.0% 0.0%
SK On 096770 KS Not Rated 154,000 N/A n.a. 11,230 5.3 7.0 47.5% 0.7 0.6 14.3% 9.1% 4.0 5.4 2.4% 2.3%
Samsung SDI 006400 KS Add 591,000 890,000 51% 32,059 22.7 19.1 29.4% 2.5 2.2 11.4% 12.1% 8.4 6.7 0.2% 0.2%
Average 47.2 26.4 49.7% 4.2 3.5 13.6% 15.1% 24.5 14.9 0.7% 0.8%
Electric vehicle parts m anufactuers

LK Technology 558 HK Not Rated 6.22 N/A n.a. 1,098 12.7 14.6 44.1% 2.5 2.0 22.0% 14.6% 8.9 9.5 1.3% 1.8%
Times Electric 3898 HK Not Rated 37.80 N/A n.a. 9,421 19.8 17.1 16.3% 1.4 1.3 7.2% 7.5% 19.7 17.1 1.3% 1.5%
Ningbo Joyson Electronic 600699 CH Not Rated 13.92 N/A n.a. 2,734 38.8 19.4 -222.0% 1.6 1.5 4.1% 7.6% 9.8 7.9 0.9% 1.5%
Continental AG CON GY Not Rated 55.92 N/A n.a. 11,895 14.6 6.7 14.4% 0.9 0.8 3.7% 12.5% 3.9 3.0 2.2% 4.7%
Valeo FR FP Not Rated 16.71 N/A n.a. 4,327 18.0 8.9 62.1% 1.1 1.0 5.9% 11.6% 3.6 3.0 2.5% 4.3%
Magna International MGA US Not Rated 55.05 N/A n.a. 15,734 12.1 9.1 16.0% 1.5 1.4 11.4% 15.1% 5.7 4.9 3.3% 3.4%
Average 19.3 12.6 -11.5% 1.5 1.3 9.0% 11.5% 8.6 7.6 1.9% 2.9%
Autom otive softw are providers

Desay SV 002920 CH Not Rated 107.72 N/A n.a. 8,588 55.0 37.4 42.7% 9.5 7.8 18.6% 22.8% 38.2 27.5 0.5% 0.7%
ThunderSoft 300496 CH Not Rated 102.86 N/A n.a. 6,755 50.1 37.1 36.4% 6.0 5.2 13.7% 15.6% 43.0 30.9 0.4% 0.5%
Average 52.5 37.2 39.5% 7.8 6.5 16.1% 19.2% 40.6 29.2 0.4% 0.6%
SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG (PRICE AT AS 29 DEC 2022)

Note: Forecasts for Not rated companies are based on Bloomberg consensus estimates
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Navigating China
Risks
Policy risks
China government policy risks. Robust EV shipments growth in the NEV
industry depends significantly on government incentives. Favourable policies
such as one-time subsidy, tax exemption on NEV purchases, exemption from
license plate restrictions, charging facilities implementation and expansion, etc.
helped to create a healthy and solid ecosystem for the NEV industry. In Sep 2022,
China government announced the end of its NEV purchase subsidy on 1 Jan 2023
(the policy was launched in 2013); this would affect the short-term demand for
NEVs, in our view.
No limit on foreign ownership of NEV manufacturers. On 23 Jun 2020, China
ministries announced the Special Administrative Measures for Market Access of
Foreign Investment, or the 2020 Foreign Investment Negative List, under which
foreign EV competitors could build wholly-owned facilities in China without the
need for a domestic joint venture partner. For example, Tesla constructed the
Tesla Giga Shanghai factory in Shanghai without a joint venture partner. Such
changes have led to greater market competition and reduced the pricing
advantage of local automakers.
Industry risks
Highly competitive EV market in China. China is the world’s largest passenger
vehicle market and new electric vehicle (NEV) market. According to Frost &
Sullivan, China’s passenger vehicles sales volume was 26m units in 2020. China’s
EV market has been growing rapidly since 2016 on the back of various favourable
government policies. We estimate a CAGR of 34% for China’s NEV market from
2021 to 2025 and sales of 13.9m units in 2025. Nevertheless, China’s EV market
is highly competitive, with foreign brands to domestic traditional fuel vehicle
automakers and fast-growing Chinese EV makers. They compete with each other
on car designs, digital cockpit technology, autonomous driving, battery technology
and customer service, as well as pricing.
Inadequate public and private charging stations. According to China
government statistics, most of the public charging stations are located in Tier 1
cities, such as Shanghai, Guangzhou, and Beijing. Poor allocation of these
stations may be one of the factors impeding NEV adoption in China, as it may not
be sufficient to support the growth of BEVs as those in rural regions or low-tier
cities may find it difficult to charge their EVs.
Mis-planned residential area for deploying private charging piles. The
development of private charging infrastructure is affected by factors such as
limited residential parking spaces in cities with high population density, low
percentage of residential parking space suitable for installing home charging stalls,
and power grid capacity limits in aged residential areas. According to the CIC
Research Inc (a full service marketing, economics and survey research firm)
report, as of 31 Dec 2020, fewer than 25% of families in first-tier cities in China
had a parking space suitable for installing home charging stalls, compared with
over 70% of families in the United States. Lack of private charging piles may cause
inconvenience to users, and is another downside risk to NEV adoption and
decelerate the growth of BEVs
Rising battery costs to hit vehicle margin. The price of lithium carbonate has
been rising continuously since Jun 2020, from the price was around Rmb41k per
ton, has exceeded Rmb600k per ton in Oct 2022. The Battery-grade lithium
carbonate prices in China costs surged 10-14 times more than its price in two
years ago. Power batteries production will be severely hindered since lithium
carbonate is one of the major raw materials for power batteries. The boosting
procurement demand of upstream raw materials of the rapidly-growing EV sales
could further push up the price. As a result, the profit margin for the company
could be affected due to higher production costs with respect to the rise of raw
materials. Therefore, consumers face a higher retail price for new energy vehicles
and the company suffer from lower profit margin.
23
Navigating China
Appendix: China’s NEV policy

China’s NEV Policy: Policy, infrastructure, and technology
We categorise China’s NEV policy into three pillars, i.e. government
administrative policies, charging infrastructure, and battery technology.
1) Government administrative policies: Supportive policies such as the
Parallel Credit Administration, government subsidies and purchase tax
exemptions have made NEVs more cost-effective for makers to produce
and for buyers to purchase.
2) Expansion of EV charging infrastructure. Rapid installation of
charging infrastructure including charging pile/charging stations across the
country provide convenience to EV users.
3) Iteration in EV battery technology. Continuous EV battery technology
development has helped to build a solid foundation and make EV battery
manufacturing self-sufficient in order to support the robust NEV momentum
in China.
1) Government administrative policy – Parallel Credit

Administration, Subsidy and Purchasing Tax Exemptions
Key Policy 1: The Parallel Credit Administration. We believe the Parallel Credit
Administration provides robust and continued support for the NEV industry. It
rewards NEV manufacturers with subsidies, and imposes a penalty on those who
do not meet targets.
On 27 Sep 2017, the official version of the “Measure for the Parallel Administration
of the Corporate Average Fuel Consumption (“CAFC”) and New Energy Vehicle
Credits of Passenger Vehicle Enterprises” (hereinafter referred to as “Parallel
Credit Administration” (a.k.a. “Dual Credit policy”) were issued by the Ministry
of Industry and Information and Technology (“MIIT”), and came into effect as of 1
Apr 2018.
The mechanism. Under the Parallel Credit Measure, all automotive

manufacturers need to produce a certain percentage of EVs to obtain CAFC and
NEV credits. Currently, the NEV credit target is based on 14%/16%/18% of
vehicles output in 2021, 2022F, and 2023F, respectively.
What are CAFC and NEV credits?

CAFC credit is used to measure an automaker’s average fuel consumption level of its
passenger vehicles, while NEV credit is a gauge for an automaker’s ability to
manufacture passenger EVs.
For example, if an automaker produces 1,000,000 units of conventional ICE

vehicles in 2022F, and the target NEV credit is 16%, then 160,000 NEV credits
(1,000,000×16%) would be the target for that automaker in 2022F. Any automaker
that fails to meet the target value of NEV credits would be considered to be in a
deficit, and would need to purchase NEV credits from other companies to offset
the deficit. If not, it would be penalised by the central government and its vehicle-
manufacturing business may be suspended until its negative credits are zeroed
out. This is similar to CAFC credits, with the recent CAFC credits target set at
5.0L/100km of the New European Driving Cycle (“NEDC”) average fleet. If an
automaker has a CAFC credit surplus, it can be carried over to the following years,
and transferred among affiliates or traded; however, it cannot be used to offset an
NEV credit deficit. In contrast, an OEM’s NEV credit surplus may be used to make
up for either an NEV credit deficit or CAFC credit for the same OEM, but cannot
be carried over to the next year, transferred or traded other than on the MIIT official
platform. Below is an example of the Parallel Credit Administration (Fig 38):
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Figure 38: Summary of how the Parallel Credit Administration is applied to “Automaker N”
Automaker N
CAFC credits NEV credits
Surplus Deficit Surplus Deficit
- Bank and carry - Use banked - Sell NEV credits - Purchase NEV
forward CAFC surplus CAFC surplus from surplus to other credits from other
own company company company
- Transfer CAFC
surplus to affiliated - Transfer CAFC
companies credits from affiliated
company
- Use NEV credits

from own company
- Purchase NEV
credits from other
company
If Automaker N can't offset deficit, then it is

likely to receive penalties.
SOURCES: CGS-CIMB RESEARCH, CHINA STATE COUNCIL
Important implications of the Parallel Credit Administration. The mechanism

implies an NEV-oriented feature of itself as it can benefit NEV manufacturers in
the following ways:
1. The policy acts as a huge impetus to the electrification trend in China’s
automotive sector, as automakers need to consider both CAFC and NEV
credits.
2. The policy acts as a direct subsidy mechanism for automakers, especially
those focus on NEV production. The credit programme provides another
source of income for NEV manufacturers.
Key policy 2: Government subsidy policy for NEV. To support the promotion
and application of NEVs in China, the government has launched a subsidy
scheme for both NEV consumers and producers. The scheme, first put into effect
in Apr 2015, allows consumers to purchase NEVs by paying the original price
minus the subsidy amount, while the producers can receive the subsidy amounts
after such NEVs are sold to the purchaser (Figs 39 & 40).
Subsidies Review and Update. In Dec 2020, the government announced a
further adjustment to the subsidy standards. It will steadily lower direct per vehicle
subsidies by 10%, 20%, and 30% each year between 2020 and 2022 respectively,
and set subsidies for 2m vehicles as the upper limit of the annual subsidy scale.
The aim of the reduction is to force producers to lower their cost of production, in
the hope that this will improve production efficiency and spur technology
innovation. Below is a recap of the government’s subsidy scheme and an overview
of the subsidy amount between 2020 and 2022:
NEV purchase subsidy to end on 31 Dec 2022. In Sep 2022, the China
government announced that its NEV purchase subsidy will no longer be offered
on 1 Jan 2023; the policy was launched in 2013.
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Navigating China
Figure 39: Government subsidies for purchase of NEVs (2015–2022)
Date Department Details

Sep-22 the Ministry of Finance Termination of purchase subsidy on 1 Jan 2023
the Ministry of Science and Technology - China governement accounts to terminate NEV purchase subsidy on 1 Jan 2023
the Ministry of Industry and Information Technology
the National Development and Reform Commission
Dec-20 the Ministry of Finance Improvement of the financial subsidy policy for the promotion and application of NEVs
the Ministry of Science and Technology - To provide subsidy for NEVs priced below Rmb300k or NEVs with battery swapping services
the Ministry of Industry and Information Technology - To steadily reduce direct per vehicle subsidies by 10%, 20%, and 30% each year of between FY20 and FY22F,
the National Development and Reform Commission respectively, on previous year's subsidy basis
Dec-16 the Ministry of Finance Adjusting the Subsidy Policy for the Promotion and Application of NEVs
the Ministry of Science and Technology - To set the central and local governments subsidies limit, the local financial subsidies (local fiscal subsidy sum) shall
the Ministry of Industry and Information Technology not exceed 50% of the central finance for the single car
the National Development and Reform Commission - To reduce central and local subsidies for various types of NEVs by 20% based on the 2017 subsidy standards
Apr-15 the Ministry of Finance Financial Support Policies on the Promotion and Application of NEVs in 2016-2020
the Ministry of Science and Technology - To provide consumer subsidies from the PRC national government in purchasing specified types of NEVs
the National Development and Reform Commission - To receive the consumer subsidy from the PRC government after such NEV is sold to consumers
- To Provide a preliminary phase-out schedule for the provision of subsidies
Figure 40: Government subsidies for purchase of NEVs (2015–2022)

Amount of subsidy (Rmb)
Decreasing Rate
Types of NEV NEDC range (km) (for non-public sector)
2019 2020 2021 2022 2020 2021 2022
300 - 400 18,000 16,200 13,000 9,100 -10% -20% -30%
BEV 400 - 500 25,000 22,500 18,000 12,600 -10% -20% -30%
≥ 500 25,000 22,500 18,000 12,600 -10% -20% -30%
EREV ≥ 50 10,000 8,500 6,800 4,800 -15% -20% -29%
Key policy 3: Purchasing tax exemptions for NEV. In order to promote and
support the development of NEVs (include pure EV, PHEV and fuel cell vehicles),
China first introduced purchase tax exemptions in 2014. The policy allows most
consumers buying NEVs to save about Rmb10,000 (US$1,540) relative to those
buying traditional ICE vehicles.
The policy originally expired at the end of 2017, but was extended to the end of
2020 before it expired, and in March 2020, China extended the policy again to the
end of 2022.
Purchase tax exemption for NEVs has been extended. On July 29, 2022, an
executive meeting of the State Council hosted by Li Keqiang, China’s Premier,
has confirmed to extend the purchase tax exemption for NEVs to end-2023.
Relevant policies/announcements summary for NEV Industry

Policy summary. Below is a table summarizing relevant and vital government
policies or announcements for the NEV industry, released by the ministries or the
central government since 2019. We further classify policies into four categories:
overall, infrastructure, financial, and promotion, reflecting a well-organised
implementation scheme by the Chinese government. (Fig 41):
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Navigating China
Figure 41: Relevant policies/announcements for NEV Industry (Jan 2019 to Dec 2022)
Relevant Policies/Announcements for NEV Industry
Date Department Policy Type Policy Details
2022
Dec-22 China State Council Financial Termination of financial subsidy on EV consumption
Ministry of finance Policy - Subsidy in 2022: Rmb4800/ each new PHEV , maximum Rmb 12,600 /each new BEV
and other government departments '- Terminate on 31/12/2022, all EV bought after this date will not receive any subsidy from the country.
'- offically comes to an end after its launch in 2013
China State Council Infrastruture Removal of restrictions on the relocation of small non-operational used cars
Policy - further release the potential of automobile consumption, activate the second-hand car market.
- promote automobile renewal consumption,in order to boost NEV makret penetration

- booster for NEV sales, to replace the effect brought by financial subsidy
Sep-22 China State Council Finanical Confirmation on the extension of NEV purchase tax exemption
Policy - To confirm that the country's purchase tax exemption for NEVs will be renewed next year
- To increase the number of quotas and relax restrictions on eligibility to purchase cars
Jun-22 Ministry of Finance Finanical Tax cut policy on low-emission passenger vehicles
the General Administration of Taxation Policy - To halve the car purchase tax for passenger vehicles priced at no more than RMB 300k and
with 2-liter or smaller engines, which last from June 1 to the end of 2022
- To limit tax exemption on purchasing passenger cars, which no more than nine seats
Jan-22 The National Development and Reform Infrastructure Guidelines for expanding electric vehicle charging infrastructure
Commission and other nine government Policy - To expand charging services for electric vehicles to meet the demand of 20m vehicles by
departments 2025
- To have rapid charging stations for no less than 60% of expressway service areas in the
the country by 2025
- To equip rapid charging stations for no less than 80% of national ecological civilisation pilot
zones and key areas for air pollution prevention and control by 2025
- To strengthen maintenance and Internet services for charging facilities
- To improve battery charging and swapping capabilities in urban and rural areas
2021
Mar-21 China State Council Overall The 14th Five-Year Plan of the People’s Republic of China
Policy - To focus on higher quality and standards for NEV manufacturing
- To promote the development of Na-ion battery industry
- To launch or extend incentive policies for NEVs, such as tax exemptions, preferable loans,
and co-financing
- To encourage development of battery recycling industry and highlight the importance battery
design and production, quality control, packaging and transportation, etc.
2020
Dec-20 Ministry of Finance Financial Improvement of the financial subsidy policy for the promotion and application of NEVs
Ministry of Industry and Information Technology Policy - To provide subsidy for NEVs priced below Rmb300k or NEVs with battery swapping services
Ministry of Science and Technology - To steadily reduce direct per vehicle subsidies by 10%, 20%, and 30% each year of between
National Development and Reform Commission 2020 and 2022,respectively, on previous year's subsidy basis
Oct-20 China State Council Overall The New Energy Vehicle Industry Development Plan (2021-2035)
Policy - To increase the scale of R&D of EVs' operating system and power batteries
- To strengthen the EV charging and hydrogenation infrastructure by developing a public
fast-charging network, providing funds for facility construction, and encouraging the battery
exchange mode
- To enhance international cooperation for new energy vehicles
- To issue a new policy to support the use of new energy vehicles
- To reach 80% NEV penetration for the entire public sector, such as public transport, logistics,
and distribution vehicles
Aug-20 Ministry of Transport Infrastructure Guiding opinions on the construction of new infrastructure in the field of transport
Policy - To build intelligent transportation system (ITS) infrastructure
- To gradually introduce intelligent trains, self-driving vehicles and intelligent ships in the
transport system
Apr-20 State Taxation Administration Financial Catalogue of NEVs exempted from vehicle purchase tax
Ministry of Industry and Information Technology Policy - To exempt NEVs from vehicle purchase tax, including EVs and PHEVs
- To encourage NEV transition by consumers
2019
Jul-19 Ministry of Industry and Information Technology Infrastructure Phase V fuel consumption standards for passenger vehicles (GB 27999-2019)
Policy - To change the calculation method for maximum fuel consumption limits
- To add referral indexes for calculating CO2 emissions for gasoline and diesel vehicles
Jun-19 12 Ministries in total, including the Ministry of Promotion Green Travel Action Plan
Travel Policy - To promote green travel
- To improve quality of public transport services
- To raise people's awareness of the benefits of green travel
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Local government EV policy overview

Policy overview of local governments. In addition to the policy or
announcement issued by the central government, the local governments have
also implemented a broad array of EV policies to boost the NEV sales. Below is a
brief summary of the EV promotion policies in China’s Tier 1, New Tier 1, and 2
cities: (Fig 42):
Figure 42: EV promotion policy of major cities in China
City Car plates restricitions and Traffic restrictions and Lower cost or free parking Subsidies for the use of Direct ZEV purchase Public bus fleet
ZEV direct access ZEV waivers charging infrastructure subsidies electrification
Tier 1 City
Beijing Yes Yes Yes (2020)
Shanghai Yes Yes Yes (2020) Yes (2025)
Guangzhou Yes First hour Yes (2020/21) Yes (2020)
Shenzhen Yes First two hours Yes (2020/21)
New Tier 1 City
Chengdu Yes First two hours Yes
Chongqing Yes 100% off Yes Yes (2020)
Hangzhou Yes Yes Yes (2022)
Wuhan Yes First hour and then 50 % off
Nanjing First hour Yes (2021)
Tianjin Yes Yes Yes (2020) Yes (2020)
Suzhou First hour Yes (2020)
Xi'an Yes First two hours Yes (2019)
Changsha Yes (2020)
Zhengzhou 50% off Yes (2020)
Dongguan Yes (2020)
Ningbo Yes (2022)
Tier 2 City
Foshan Yes (2019)
Kunming First two hours Yes
Jinan Yes First two hour and then 50 % off (BEV)
Yes (2020/21) Yes
Shijiazhuang Yes Yes (Dec 2020) Yes (2020)
2) Charging Infrastructure – The expansion of charging

facilities
Early foray into charging infrastructure. We believe another key factor that will
help grow the NEV market in China is the rapid implementation of charging
infrastructure. Placing charging stations in strategic locations would provide
customers with a full range of services that allow them to easily recharge their
NEV. Improving the convenience of using NEVs enhances user experience, thus
drawing new customers and boosting sales. In fact, the Chinese government has
announced plans for charging infrastructure in at least four documents in the past
several years (Fig 43):
Figure 43: Four building blocks of charging infrastructure (2015-2016)

Date Department Details
Jul-16 National Development and Reform Commission A Notice on Accelerating Residential EV Charging Infrastructure Construction
- Setting out standards and procedures for residential charging infrastructure
- Designating the Jing-Jinn-Ji, Yangtze River Delta and Pearl River Delta regions as demonstration zones
for residential charging infrastructure development
Jan-16 Ministry of Finance The 13th Five-year Plan for New Energy Vehicle Infrastructure Incentive Policies
Ministry of Science and Technology - Rmb90m in funding for installation of charging infrastructure
Ministry of Industry and Information Technology - Minimum number of charging posts in each charging station
National Development and Reform Commission - Government buildings need to install chargers
National Energy Administration - The procurement of chargers would be open to any charging manufacturer
Oct-15 National Development and Reform Commission Guidelines for Developing Electric Vehicle Charging Infrastructure (2015–2020)
- At least 120,000 EV charging stations and 4.8m EV charging posts by 2020
- Establishing a grid of EV-charging-enabled highways covering the most populous coastal provinces of
East China
Sep-15 China State Council Guidelines for Accelerating the Construction of Electric Vehicle Charging Infrastructure
- All new residential constructions are required to be equipped with EV charging
- 10% of parking spaces in large public buildings need to be reserved for EV charging
- At least one public charging station for every 2,000 Evs
- Public-private partnerships to develop charging infrastructure in places such as shopping malls, grocery
stores and major parking facilities
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Enjoying the advantages of being the first mover. Thanks to these early
insights, According to Frost & Sullivan, there were more than 1.3m public charging
piles in 2021, representing 170 charging piles per 1,000 EV ownerships, 39% of
which were DC fast chargers, in China, accounting for 74% of global charging
piles. With continuous policy support from the Chinese government, Frost &
Sullivan forecasts the total number of public charging piles to reach 5.7m in
2025F, at a CAGR of 48%, of which 61% will be DC fast chargers, taking China’s
share of its charging network to 83% (Fig 44 & 45).
Figure 44: Total number of charging piles in China
SOURCES: CGS-CIMB RESEARCH, FROST & SULLIVAN
Figure 45: China’s charging infrastructure network share (vs. rest of the world)
SOURCES: CGS-CIMB RESEARCH, FROST & SULLIVAN
Charging network expanding to rural areas. In Jan 22, Beijing announced its
latest visions and goals of a well-balanced charging infrastructure network,
covering both urban and rural areas. The local government plans to provide rapid
charging stations for at least 60% of expressway service areas by 2025F, and
strengthen maintenance and Internet services for charging facilities to guarantee
solid work in grid construction and energy supply, together with quality and safety
provisions.
So far, China has the largest charging infrastructure networks for NEVs in the
world, with over 1.3m public charging piles. Most of these charging piles are
located in regions such as Guangdong and Shanghai. We expect a well-balanced
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charging network can facilitate wider BEV deployment, which will support the NEV
sales target mentioned in the Plan 2021-2035 (Fig 46).
Figure 46: China’s charging piles distribution (2021)
SOURCES: CGS-CIMB RESEARCH, JOURNAL of ADVANCED TRANSPORTATION
3) Technology – advancements in battery technologies

Battery technology advancements in tandem with China NEV sales. We
believe that advancements in battery technology are also key to increasing NEV
adoption in China. Automakers can offer products with better quality such as
improved driving range, enhanced battery safety, etc. Upgrades in battery
technologies can guarantee better NEV performance and enhance user
experience. Also, technology upgrades improve the cost-effectiveness of
producing an EV battery, lower the cost of NEV production and as a result, lead
to affordable prices for consumers.
According to the Global EV outlook 2022 released by the IEA, China is now
accounting for 76% battery cell production, dominating the entire EV battery
supply chain, particularly in stages such as cell components production, battery
cell/pack production, and EV production. As a result, battery technologies iteration
acted as a solid foundation to support the rapid growth of China NEV industry.
The energy density of battery cells (Lithium-ion batteries) was increased from
around 250 Wh/L in FY17 to over 600 Wh/L nowadays. Such advancements have
improved the battery mileage and charging efficiency of NEVs, bringing better
user experience and thus, creating demand-driven forces in purchasing NEVs (Fig
47 & 48).
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Figure 47: EV battery supply chain
SOURCES: CGS-CIMB RESEARCH, INTERNATIONAL ENERGY AGENCY
Figure 48: Top-three companies in each production stage in 2021

Mining Cell Components Battery Production EV Production
- Lithium - Cathode CATL (China) Tesla (US)
Sociedad Quimica y Minera de Chile (Chile) Sumitomo (Japan) LG Energy Solution (Korea) VW Group (Germany)
Pilbara Minerals (Australia) Tianjin B&M Science and Technology (China) Panasonic (Japan) BYD (China)
Allkem (Australia) Shenzhen Dynanonic (China)
- Nickel - Anode
Jinchuan Group (China) Ningbo Shanshan (China)
BHP Group (Australia) BTR New Energy Materials (China)
Vale SA (Brazil) Shanghai Putailai New Energy Technology (China)
Figure 49: Battery production capacity by country in 2021 Figure 50: Battery volumetric energy density vs. China NEV Sales
(2017-2022F), estimate by International Energy Agency
SOURCES: CGS-CIMB RESEARCH, INTERNATIONAL ENERGY AGENCY SOURCES: CGS-CIMB RESEARCH, INTERNATIONAL ENERGY AGENCY
EV batteries in three categories. Currently, there are three broad categories of

cathode chemistry that are most relevant in the automotive industry: Lithium
Nickel Manganese Cobalt Oxide (NMC); Lithium Nickel Cobalt Aluminum Oxide
(NCA); and Lithium Iron Phosphate (LFP). The first two, NMC and NCA, have the
same mineral composition with different proportion, and are dominating the
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Navigating China
battery chemistry market, given its high energy density based on high nickel
content. Both compositions consisted of lithium, nickel, cobalt, and manganese.
For LFP, it takes away others except lithium, and replaced by iron and
phosphorous, generating 65-75% of energy density of the above two, but
produced at a lower cost and with more stable chemistry (Fig 51).
Figure 51: Mineral composition of the three broad categories of cathode chemistry
Nickel
Lithium Nickel Manganese Cobalt Oxide (NMC)

Cobalt
&
Lithium Nickel Cobalt Aluminum Oxide (NCA)
Manganese
Lithium
Lithium Iron Phosphate (LFP)

Iron and
phosphorous
SOURCES: CGS-CIMB RESEARCH, ENERGY AGENCY
Upward cost pressure on battery components. Battery cathodes with different

mineral composition imply different sensitivities to the rising metal prices. The
prices of lithium, nickel and cobalt have risen substantially since 2H21, especially
lithium. However, the increase has yet to be reflected in the battery cell price. We
believe that this phenomenon is mainly due to two reasons. Firstly, manufacturers
use inflation-adjusted contracts in buying batteries from suppliers. Most EV
manufacturers now sign contracts where material costs are linked with commodity
prices for high volume battery orders to avoid the volatile commodity prices.
Secondly, manufacturers are shifting towards lower-cost cathode chemistries with
less commodity price exposure, such as LFP (zero-reliance on nickel and cobalt).
Companies such as BYD and NIO announced a new cell-to-pack (CTP)
technology, which has improved the energy density of LFP batteries by eliminating
the need for modules to house cells in the battery pack, which reduces the dead
weight in the pack, resulting in doubling global market share for LFP from 7% in
2020 to c.15% in 2021. Therefore, despite the rising commodity prices, battery
prices still declined by c.6% yoy in 2021 (Fig 52).
Figure 52: Metal price index vs. Battery cell price index, estimate by International
Energy Agency
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Resurgence of LFP. LFP has taken the EV cathode material demand share of
25% in China, driven by the increased uptake of EVs. In addition to LFP, the
Chinese government has phased out the subsidies for high-nickel chemistries,
bringing cost advantages for Chinese EV makers who are using LFP. In terms of
global view, major non-Chinese EV makers, such as Tesla and Volkswagen,
announced shift to LFP for supplying entry-level high volume EV models, and
almost half of all Tesla EVs produced in the 1Q22 used LFP.
Future developments of China’s battery industry. From a long-term

perspective, China plans to promote the development of the Na-ion (sodium-ion)
battery industry, as delineated in its 14th Five-Year Plan (2021-2025). Na-ion
batteries (NIB, or Sodium-ion (SIB)) are a type of rechargeable battery analogous
to the above three lithium-ion batteries. The current Na-ion battery can only
achieve over half of the energy density of leading high-nickel chemistries and 20%
lower than that of LFP but offers better safety characteristics compared to lithium-
ion batteries. We are of the view that the government’s support of the development
of Na-ion batteries will be a shot in the arm for the long-term growth of the NEV
industry given that Na-ion batteries are safer than lithium-ion batteries. Moreover,
sodium (NA) is much more abundant and thus cheaper than lithium so that input
costs cannot be manipulated easily, guaranteeing a fair EV market structure.
Another focus area for the government is the battery recycling industry, the last
stage of the EV battery supply chain. The central government has urged
companies that recycle used batteries to manage the whole battery life cycle,
including product design and production, quality control, packaging and
transportation, etc.
BYD’s low-end models first to use sodium ion battery. BYD will be the first
automotive manufacturer to use sodium ion battery in BEVs. The company said
its sodium ion battery is 30% cheaper in cost than lithium ion as well as safer given
that sodium ion batteries are non-flammable and less responsive to temperature
changes. Moreover, sodium ion batteries support fast charging and have a longer
life than lithium ion batteries. However, sodium ion batteries have lower energy
density than lithium ion batteries.
To enhance its competitiveness in the sub-Rmb100k EV market, BYD is going to
feature the batteries in some versions of its low-price EVs, such as Seagull,
Dolphin and Qin models, to reduce cost and make the retail price more attractive.
The Qin and Dolphin are both low-end pure electric vehicle models priced at
Rmb100k to Rmb150k (US$14k-21k) while the Seagull, a small A-class sedan, is
scheduled to launch next year and will be priced at Rmb80k-100k, according to
BYD.
CATL will launch sodium batteries soon. CATL, China’s largest EV battery
supplier, has said that it plans to launch sodium ion batteries soon. In July 2021,
CATL unveiled its first-generation sodium ion battery with energy density of 160
Wh/kg, just lightly lower than the LFP battery but the highest among sodium ion
types in the world. CATL expects to launch its second-generation sodium ion
battery with energy density increased to 200Wh/kg and which is able to support
EV models with a range of up to 500km. The company plans to supply sodium ion
battery to low-price EV models in 2023.
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Company briefs
- BYD Co Ltd (1211 HK, Add, TP:HK$333.70)
- Li Auto Inc (2015 HK, Add, TP:HK$142.20)
- NIO Inc (9866 HK, Add, TP:HK$130.30)
- XPeng Inc (9869 HK, Add, TP:HK$80.10)
34
B-
Refinitiv ESG
Combined
Score
Company Note Autos │ Hong Kong │ December 30, 2022

Insert Insert
Hong Kong BYD Co Ltd

ADD (no change)
Becoming an electric vehicle giant
Consensus ratings*: Buy 36 Hold 2 Sell 0
Current price: HK$191.0 ■ BYD is a market leader in China’s NEV market, with 27% market share in
Target price: HK$333.7 3Q22, supported by huge capacity and in-house EV components production.
Previous target: HK$333.7 ■ We believe the valuation gap between BYD and Tesla will narrow in the near
Up/downside: 74.7% future, driven by faster EV shipment growth and stronger EV battery output.
CGS-CIMB / Consensus: 1.1% ■ Initiate coverage with Add, SOP-based TP of HK$333.70 (39x FY23F P/E).
Reuters: 1211.HK
Bloomberg: 1211 HK
Market leader in China’s new electric vehicle (NEV) industry
Market cap: US$93,176m BYD is the largest NEV maker in China and globally, with an NEV market share by sales
HK$726,166m volume of c.17% in China and c.9% globally in 2021 (source: CPCA); these expanded to
Average daily turnover: US$221.8m c.27% and c.20% in 3Q22, with a total of 541k units of EV delivered, significantly higher
HK$1,735m than Tesla’s c.12.6% and GAC’s 3.2%, according to CPCA. We believe this was due to its
Current shares o/s: 2,854m huge production capacity, excellent supply chain and positive consumer response to
Free float: 68.9% recently-launch models Song DM, Qin Plus DM, Han and Dolphin.
*Source: Bloomberg
Robust EV deliveries to continue in FY23F and FY24F
Key changes in this note We forecast BYD’s EV shipments to jump 204% to 1.84m units in FY22F, supported by the
Nil successful launch of new models including 1) Dynasty series’ Song DM-I SUV and Tang
SUV, and 2) Ocean series’ Destroyer sedan and Seal sedan. We expect BYD’s EV
shipments to rise 60% to 2.94m units in FY23F and 23% to 3.62m units in FY24F,
Price Close Relative to HSI (RHS) supported by 1) more competitive Ocean series, targeting the mass market, and 2) steadily
390 135.0
340 123.0
growing Dynasty series e.g. Song and Han models, targeting the mid-high end market.
290 111.0 EV/battery manufacturing to deliver Rmb50bn/66bn EBITDA
240 99.0
190 87.0 BYD adopts a vertically integrated business model to produce most core EV components
140 75.0
40
30
in-house utilising its own technology. The better supply chain control and lower EV battery
20 costs give it a huge cost advantage over domestic peers. More importantly, BYD now
Vol m
10
Dec-21 Apr-22 Jul-22 Oct-22

supplies blade battery, a new form of lithium ferro-phosphate (LFP) battery, to Tesla’s
factory in Germany and plans to produce blade battery for other EV makers. This should
Source: Bloomberg further boost its net profit from FY25F, in our view. We estimate BYD to deliver 111% EPS
Price performance 1M 3M 12M
CAGR in FY21-24F, with EBITDA rising from Rmb17bn in FY21 to Rbm68bn in FY24F.
Absolute (%) 4.9 -4.9 -27.2 BYD valuation gap with Tesla to narrow
Relative (%) -3.5 -19.9 -12.7
BYD currently trades at a valuation discount of 20% to Tesla, its key competitor in China,
Major shareholders % held on 10x EV/EBITDA in FY23F vs. Tesla’s 12x (Bloomberg consensus). We believe the
Mr. Wang Chuan Fu (Chairman) 17.6 valuation discount will narrow in the near future due to BYD’s 1) EV delivery growth, 2)
Mr. Lv Xiang Yang (non exeutive 13.5 improving profitability in EV sales, and 3) blade battery supply to other EV players.
vice Chairman)
Berkshire Hathaway 6.3
Initiate coverage with Add and TP of HK$333.70
Insert
We initiate coverage with an Add due to its rapidly-growing NEV and battery businesses.
Our SOP-based TP of HK$333.70 is equivalent to 39x FY23F P/E, which we find
undemanding as its current valuation does not fully reflect its growing market share in
China’s NEV market and EV battery industry. Re-rating catalysts: 1) sustainable market
share gain in China NEV market, 2) improved profitability in NEV business, and 3) stronger
EV battery output. Downside risks: keener competition in China NEV market hurting EV
business profitability and surge in raw material prices affecting its vehicle profit margin.
Financial Summary Dec-20A Dec-21A Dec-22F Dec-23F Dec-24F

Revenue (Rmbm) 153,469 211,300 410,510 627,572 795,036
Operating EBITDA (Rmbm) 17,697 12,909 31,659 48,580 63,201
Analyst Net Profit (Rmbm) 4,234 3,045 12,385 22,509 30,453
Normalised EPS (Rmb) 2.09 1.25 4.59 7.73 10.46
Normalised EPS Growth 118% (40%) 266% 68% 35%
FD Normalised P/E (x) 81.7 138.8 36.4 22.1 16.3
DPS (Rmb) 0.15 0.11 0.43 0.77 1.05
Dividend Yield 0.09% 0.06% 0.25% 0.45% 0.61%
EV/EBITDA (x) 28.51 36.53 15.31 10.02 7.51
P/FCFE (x) 30.0 11.6 266.5 147.1 25.8
Net Gearing 57.1% (16.0%) (12.6%) (9.2%) (15.6%)
Ray KWOK P/BV (x) 8.19 5.12 5.08 4.44 3.54
T (852) 2532 1113 ROE 10.0% 4.7% 13.9% 21.5% 24.2%
E ray.kwok@cgs-cimb.com Normalised EPS/consensus EPS (x) 0.94 1.05 1.00
IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the
THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform
Autos │ Hong Kong
BYD Co Ltd │ December 30, 2022
Becoming an electric vehicle giant
Figure 1: BYD’s EV deliveries (1Q18 to 4Q22F), quarter estimates Figure 2: BYD’s EV deliveries (FY18 to FY24F), annual estimates
by CGS-CIMB research by CGS-CIMB research
Figure 3: : Vehicle margin vs. net profit margin (FY19 to FY24F) , Figure 4: SG&A expenses to sales ratio (FY19 - FY24F), annual
annual estimates by CGS-CIMB research estimates by CGS-CIMB research
36
Autos │ Hong Kong
Figure 5: BYD’s NEV portfolio as at 29 Dec 2022
Wheelbase Acceleration time Peak Power Maximum Torque Autonomous driving

Model Delivery Date Segment Driving range (km) MSRP starting from (RMB) Cumulative shipments
(mm) (0 to 100km/h) (s) (kW) (NM) package
QIN Plus DM-p/i
2016
Mar-16 Mid size Sedan(BEV) 2,718 55/120 7.3/7.9 81 135 Dipilot 111,800 - 151,800 517,089
TANG
2018
Jul-18 Mid-large SUV (BEV) 2,820 505/565 4.4/8.9 168/180/380 350/700 Dipilot 279,800 - 339800 184,871
TANG DM-p/i
2018
Jul-18 Mid-large SUV (PHEV) 2,820 112/252 4.3 (0-50) 102 231 Dipilot 205,800-279,800 Included in TANG
YUAN
2018
Jun-18 Mid Size SUV (BEV/PHEV) 2,720 430/510 7.3 150 310 Dipilot 137,800-165,800 240,934
HAN
2020
Jul-20 Mid size Sedan (BEV) 2,920 550/550/605 3.9/7.9 163/363 350 Dipilot 214,800 - 234,800 361,637
HAN DM-p/i
2020
Jul-20 Mid size Sedan (PHEV) 2,920 121/242 7.9 102 231 Dipilot 215,800-289,800 Included in Han
SONG PLUS EV
2020
Sep-20 Mid large SUV (BEV) 2,765 505 4.4(0-50) 135 280 Dipilot 180,800-197,800 616,923
SONG PLUS DM-p/i

2020
Sep-20 Mid large SUV (PHEV) 2,765 51/100/110 5.9/7.9/8.5 132/145 316/325 Dipilot 145,800-172,800 Included in Song
Dolphin
2021
Aug-21 Subcompact Car (BEV) 2,700 301/405/401 3.9/3 (0-50) 70/130 180/290 Dipilot 102,800-130,800 208,941
Destroyer 05
2022
Mar-22 Sedan (BEV) 2,718 55/120 7.3/7.9 132/145 316/325 Dipilot 119,800-155,800 9,101
Seal
2022
Late 2022 or Early

Sedan-Coupe (BEV) 2,920 550/650/700 3.8/5.9/7.5 150/230 310/360 Dipilot 209,800-286,800 7,473
2023
Frigrate 07
2022
/ Mid Large SUV (PHEV) 2,820 100/200 4.7 145/150 / Dipilot 220,000-280,000 10,142
37
Autos │ Hong Kong
Refinitiv ESG Scores
B- A+ B- B+ C- B-
ESG Score ESG Controversies ESG Combined ESG Environment ESG Social Pillar ESG Government
ESG in a nutshell Score Score Pillar Score Score Pillar Score
In 2021, BYD’s ESG initiatives included conducting internal environmental audits and strengthening its control of sudden
environmental pollution accidents. It also actively participated in community services and taking responsibility for
sustainable development.
According to the latest Refinitiv Eikon’s rating, BYD achieved A+ (the highest rating) in controversies score in 2020,
implying zero exposure to ESG controversies and negative acts in global media.
In our view, BYD is not involved in any environmentally-detrimental industry practices and takes the effort to minimise the
environmental impact of its operations.
Environmental Implications
In 2021, BYD reinforces its actions and management for In 2021, BYD launched the zero-carbon headquarters
carbon emission, and accelerates the low-carbon transition project and it is the very first zero-carbon headquarters
of the transportation industry and the manufacturing industry project of automobile enterprises expected to complete by
with green technologies, products and solutions. the end of 2022. BYD has also terminated all production of
non-new energy vehicles.
BYD has also sold over 1.5 million new energy vehicles and
cut down over 8.92 million tons of CO2 emission which
equals to the effect of planting 750m trees.
Total greenhouse gas emission increase to 5.2m tons but
the greenhouse gas emission intensity drop 8% yoy to
0.24147 tons/Rmb10000.
For wastewater discharge, the Group adopts the thin-film
process instead of the traditional phosphating process at
coating pretreatment stage to achieve zero discharge of
heavy metal nickel, successfully reducing nickel discharge
by 0.54 tons throughout the year.
Social Implications
BYD is actively involved in various charity projects including In 2021, BYD Charity Foundation donated a total of
poverty alleviation, disaster relief and student education Rmb48m fundings and supplies. For instance, BYD aided
support etc. over Rmb12m worth of epidemic prevention and control
supplies to support the epidemic control in Shenzhen,
donated Rmb20m donated fundings to Zhengzhou flood
accident, also support for the next generation education
development.
Governance Implications
BYD’s Board of Directors takes full responsibility for ESG In 2021 CSR annual review, BYD CSR committee has
strategies and is proactively overseeing the setting of the decided to reestablish so as to improve company’s ability
Group's corporate social responsibility strategic goals and and level of fulfilling social responsibility. After the
implementation plan. They also identifying crucial topics reorganization, the division of the corporate social
related to corporate governance and social responsibility responsibility and duties of BYD were clearer, and the
with their stakeholders. corporate social responsibility was carried out smoothly and
effectively.
SOURCES: CGS-CIMB RESEARCH, REFINITIV
38
Autos │ Hong Kong
BY THE NUMBERS
P/BV vs ROE 12-mth Fwd FD Normalised P/E vs FD

9.8 22.9% 164 Normalised EPS Growth 320%
8.8 20.7% 144 270%
7.8 18.5% 124 220%
6.8 16.2% 104 170%
5.8 14.0%
84 120%
4.8 11.8%
3.8 9.6% 64 70%
2.8 7.3% 44 20%
1.8 5.1% 24 -30%
0.8 2.9% 4 -80%
Jan-18A Jan-19A Jan-20A Jan-21A Jan-22F Jan-23F Jan-18A Jan-19A Jan-20A Jan-21A Jan-22F Jan-23F
Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Normalised P/E (x) (lhs)
Diluted Normalised EPS Growth (rhs)
Profit & Loss

(Rmbm) Dec-20A Dec-21A Dec-22F Dec-23F Dec-24F
Total Net Revenues 153,469 211,300 410,510 627,572 795,036
Gross Profit 27,244 23,633 57,451 95,511 125,897
Operating EBITDA 17,697 12,909 31,659 48,580 63,201
Depreciation And Amortisation (9,427) (11,078) (15,299) (17,524) (19,636)
Operating EBIT 8,271 1,831 16,360 31,056 43,564
Financial Income/(Expense) (2,929) (1,276) 417 284 189
Pretax Income/(Loss) from Assoc. (187) (145) 2 4 6
Non-Operating Income/(Expense) 3,194 4,641 2,000 1,000 0
Profit Before Tax (pre-EI) 8,348 5,051 18,778 32,345 43,760
Exceptional Items (1,466) (533) (982) 0 0
Pre-tax Profit 6,883 4,518 17,796 32,345 43,760
Taxation (869) (551) (1,780) (3,234) (4,376)
Exceptional Income - post-tax
Profit After Tax 6,014 3,967 16,017 29,110 39,384
Minority Interests (1,780) (922) (3,632) (6,601) (8,931)
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Preference Dividends (Australia)
Net Profit 4,234 3,045 12,385 22,509 30,453
Normalised Net Profit 7,480 4,501 16,999 29,110 39,384
Fully Diluted Normalised Profit 5,700 3,579 13,367 22,509 30,453
Cash Flow
EBITDA 17,697 12,909 31,659 48,580 63,201
Cash Flow from Invt. & Assoc. 187 145 (2) (4) (6)
Change In Working Capital 21,386 15,011 (15,389) (23,835) (20,221)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow 9,501 38,932 8,103 8,220 7,317
Net Interest (Paid)/Received (2,929) (1,276) 417 284 189
Tax Paid (449) (254) 447 (3,234) (4,376)
Cashflow From Operations 45,393 65,467 25,235 30,010 46,104
Capex (5,964) (9,862) (26,860) (29,557) (30,000)
Disposals Of FAs/subsidiaries (239) (3,273) 0 0 0
Acq. Of Subsidiaries/investments (1,323) (2,799) 0 0 0
Other Investing Cashflow 2,455 11,314 0 0 0
Cash Flow From Investing (5,071) (4,620) (26,860) (29,557) (30,000)
Debt Raised/(repaid) (24,790) (18,106) 3,453 2,924 3,188
Proceeds From Issue Of Shares 0 43,700 0 0 0
Shares Repurchased 0 0 0 0 0
Dividends Paid (218) (609) (314) (1,263) (2,251)
Preferred Dividends
Other Financing Cashflow (3,899) (8,922) (1,349) (1,487) (1,604)
Cash Flow From Financing (28,907) 16,063 1,790 173 (667)
Total Cash Generated 11,414 76,909 164 626 15,437
Free Cashflow To Equity 15,532 42,740 1,827 3,376 19,292
Free Cashflow To Firm 43,445 62,754 (276) 1,940 17,708
39
Autos │ Hong Kong
BY THE NUMBERS… cont’d
Balance Sheet
Total Cash And Equivalents 14,445 50,457 50,621 51,247 66,684
Total Debtors 45,220 50,632 98,367 150,380 190,508
Inventories 31,396 43,355 81,564 122,916 154,584
Total Other Current Assets 20,544 21,666 21,666 21,666 21,666
Total Current Assets 111,605 166,110 252,218 346,210 433,442
Fixed Assets 58,202 75,545 87,279 99,487 110,024
Total Investments 5,466 7,905 7,905 7,905 7,905
Intangible Assets 10,174 10,116 10,116 10,116 10,116
Total Other Non-Current Assets 15,571 36,104 36,104 36,104 36,104
Total Non-current Assets 89,412 129,670 141,404 153,611 164,149
Short-term Debt 27,645 22,939 25,292 27,116 29,204
Current Portion of Long-Term Debt
Total Creditors 45,220 50,632 98,367 150,380 190,508
Other Current Liabilities 33,567 97,733 141,299 178,394 204,156
Total Current Liabilities 106,431 171,304 264,958 355,890 423,868
Total Long-term Debt 23,626 10,790 11,890 12,990 14,090
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 6,507 9,442 9,729 9,967 10,118
Total Non-current Liabilities 30,133 20,232 21,619 22,956 24,208
Total Provisions 0 0 0 0 0
Total Liabilities 136,564 191,536 286,578 378,846 448,075
Shareholders' Equity 56,874 95,070 97,870 111,800 140,341
Minority Interests 7,580 9,175 9,175 9,175 9,175
Total Equity 64,454 104,244 107,045 120,975 149,515
Key Ratios
Dec-20A Dec-21A Dec-22F Dec-23F Dec-24F
Revenue Growth 26.0% 37.7% 94.3% 52.9% 26.7%
Operating EBITDA Growth 35% (27%) 145% 53% 30%
Operating EBITDA Margin 11.5% 6.1% 7.7% 7.7% 7.9%
Net Cash Per Share (Rmb) (13.50) 5.86 4.62 3.83 8.03
BVPS (Rmb) 20.85 33.31 33.62 38.40 48.21
Gross Interest Cover 2.65 0.96 12.13 20.88 27.16
Effective Tax Rate 12.6% 12.2% 10.0% 10.0% 10.0%
Net Dividend Payout Ratio 7.2% 8.8% 9.5% 10.0% 10.0%
Accounts Receivables Days 94.73 64.69 46.57 50.85 55.16
Inventory Days 82.59 72.69 64.57 70.14 75.89
Accounts Payables Days 115.2 72.8 54.1 60.0 65.5
ROIC (%) 5.0% 1.3% 13.8% 24.4% 29.2%
ROCE (%) 6.7% 1.9% 12.8% 21.5% 25.6%
Return On Average Assets 4.88% 2.20% 4.84% 6.47% 7.15%
Key Drivers
Vehicle sales (No. of '000 units) 194,119.0 603,783.0 1,837,998.8 2,940,798.1 3,617,181.6
Vehicle sales (Rmb bn) 82.0 109.7 320.2 527.8 681.6
Vehicle margin (%) 20.6% 15.2% 16.8% 17.2% 17.6%
40
C-
Refinitiv ESG
Combined
Score

Insert Insert
Hong Kong Li Auto Inc

ADD (no change)
EV deliveries to accelerate in FY23F
Current price: HK$74.50 ■ Li Auto is likely to gain market share in the premium SUV market in China, in
Target price: HK$142.2 our view, due to the rising popularity of its EREV models in tier 2-4 cities.
Previous target: HK$142.2 ■ We project strong EV sales in FY23-24F on an enriched EV portfolio.
Up/downside: 90.9% ■ Reiterate Add and DCF-based TP of HK$142.2.
CGS-CIMB / Consensus: 6.8%
Reuters: 2015.HK Loss extended in 3Q22 due to inventory provision for Li ONE
Bloomberg: 2015 HK Li Auto Inc (Li Auto) is a leading electric vehicle (EV) manufacturer in China that designs,
Market cap: US$19,927m develops, produces and sells premium smart extended range electric vehicles (EREV).
HK$155,301m The company’s two new models Li L9 and Li L8 combined were ranked the second best-
Average daily turnover: US$101.2m selling premium SUV in China in Nov 2022, just behind Tesla Model Y, with c.13k units
HK$791.6m (Fig 7, according to CNEVPOST (EV news services provider in China). We are positive on
Current shares o/s: 2,066m
Li Auto given its rapidly-growing market share in the past three years (2020 to 2022) with
Free float: 56.2%
*Source: Bloomberg
the launch of three models (large-size SUV Li ONE in Dec 2019 (phased out in Oct 2022),
mid-large SUV Li L9 (Rmb460k/US$66k, delivery in Aug 22) and family SUV Li L8
Key changes in this note (Rmb400k/US$57k, delivery in Nov 22) in 2022.
NIl
Wealth of new models: L9 and L8 launched in 2H22, L7 in 1Q23
We estimate Li Auto’s EV deliveries to come to c.134k in FY22F, up 48% yoy, driven by
Price Close Relative to HSI (RHS)
the launch of L9 and L8 in the second half of 2022. We believe L8 is the perfect
142 135
replacement for Li ONE, the model launched in Dec 19, given the enhanced battery
92 103
performance, upgraded interior design, Intelligent Cockpit system and self-developed
autonomous driving capabilities (Li AD Pro). We estimate L9 and L8 to achieve monthly
42 71
30
shipment of c.9k-10k units and c.12k-13k units, respectively, in 2023F. Li Auto also plans
20
to launch a lower-priced family SUV, the Li L7 (Rmb340k/US$49k), in 1QCY23, to target
Vol m
10

young families, which should enrich its EV portfolio in all the sub-segments of the premium
SUV market, in our view. We estimate Li Auto’s EV deliveries to jump 92%/28% yoy to
Source: Bloomberg
258k/331k units in FY23F/24F on the step-up in its EV portfolio from only 1 model in Aug
Price performance 1M 3M 12M 22 to 4 models at the end-Dec 2023.
Absolute (%) 3.9 -21.1 -35.9
Relative (%) -4.5 -36.1 -21.4
Acceleration in EV deliveries to buoy vehicle margin
We believe Li Auto’s vehicle margin will stay at a healthy level of 22-23% in FY23-24F,
Major shareholders % held
Amp Lee Ltd. 23.8 supported by lower production cost per car on the new manufacturing platform and larger
Inspired Elite Investment Limited 13.2 operating scale. The company is likely to achieve positive free cash flow of c.Rmb4.0bn-
Zijin Global Inc. 6.8 5.0bn in FY23-24F. Li Auto held cash of approximately Rmb55.8bn at as 30 Sep 2022.
Insert Reiterate Add, DCF-based TP at HK$142.20
We reiterate our Add rating on Li Auto for its robust EV sales outlook, thanks to strong new
models in the pipeline. Our DCF-based TP of HK$142.2 (WACC: 12.5%, TGR: 3%, COE:
14%, RFR: 5%) is equivalent to 76x P/E and 54x EV/EBITDA in CY24F. Share price
catalysts are robust monthly shipments for the Li L9 and Li L8 and pure battery EV rollout.
Downside risks: keener competition in premium smart EV market, sustained high battery
costs, which will hurt its EV profit margin, and lower-than-expected vehicle sales.

Revenue (Rmbm) 9,457 27,010 44,844 92,902 119,409
Operating EBITDA (Rmbm) (348) (427) (1,858) 1,020 3,609
Analyst Net Profit (Rmbm) (166) (321) (1,539) 1,164 3,369
Normalised EPS (Rmb) (0.19) (0.17) (0.75) 0.56 1.63
Normalised EPS Growth (9%) 330% 190%
FD Normalised P/E (x) NA NA NA 118.2 40.8
DPS (Rmb) - - - - -
Dividend Yield 0% 0% 0% 0% 0%
EV/EBITDA (x) NA NA NA 73.59 19.07
P/FCFE (x) NA 33.77 NA 30.78 50.61
Net Gearing (99%) (108%) (108%) (124%) (132%)
Ray KWOK P/BV (x) 4.04 3.35 2.67 2.73 2.65
T (852) 2532 1113 ROE (0.91%) (3.33%) 2.28% 6.58%
Autos │ Hong Kong
Li Auto Inc │ December 30, 2022
EV deliveries to accelerate in FY23F
Figure 1: Li Auto’s EV deliveries (1Q20 to 4Q22F), quarter Figure 2: Li Auto’s EV deliveries (FY19 to FY24F), annual
Figure 3: Li Auto’s EV deliveries vs EV ASP (1Q20 to 3Q22), Figure 4: Li Auto’s EV deliveries vs EV ASP (FY19 to FY24F),
quarter annual estimates by CGS-CIMB research
42
Autos │ Hong Kong
Figure 5: Li Auto’s vehicle margin vs net profit margin(2Q21 to Figure 6: Li Auto’s vehicle margin vs net profit margin (FY20 to
3Q22), quarter FY24F), annual estimates by CGS-CIMB research
Figure 7: Best-selling premium SUVs in China in Nov 2022 (selling price above
Rmb300,000 (US$46,000)
SOURCES: CGS-CIMB RESEARCH ESTIMATES, CNEVPOST
43
Autos │ Hong Kong
Figure 8: Li Auto’s EV models portfolio as at 29 Dec 2022
Wheelbase Acceleration time Peak Power Maximum Torque Autonomous driving MSRP starting Cumulative
Model Delivery Date Segment Driving range (km)
(mm) (0 to 100km/h) (s) (kW) (NM) package from (RMB) shipments
Li ONE
180/800
2019
(with 40.6kWh battery

Dec-19 Large-size SUV (EREV) 2,935 6.5 240 530 NVIDIA Orin SoC 348,000 184,528
pack only/battery pack
+ petrol engines)
Li L9
215/1315
2022

Aug-22 Mid-large SUV (EREV) 3,105 5.3 330 620 NVIDIA Orin SoC 458,000 around 10,000
pack only/ battery
pack + petrol engines)
Li L8
210/1315
2022

Nov-22 Family SUV (EREV) 3,005 5.5 330 620 NVIDIA Orin-X SoC 399,800 around 5,000
pack only/ battery
LI L7
210/1315
(with 42.8kWh battery Horizon Robotic
1Q2023 Family SUV (EREV) 3,005 5.5 330 620 350,000 n.a.
pack only/ battery Journey 5
2023/ 2024
LI L6
2023 small-size premum SUV
Figure 9: Li Auto -discounted cash flow (DCF) valuation

FYE Dec (RMB m) Dec-20A Dec-21A Dec-22F Dec-23F Dec-24F Dec-25F Dec-30F Dec-35F Dec-40F Terminal
Revenue 9,457 27,010 44,844 92,902 119,409 140,903 281,374 326,190 378,144 438,372
Operating expenses (9,512) (27,249) (46,081) (91,137) (114,906) (131,040) (239,168) (277,262) (321,422) (372,616)
EBITDA (56) (240) (1,237) 1,765 4,503 9,863 42,206 48,929 56,722 65,756
Plus : Depreciation/Amortization 321 590 1,105 1,597 1,980 2,046 3,745 5,379 6,723 8,024
Less : Change in working capital 2,497 6,429 3,275 8,866 5,481 2,114 4,221 4,893 5,672 6,576
Less : Capital expenditure (675) (3,445) (4,000) (4,000) (3,700) (3,100) (6,190) (7,176) (8,319) (9,644)
Less : Taxation 23 (169) (143) (197) (570) (672) (1,342) (1,556) (1,804) (2,091)
Free cash flow 2,109 3,167 (1,001) 8,031 7,694 10,251 42,639 50,468 58,994 725,678
Discount factor 1.00 1.00 0.89 0.79 0.70 0.39 0.22 0.12 0.07
PV FCF 2,109 3,167 2,816 (792) 5,648 9,128 10,283 6,709 4,346
Enterprise value (Rmb m) 210,976
Less : Net debt / (cash) (44,163)
Equity value (Rmb m) 255,140
Equity valuy - less minority 255,140
Equity value per share (Rmb) 123.51
Equity value per share (HK$) 142.23
Key assumptions
WACC 12.5%
Terminal growth 3.0%
44
Autos │ Hong Kong
C- A+ C- D+ C- B
In 2021, Li Auto stepped up its ESG efforts and established an ESG Working Group to coordinate relevant matters. The
emphasis was on producing an eco-conscious product and thus the company has deployed various processes to eliminate
harmful residue and materials in production. Li ONE has received five-star ratings for organic compounds, odour intensity,
and electromagnetic radiation from the China Automobile Health Index (C-AHI).
In our view, Li Auto is not involved in any environmentally-detrimental industry practices and takes the effort to minimise
the environmental impact of its operations.
In FY21, Li Auto released its first official ESG report but did In FY21, total energy consumption reached 13,079 tce.
not disclose data for ESG Key Performance Indicators in Greenhouse gas (GHG) emission was 54,883 tCO2e while
2020. Therefore, we are unable to track yoy changes for the emission intensity was 0.0020 tCO2e/Rmb10,000.
year.
Hazardous waste produced was 668 tonnes. Non-
hazardous waste produced was 17,131 tonnes.
Refinitiv ranked Li Auto’s environmental pillar 174th of 225
companies in the global automobile & auto parts sector. We
project an improvement in the coming year with Li Auto’s
ESG initiatives.
Social Implications
Li Auto values talent and the retention thereof. Therefore, In FY21, Li Auto gave out gifts to female employees in
apart from a comprehensive salary incentive system, it also conjunction with International Women's Day. It also held its
developed a series of non-salary benefits for employees and first Family Day, opening its Beijing R&D Center to family
their families to create a more harmonious and healthier members for the first time and attracting as many as 1,000
working environment. employees and their family members.
Other non-salary benefits include social insurance and
housing fund, free medical examination, mental health
services, mothers’ rooms for female employees, etc.
Refinitiv ranked Li Auto’s social pillar 171st of 225
companies in the global automobile & auto parts sector. We
project an improvement in the coming year with Li Auto’s
ESG initiatives.
In FY21, Li Auto identified 18 ESG issues after collecting Considering issues that impact both the stakeholder and the
feedback from stakeholders. It prioritised issues by their company, Li Auto has identified 11 ESG points as its
importance to stakeholders and the company. greatest concerns.
Among those 11 tier-1 ESG issues, the top five are
Innovative Development, Product Quality and Safety,
Supply Chain Management, Information Security and
Privacy Protection, and Talent Attraction and Retention.
Refinitiv rated Li Auto’s governance pillar a B and 79th of
225 companies in the global automobile & auto parts sector.
We project an improvement in the coming year with Li Auto’s
ESG initiatives.
45
Autos │ Hong Kong
BY THE NUMBERS

6.10 4.0% 8,000 Normalised EPS Growth 380%
5.60 2.4% 7,000 318%
5.10 0.9% 6,000 255%
4.60 -0.7% 5,000 193%
4.10 -2.2%
4,000 130%
3.60 -3.8%
3.10 -5.3% 3,000 68%
2.60 -6.9% 2,000 5%
2.10 -8.4% 1,000 -58%
1.60 -10.0% 0 -120%
Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Normalised P/E (x) (lhs)
Diluted Normalised EPS Growth (rhs)
Profit & Loss

Gross Profit 1,549 5,761 8,697 20,790 27,302
Operating EBITDA (348) (427) (1,858) 1,020 3,609
Depreciation And Amortisation (321) (590) (1,105) (1,597) (1,980)
Operating EBIT (669) (1,017) (2,963) (577) 1,629
Financial Income/(Expense) 188 677 907 1,143 1,274
Pretax Income/(Loss) from Assoc. 0 0 0 0 0
Non-Operating Income/(Expense) 292 187 621 745 894
Profit Before Tax (pre-EI) (189) (153) (1,435) 1,311 3,797
Exceptional Items 0 0 0 0 0
Pre-tax Profit (189) (153) (1,435) 1,311 3,797
Taxation 23 (169) (143) (197) (570)
Profit After Tax (166) (321) (1,578) 1,115 3,227
Minority Interests 0 0 39 49 142
Preferred Dividends
Net Profit (166) (321) (1,539) 1,164 3,369
Normalised Net Profit (166) (321) (1,578) 1,115 3,227
Fully Diluted Normalised Profit (166) (321) (1,539) 1,164 3,369
Cash Flow
EBITDA (348) (427) (1,858) 1,020 3,609
Cash Flow from Invt. & Assoc. 0 0 0 0 0
Change In Working Capital 2,497 6,429 3,275 8,866 5,481
Other Operating Cashflow 1,081 2,233 717 874 992
Net Interest (Paid)/Received (67) (63) (96) (129) (97)
Tax Paid (23) 169 (143) (197) (570)
Cashflow From Operations 3,140 8,340 1,894 10,434 9,414
Capex (675) (3,445) (4,000) (4,000) (3,700)
Disposals Of FAs/subsidiaries 88,271 221,977 0 0 0
Acq. Of Subsidiaries/investments 0 0 0 0 0
Other Investing Cashflow (106,334) (222,789) 0 0 0
Debt Raised/(repaid) (145) (430) 2,051 (1,968) (2,998)
Proceeds From Issue Of Shares 21,026 11,005 13,000 0 0
Dividends Paid 0 0 0 0 0
Preferred Dividends
Other Financing Cashflow 3,830 6,134 504 471 503
Cash Flow From Financing 24,711 16,710 15,555 (1,496) (2,495)
Total Cash Generated 9,113 20,793 13,450 4,938 3,219
Free Cashflow To Equity (15,743) 3,653 (55) 4,466 2,717
Free Cashflow To Firm (15,531) 4,146 (2,010) 6,563 5,812
46
Autos │ Hong Kong
Balance Sheet
Total Debtors 469 601 998 2,068 2,658
Inventories 1,048 1,618 2,752 5,491 7,013
Total Other Current Assets 0 0 0 0 0
Fixed Assets 2,479 4,498 7,394 9,797 11,517
Total Investments 163 156 156 156 156
Intangible Assets 683 751 751 751 751
Short-term Debt 0 37 49 82 84
Total Creditors 3,808 11,255 16,644 30,832 39,381
Other Current Liabilities 501 816 816 816 816
Total Long-term Debt 512 5,961 8,000 6,000 3,000
Total Equity 29,804 41,064 51,501 50,430 51,930
Key Ratios
Revenue Growth N/A 186% 66% 107% 29%
Operating EBITDA Growth N/A 23% 335% N/A 254%
Operating EBITDA Margin (3.68%) (1.58%) (4.14%) 1.10% 3.02%
Net Cash Per Share (Rmb) 16.23 21.38 26.90 30.24 33.25
BVPS (Rmb) 16.47 19.88 24.93 24.41 25.14
Gross Interest Cover (10.00) (16.09) (30.87) (4.48) 16.74
Net Dividend Payout Ratio NA NA NA NA NA
Accounts Receivables Days N/A 1.60 1.31 1.21 1.45
Inventory Days N/A 22.90 22.06 20.86 24.84
Accounts Payables Days N/A 107.7 117.3 100.1 116.2
ROIC (%) N/A (106%) 604% 33% (15%)
ROCE (%) N/A (0.71%) (3.67%) 1.19% 5.36%
Return On Average Assets N/A (3.56%) (3.64%) 0.17% 2.27%
Key Drivers
Total no. of EV sales ('000 units) N/A 90.5 133.9 257.5 330.6
Total no. of EV sales (units yoy% chg) N/A 177.4% 48.0% 92.3% 28.4%
Vehcile sales (Rmb yoy % chg) N/A 181.5% 66.6% 107.2% 28.5%
Vehcile sales (GPM %) N/A 44.1% 32.5% 35.0% 35.0%
47
D+
Refinitiv ESG
Combined
Score

Insert Insert
Hong Kong NIO Inc

ADD (no change)
Competition the key challenge
Current price: HK$78.15 ■ NIO continues to gain market share in the China premium EV segment due to
Target price: HK$130.3 its innovative battery services and autonomous driving technologies.
Previous target: HK$130.3 ■ We estimate NIO’s EV deliveries to grow 40%/93%/31% yoy in
Up/downside: 66.8% FY22F/23F/24F, led by its new models (the ET7, ES7 and ET5).
CGS-CIMB / Consensus: 0.3% ■ Reiterate Add with DCF-based target price of HK$130.30.
Reuters: 9866.HK
Bloomberg: 9866 HK
Market share gains in China premium EV segment
Market cap: US$16,751m We hold our positive view on NIO for its innovative battery services and autonomous driving
HK$130,552m technologies. NIO is China’s market-leading manufacturer of premium smart electric
Average daily turnover: US$14.50m vehicles (EVs) (priced Rmb360k-600k or US$51k-86k), with over 60% market share in
HK$113.5m China’s premium battery SUV segment in 2021 (source: Frost & Sullivan). NIO provides
Current shares o/s: 1,692m unique battery swapping technology and runs a battery-as-a-service (BaaS) model, which
Free float: 74.4% sets it apart from other EV makers and also substantially improves NIO’s user experience
*Source: Bloomberg
in terms of battery charging and performance. NIO’s BaaS solution allow customers to
Key changes in this note purchase a NIO EV without a battery pack, thus reducing upfront vehicle purchase costs
Nil and providing more flexible battery upgrade options. NIO’s current models are the ES8,
ES6 and EC6 (started delivery in Jun 2018, Jun 2019 and Sep 2020, respectively), based
on its old manufacturing platform, and it recently launched three refreshed models, ET7,
Price Close Relative to HSI (RHS)
ES7 and ET5 (started delivery in Mar, Aug and Sep 2022, respectively).
208 122
158 97
NIO’s EV deliveries to grow 40%/93%/31% in FY22F/23F/24F
108 72 Despite the strong demand for its recently-launched ES7 and ET5, NIO guides for EV
58 47
shipment of 38.5k-39.5k in 4Q22F (revised from 43k-48k units) due to the production and
4
3 logistic disruptions amid prolonged Covid-19 restrictions in China. We estimate NIO’s 4Q
2
EV shipment would reach 39k units (+25% qoq), led by the ET5 sedan and ES7 SUV,
Vol m
1
although we note rising competition in the premium segment. NIO announced on 29 Dec
Mar-22 May-22 Aug-22 Oct-22
2022 that it will launch two new models (the EC7 and refreshed ES8) in 2023 and make it
Source: Bloomberg have a total of eight available models, which should better cover the different sub-segments
in China’s premium EV market. We estimate NIO to deliver 122k/247k/323k units in
Price performance 1M 3M 12M FY22F/23F/24F, with annual growth rate of 33%/103%/31%, far outpacing China’s NEV
Absolute (%) -7.1 -40.3 shipment growth rate of 105%/38%/25%.
Relative (%) -15.5 -55.3
Vehicle margin to reach 21%/23% in FY23F/24F
Major shareholders % held We estimate NIO’s vehicle margin to significantly improve in FY23-24F due to its vertical
Mr. Bin Li 10.5
integration manufacturing method on the new platform (ET7, ES7 and ET5) at the NeoPark
Tencent 9.8
facility. We forecast its EV margin to reach c.21%/23% in FY23F/24F (17.8% in FY22F) on
Baillie Gifford & Co. 5.3
enhanced production efficiency and better operating scale.
Insert
Reiterate Add and DCF-based target price of HK$130.30
We reiterate our Add call on NIO as we believe it should capture more market share in
China’s premium EV segment with new models in the pipeline. Our DCF-based TP of
HK$130.3 (WACC: 9.4%, TGR: 3.0%, COE: 15.1%, RFR: 5.0%) is equivalent to 242x P/E
and 56x EV/EBITDA in CY24F. Potential share price catalysts: strong deliveries of the ET7,
ES7 and ET5 and sustained improvement in vehicle margin. Risks: keener competition in
China’s premium EV segment and higher-than-expected costs for R&D in battery swap
technology which could hurt its profitability in EV sales.

Revenue (Rmbm) 16,258 36,136 52,206 101,618 140,219
Operating EBITDA (Rmbm) (3,561) (2,788) (9,902) (2,668) 3,848
Analyst Net Profit (Rmbm) (5,610) (10,572) (11,495) (5,099) 837
Normalised EPS (Rmb) (4.74) (6.72) (6.92) (3.01) 0.49
Normalised EPS Growth 41.7% 2.9% (56.4%)
FD Normalised P/E (x) NA NA NA NA 141.2
DPS (Rmb) - - - - -
EV/EBITDA (x) NA NA NA NA 23.24
P/FCFE (x) NA 107.0 NA 58.5 39.2
Net Gearing (109%) (101%) (117%) (108%) (105%)
Ray KWOK P/BV (x) 3.93 3.34 5.53 5.28 4.36
T (852) 2532 1113 ROE (34.2%) (41.0%) (23.3%) 3.4%
E ray.kwok@cgs-cimb.com Normalised EPS/consensus EPS (x) 1.05 0.70 (0.87)
Autos │ Hong Kong
NIO Inc │ December 30, 2022
Competition will be the key challenge
Figure 1: NIO’s EV deliveries (1Q20 to 4Q22F), quarter estimates Figure 2: NIO’s EV delivers (FY18 to FY24F) annual estimates by
by CGS-CIMB research CGS-CIMB research
Figure 3: NIO’s EV deliveries by EV ASP (1Q20 to 3Q22), quarter Figure 4: NIO’s EV deliveries vs EV ASP (FY18 to FY24F), annual
estimates by CGS-CIMB research
SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS
49
Autos │ Hong Kong
Figure 5: Vehicle margin vs net profit margin (1Q21 to 3Q22), Figure 6: Vehicle margin vs net profit margin (FY18 to FY24F),
Figure 7: NIO’s EV models as at 29 Dec 2022
ES8
Jun-18 (seven-
450/580/850
seater)
Mid-large SUV 3,010 (with 75/100/150kWh 4.9 400 725 NIO Pilot 468,000 59,413
Mar-19 (six-seater)
battery pack)
Apr-20 (all-new)
2019
ES6
465/610/900
Jun-19 Mid-size SUV 2,900 (with 75/100/150kWh 4.7 400 725 NIO Pilot 358,000 104,386
battery pack)
EC6
475/615/910
2020
Sep-20 Mid-size coupe SUV 2,900 (with 75/100/150kWh 4.5 400 725 NIO Pilot 368,000 47,186
battery pack)
ET7
550/705/1000
Mar-22 Mid-large sedan 3,060 (with 75/100/150kWh 3.8 480 850 NIO Autonomous Driving 448,000 6,912
battery pack)
ES7
485/620/930
2022
Aug-22 Mid-large SUV 2,960 (with 75/100/150kWh 3.9 480 850 NIO Autonomous Driving 468,000 398
battery pack)
ET5
550/700/1000
Sep-22 Mid-size sedan 2,888 (with 75/100/150kWh 4.3 360 700 NIO Autonomous Driving 328,000 -
battery pack)
EC7
2023/ 2024
550/700/1000 NIO Digital System

2023 Mid-large coupe SUV - (with 75/100kWh 3.8 480 - Banyan and NIO 488,000 -
battery pack) AQUILA
All-new ES8
2023/ 2024
550/700/1000 NIO Digital System

2023 6-seater All-around SUV - (with 75/100kWh 4.1 480 - Banyan and NIO 528,000 -
battery pack) AQUILA
50
Autos │ Hong Kong
Figure 8: DCF valuation

Revenue 16,258 36,136 52,206 101,618 140,219 151,437 212,209 246,008 285,191 330,614
EBITDA (3,926) (2,604) (10,522) (3,288) 3,228 6,057 16,977 19,681 22,815 26,449
Plus : Depreciation/Amortization 1,046 1,708 1,880 2,274 2,559 3,023 3,617 4,346 5,089 5,916
Less : Change in working capital 3,297 3,552 3,387 4,563 3,533 3,029 4,244 4,920 5,704 6,612
Less : Capital expenditure (1,128) (4,079) (4,000) (3,700) (3,700) (3,029) (4,244) (4,920) (5,704) (6,612)
Less : Taxation (6) (42) (15) (5) (158) (171) (240) (278) (322) (373)
Free cash flow (717) (1,465) (9,271) (157) 5,461 8,910 20,354 23,749 27,582 502,688
Discount factor 1.00 1.00 0.91 0.84 0.76 0.49 0.31 0.20 0.13
PV FCF (717) (1,465) (1,339) (7,751) (120) 8,963 6,981 5,188 3,848
Key assumptions
WACC 9.4%
51
Autos │ Hong Kong
D+ A+ D+ D+ C- D
In 2021, NIO released its first ESG report. NIO continuous makes investment and contributions towards the sustainability
of its organisation as well as the society. NIO incorporates the strategy of low carbon eco-friendly green development to
its holistic product lifecycle management system with end-to-end carbon footprint management.
In our view, NIO is not involved in any environmentally-detrimental industry practices and takes the effort to minimise the
environmental impact of its operations.
NIO integrates the concept of sustainability into its products NIO has formulated different internal policies related to
and services, putting environmental protection on top and resource recycling. For example, NIO has proactively
avoiding negative impact on the environment. reduced the water consumption of its operations by using
water-saving equipment and making use of circulating water
to reduce the usage of running water. Moreover, NIO
launched the BLUE SKY LAB project to reuse the leftover
materials from its car production, such as airbags and
leather, to create environmental-friendly products like leather
storage box and airbag backpack.
Social Implications
NIO fully leverages its business and technology advantages, In 2021, NIO collaborated with NGOs to organise a charity
utilising solid user service system and strong resource auction called Operation Smile in support of local children
integration capabilities to align public welfare. with cleft lip and palate; the auction raised a total of
Rmb200,000. NIO has also carried out a series of public
welfare projects covering various social aspects such as
rural revitalisation to fight against the flood.
NIO has established a sound corporate governance NIO has established a Nominating and ESG Committee and
structure to safeguard the sustainability of its future a Compensation Committee under its Board of Directors
development. which are responsible for integrating ESG management into
its daily decision making and operations to ensure its ESG
related affairs align with the overall strategy of the company.
52
Autos │ Hong Kong
BY THE NUMBERS

9.50 0.0% 50% Normalised EPS Growth
9.00 -5.0%
8.50 -10.0% 30%
8.00 -15.0% 10%
7.50 -20.0%
7.00 -25.0% -10%
6.50 -30.0%
6.00 -35.0% -30%
5.50 -40.0% -50%
5.00 -45.0%
4.50 -50.0% -70%
Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Normalised P/E (x)
Diluted Normalised EPS Growth
Profit & Loss

Gross Profit 1,873 6,821 7,534 18,938 29,332
Operating EBITDA (3,561) (2,788) (9,902) (2,668) 3,848
Depreciation And Amortisation (1,046) (1,708) (1,880) (2,274) (2,559)
Operating EBIT (4,608) (4,496) (11,782) (4,942) 1,288
Financial Income/(Expense) (259) 274 954 680 651
Pretax Income/(Loss) from Assoc. (66) 63 0 0 0
Non-Operating Income/(Expense) (365) 185 (620) (620) (620)
Profit Before Tax (pre-EI) (5,298) (3,975) (11,448) (4,883) 1,319
Pre-tax Profit (5,298) (3,975) (11,448) (4,883) 1,319
Taxation (6) (42) (15) (5) (158)
Profit After Tax (5,304) (4,017) (11,463) (4,888) 1,161
Minority Interests (306) (6,555) (32) (211) (324)
Preferred Dividends
Net Profit (5,610) (10,572) (11,495) (5,099) 837
Normalised Net Profit (5,304) (4,017) (11,463) (4,888) 1,161
Fully Diluted Normalised Profit (5,610) (10,572) (11,495) (5,099) 837
Cash Flow
EBITDA (3,561) (2,788) (9,902) (2,668) 3,848
Cash Flow from Invt. & Assoc. 66 (63) 0 0 0
Change In Working Capital 3,297 3,552 3,387 4,563 3,533
Other Operating Cashflow 2,575 1,772 1,469 1,541 1,608
Tax Paid 0 131 447 (5) (158)
Cashflow From Operations 1,951 1,966 (4,975) 3,019 8,352
Capex (1,128) (4,079) (4,000) (3,700) (3,700)
Disposals Of FAs/subsidiaries (3,856) (33,194) 0 0 0
Acq. Of Subsidiaries/investments (251) (593) 0 0 0
Other Investing Cashflow 163 33,246 0 0 0
Debt Raised/(repaid) 641 3,680 (603) 2,700 (1,635)
Proceeds From Issue Of Shares 34,607 12,678 0 0 0
Preferred Dividends
Other Financing Cashflow 6,110 1,771 (375) (411) (478)
Cash Flow From Financing 41,357 18,129 (977) 2,289 (2,114)
Total Cash Generated 38,237 15,475 (9,952) 1,608 2,538
Free Cashflow To Equity (2,480) 1,026 (9,577) 2,019 3,017
Free Cashflow To Firm (2,694) (2,016) (8,600) (270) 5,131
53
Autos │ Hong Kong
Balance Sheet
Total Debtors 2,546 4,677 6,757 13,153 18,149
Inventories 1,082 2,056 3,134 5,800 7,778
Total Other Current Assets 125 1,522 1,522 1,522 1,522
Fixed Assets 4,996 7,400 9,520 10,946 12,087
Total Investments 300 3,059 3,059 3,059 3,059
Short-term Debt 1,931 7,298 8,435 13,134 14,499
Total Creditors 6,368 12,639 18,358 29,448 37,975
Minority Interests 4,693 3,353 3,353 3,353 3,353
Total Equity 31,862 38,063 24,733 25,728 30,476
Key Ratios
Operating EBITDA Growth N/A (22%) 255% (73%) N/A
Operating EBITDA Margin (21.9%) (7.7%) (19.0%) (2.6%) 2.7%
BVPS (Rmb) 17.77 20.89 12.63 13.22 16.03
Gross Interest Cover (10.82) (7.05) (31.43) (12.03) 2.69
Accounts Receivables Days N/A 19.93 24.13 21.58 24.66
Inventory Days N/A 19.53 21.20 19.72 22.41
Accounts Payables Days N/A 118.3 126.6 105.5 111.3
ROIC (%) N/A 2873% (465%) 343% 176%
ROCE (%) N/A (7.6%) (21.7%) (8.9%) 5.2%
Return On Average Assets N/A (6.2%) (15.4%) (6.6%) 0.6%
Key Drivers
Total no. of EV sales ('000 units) N/A 91.4 127.8 247.2 322.7
Total no. of EV sales (units yoy% chg) N/A 109.1% 39.8% 93.4% 30.5%
Vehcile sales (Rmb yoy % chg) N/A 118.5% 44.4% 92.9% 36.7%
Vehcile sales (GPM %) N/A 5.7% -23.0% -5.0% 2.0%
54
C+
Refinitiv ESG
Combined
Score

Insert Insert
Hong Kong XPeng Inc

ADD (no change)
New EV models to boost FY23F recovery
Current price: HK$37.55 ■ Initially positioning its EVs in the mid- to high-end segment, XPeng is now
Target price: HK$80.10 targeting the premium segment with the launch of the G9.
Previous target: HK$80.10 ■ FY23F EV deliveries are set to recover strongly on G9 delivery and the
Up/downside: 113.3% launch of G5 and P9, in our view.
CGS-CIMB / Consensus: 73.7% ■ Reiterate Add and DCF-based TP of HK$80.10.
Reuters: 9868.HK
Bloomberg: 9868 HK
Initially positioned in mass market, now going premium
Market cap: US$8,313m We believe XPeng is the preference of middle-class consumers in China for its self-
HK$64,789m developed advanced driver assistance system (ADAS) software (XPILOT), in-car
intelligent operating system (Xmart OS) and in-house design and manufacturing
Average daily turnover: US$104.5m
(electrical/electronic architecture and powertrain) capabilities. XPeng at first positioned its
HK$816.6m
EVs in the mid- to high-end segment, the most competitive segment in the China
Current shares o/s: 1,713m automobile market, with prices ranging from Rmb150k to Rmb300k (US$21k-42k). Its first
Free float: 76.2% model, the G3 compact SUV (starting from Rmb150k), was delivered in 2018 and became
*Source: Bloomberg
the second best-selling battery SUV in China’s mid- to high-end market in 2019 and 2020
(source: IHS Markit Report, an institutional-grade market research house). The company
Key changes in this note
subsequently launched the P7, a sedan EV (starting from Rmb230k/US$33k), and P5, a
Nil family sedan EV (starting from Rmb158k/US$23k), in 2021. In Sep 2022, XPeng entered
the premium EV segment with the G9, a luxury SUV (starting from Rmb400k/US$57k).
Price Close Relative to HSI (RHS) FY23F EV deliveries to recover strongly
208 117
XPeng experienced relatively slow growth in EV deliveries in 2022F due to lack of new
158 95
108 72
models. We estimate EV shipments to expand 22% yoy to only 119k units, no thanks to
58 50
poor sales in 4Q22, which could see 50% yoy decline due to disruption to G9 production
8
80
27 and weak demand for its older models during the new model transition period.
60 Nevertheless, we expect EV shipments to show a marked recovery in FY23F, mainly driven
40
by the G9, its first luxury SUV (a direct competitor to Tesla’s Model Y), which comes
Vol m
20

equipped with 480kW fast charging technology and an industry-leading autonomous
driving system (second-generation assisted driving system called XNGP). We are also
Source: Bloomberg positive on its two upcoming models, B-class SUV G5 (likely launching in 2Q23F) and
large-size C-class sedan P9 (likely launching in 2H23F), which should enrich its EV
Price performance 1M 3M 12M portfolio and boost EV ASP and vehicle margins given higher production efficiency on the
Absolute (%) 29.5 -21.6 -78.6 new electric platform. We forecast EV delivery to reach 166.8k units (+40% yoy) in FY23F
Relative (%) 21.1 -36.6 -64.1 and 276.4k units (+66% yoy) in FY24F, mainly driven by the G9, P9 and G5.
Major shareholders % held Profitability to improve on new models’ better operating scale
Xiaopeng He 20.3
We also estimate its vehicle margin to improve from c.10.5% in FY22F to c.15%/20% in
Heng Xia 3.6 FY23F/24F, thanks to better production efficiency on the new platform. As at 30 Sep 2022,
aha the company held Rmb5.64bn cash. We expect the burn rate to be lower than c.Rmb3.0bn
Insert in FY23F and Rmb1.5bn in FY24F due to its increased operating scale.
Reiterate Add; DCF-based target price at HK$80.10
We reiterate our Add call on XPeng as we expect its EV shipments to accelerate in FY23F
and its profitability to improve, thanks to a bigger EV portfolio (6 models) and greater
operating efficiency. Our DCF-based TP of HK$80.10 (WACC: 13.6%, TGR: 3%, COE:
14.0%, RFR: 5%), equivalent to 97x EV/EBITDA in CY24F. Share price catalysts include
strong G9 deliveries and improving vehicle margins. Risks: keener competition and battery
costs staying high which will inevitably hit its EV profit margins and lower-than-expect EV
deliveries in the G9.

Revenue (Rmbm) 5,844 20,988 26,785 42,517 76,895
Operating EBITDA (Rmbm) (4,052) (6,188) (7,656) (5,986) 443
Analyst Net Profit (Rmbm) (4,890) (4,863) (9,228) (6,471) (352)
Normalised EPS (Rmb) (2.96) (2.94) (5.37) (3.74) (0.18)
Normalised EPS Growth (0.8%) 82.7% (30.3%) (95.1%)
FD Normalised P/E (x) NA NA NA NA NA
DPS (Rmb) - - - - -
EV/EBITDA (x) NA NA NA NA 104.1
P/FCFE (x) NA NA NA NA NA
Net Gearing (97.4%) (91.7%) (72.5%) (59.0%) (57.6%)
Ray KWOK P/BV (x) 1.60 1.36 1.80 2.40 2.86
T (852) 2532 1113 ROE (28.3%) (12.6%) (24.8%) (22.9%) (1.4%)
Autos │ Hong Kong
XPeng Inc │ December 30, 2022
New EV models to boost FY23F recovery
Figure 1: XPeng’s EV deliveries (1Q20 to 4Q22F), quarter Figure 2: XPeng’s EV deliveries (FY19 to FY24F), annual
Figure 3: XPeng’s EV deliveries vs EV ASP (1Q20 to 3Q22), Figure 4: XPeng’s EV deliveries vs EV ASP (FY19 to FY24F),
56
Autos │ Hong Kong
Figure 5: XPeng’s vehicle margin vs net profit margin (1Q21 to Figure 6: XPeng’s vehicle margin vs net profit margin (FY20 to
3Q22), quarter FY24F), annual estimates by CGS-CIMB research
Figure 7: XPeng’s EV model portfolio as at 29 Dec 2022

G3
401/520
2018
Dec-18 Compact SUV 2,625 (with 50.5/65.5kWh 8.6 145 300 XPILOT 2.5 149,800 - 199,800 11,788
battery pack)
P7 480/586/706
2020
(with
Jun-20 Mid-size sedan 2,998 6.8 196 390 XPILOT 3.0 229,900 - 349,900 110,716
60.2/70.8/80.9kWh
battery pack)
P5
600
Oct-21 Mid-size sedan 2,768 (with 60.2k/80.9Wh 7.5 155 310 XPILOT 3.0 157,900 -223,900 10,400
battery pack)
2021
G3i 460/520
Sep-21
(with
(G3 updated facelift Compact SUV 2,625 8.6 170 380 XPILOT 2.5 149,800 - 185,800 53,233
60.2/70.8/80.9kWh
version)
battery pack)
G9
702
2022
3Q 2022 Mid-to large-size SUV 2,998 (with 98kWh battery 5.0 200 551 XPILOT 4.0 309,900 - 469,900 2,353
pack)
P9
2023 full-size sedan EV 400,000 (estimate)

2023/ 2024
G5
2023 small-size premum SUV 200,000 - 300,000 (estimate)
57
Autos │ Hong Kong
Figure 8: DCF valuation

Revenue 5,844 20,988 26,785 42,517 76,895 88,429 159,303 184,675 214,089 248,188
EBITDA (2,538) (4,952) (8,996) (5,539) 927 4,421 23,895 27,701 32,113 37,228
Plus : Depreciation/Amortization 328 609 1,178 1,597 1,776 1,828 1,965 2,340 2,739 3,188
Less : Change in working capital 2,502 3,662 (2,689) (992) (2,565) 1,326 2,390 2,770 3,211 3,723
Less : Capital expenditure (806) (2,300) (4,380) (3,500) (2,000) (1,326) (2,390) (2,770) (3,211) (3,723)
Less : Taxation (1) (26) (55) 0 62 71 129 149 173 200
Free cash flow (515) (3,006) (14,942) (8,433) (1,800) 6,321 25,989 30,190 35,026 383,930
Discount factor 1.00 1.00 0.88 0.78 0.68 0.36 0.19 0.10 0.05
PV FCF (515) (3,006) (2,647) (11,583) (5,756) 6,522 5,433 3,336 2,047
Key assumptions
WACC 13.6%
58
Autos │ Hong Kong
C+ A- C+ B- C+ D+
In 2021, XPeng’s ESG initiatives included conducting internal environmental audits and strengthening its control of sudden
environmental pollution accidents. It was also actively involved in community services and targeted labour management
as its primary ESG issue following a thorough analysis with its stakeholders.
In our view, XPeng is not involved in any environmentally-detrimental industry practices and takes the effort to minimise
the environmental impact of its operations.
In FY21, XPeng’s energy and water consumption and In FY21, its total energy consumption rose c.99% yoy to
greenhouse gas (GHG) emission increased yoy but its 88,717 1,000kWh while the energy consumption density
energy consumption density fell. decreased from 0.008 1,000kWh/Rmb1,000 in FY20 to
0.004 in FY21.
Total water consumption rose c.67% yoy to 424,275m3
while water consumption intensity stayed at 0.02
m3/Rmb1,000 in FY21.
Total GHG emission rose c.48% yoy to 42,484 tonnes while
GHG emission intensity stayed at 0.002 tonnes of
CO2/Rmb1,000 in FY21.
Hazardous waste generated was 1,071 tonnes and non-
hazardous waste generated was 11,995 tonnes.
Refinitiv gave XPeng’s environmental pillar a B- score and
ranked it 82nd out of 225 companies in the global
automobile and auto parts sector.
Social Implications
XPeng is actively involved in community services to XPeng donated nearly Rmb17m to charity in FY21. It set up
support the development of public welfare. Green Home Fund and provided education about how to live
a low-carbon lifestyle and cultivate a rich social environment
for green habits. The company also launched the “21-day
Empty Plate” campaign, calling on all XPeng employees to
reject food waste by using green tableware and clearing their
plates during meals. This encouraged employees to bring
their own food boxes to reduce the use of disposable
tableware.
Refinitiv gave XPeng a social pillar score of C+ and ranked
it 113rd out of 225 companies in the global automobile and
auto parts sector. We believe its social pillar rank will rise
due to its active support of the community.
XPeng has identified three important ESG issues following XPeng gathered feedback from various stakeholders and
analysis with its stakeholders via a four-step materiality identified key material issues: Labour Management, Product
assessment. Quality and Safety, and Business Ethics. We expect XPeng
to channel more resources to these areas to improve its
ESG performance and ratings.
Refinitiv ranked XPeng’s governance pillar 215th out of 225
companies in the global automobile and auto parts sector.
We believe the ranking will improve as XPeng matures in
its handling of ESG issues.
59
Autos │ Hong Kong
BY THE NUMBERS

7.6 0.0% 90% Normalised EPS Growth
6.6 -4.3% 70%
5.6 -8.6% 50%
4.6 -12.9% 30%
3.6 -17.1% 10%
2.6 -21.4% -10%
1.6 -25.7% -30%
0.6 -30.0% -50%
Rolling P/BV (x) (lhs) ROE (rhs) 12-mth Fwd Rolling FD Normalised P/E (x)
Diluted Normalised EPS Growth
Profit & Loss

Gross Profit 266 2,623 3,353 7,085 16,353
Operating EBITDA (4,052) (6,188) (7,656) (5,986) 443
Depreciation And Amortisation (328) (609) (1,178) (1,597) (1,776)
Operating EBIT (4,381) (6,797) (8,834) (7,584) (1,333)
Financial Income/(Expense) 111 688 965 630 399
Pretax Income/(Loss) from Assoc. 0 0 0 0 0
Non-Operating Income/(Expense) 1,539 1,272 (1,304) 483 520
Profit Before Tax (pre-EI) (2,705) (4,802) (9,138) (6,435) (378)
Pre-tax Profit (2,731) (4,837) (9,173) (6,471) (414)
Taxation (1) (26) (55) 0 62
Profit After Tax (2,732) (4,863) (9,228) (6,471) (352)
Minority Interests (2,158) 0 0 0 0
Preferred Dividends
Net Profit (4,890) (4,863) (9,228) (6,471) (352)
Normalised Net Profit (2,706) (4,828) (9,193) (6,435) (316)
Fully Diluted Normalised Profit (4,864) (4,828) (9,193) (6,435) (316)
Cash Flow
EBITDA (4,052) (6,188) (7,656) (5,986) 443
Cash Flow from Invt. & Assoc.
Change In Working Capital 2,502 3,662 (2,689) (992) (2,565)
Other Operating Cashflow 423 2,283 10,345 6,979 2,122
Tax Paid 1 22 (55) 0 62
Cashflow From Operations (1,148) (276) (172) (99) (78)
Capex (806) (2,300) (4,380) (3,500) (2,000)
Disposals Of FAs/subsidiaries 25 24 0 0 0
Acq. Of Subsidiaries/investments (426) (288) 0 0 0
Other Investing Cashflow (4,566) (2,393) 0 0 0
Debt Raised/(repaid) (352) (143) 625 1,200 500
Proceeds From Issue Of Shares 27,399 13,147 0 0 0
Preferred Dividends
Other Financing Cashflow 7,283 1,623 (117) (99) (140)
Cash Flow From Financing 34,330 14,627 508 1,101 360
Total Cash Generated 27,408 9,394 (4,045) (2,498) (1,718)
Free Cashflow To Equity (7,274) (5,375) (3,927) (2,399) (1,578)
Free Cashflow To Firm (6,899) (5,177) (4,435) (3,500) (1,938)
60
Autos │ Hong Kong
Balance Sheet
Total Debtors 2,837 4,922 6,755 10,723 19,393
Inventories 1,343 2,662 3,396 5,136 8,775
Total Other Current Assets 157 920 920 920 920
Fixed Assets 3,082 5,425 8,663 10,601 10,861
Total Investments 2 4,766 4,766 4,766 4,766
Short-term Debt 173 0 0 0 0
Total Creditors 5,124 12,387 12,909 19,521 33,355
Total Other Non-Current Liabilities 795 3,817 3,817 3,817 3,817
Total Equity 34,430 42,147 32,126 24,095 20,196
Key Ratios
Operating EBITDA Growth N/A 52.7% 23.7% (21.8%) N/A
Operating EBITDA Margin (69.3%) (29.5%) (28.6%) (14.1%) 0.6%
BVPS (Rmb) 20.96 24.61 18.66 14.00 11.73
Gross Interest Cover (194.0) (122.2) (75.0) (76.3) (9.3)
Effective Tax Rate 0% 0% 0% 0% 0%
Accounts Receivables Days 35.35 33.06 43.22 40.75 38.93
Inventory Days 44.06 39.80 47.18 43.94 42.05
Accounts Payables Days 167.7 173.6 196.6 166.7 159.5
ROIC (%) N/A (338%) (294%) (81%) (12%)
ROCE (%) (23.3%) (15.0%) (19.7%) (22.0%) (2.9%)
Return On Average Assets (12.5%) (9.8%) (16.4%) (12.3%) (1.1%)
Key Drivers
Total no. of EV sales ('000 units) 27.0 98.2 119.4 166.8 276.4
Total no. of EV sales (units yoy% chg) 112.5% 263.0% 21.6% 39.7% 65.7%
Vehcile sales (Rmb yoy % chg) 155.5% 261.3% 23.1% 58.7% 80.9%
Vehcile sales (GPM %) 3.5% 11.5% 10.5% 15.0% 20.0%
61
Navigating China
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65
Navigating China
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Distribution of stock ratings and investment banking clients for quarter ended on 30 September 2022
646 companies under coverage for quarter ended on 30 September 2022
Rating Distribution (% ) Investment Banking clients (% )
Add 66.7% 0.6%
Hold 25.2% 0.2%
Reduce 8.0% 0.2%
66
Navigating China
Recommendation Framework
Stock Ratings Definition:
Add The stock’s total return is expected to exceed 10% over the next 12 months.
Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months.
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Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition:
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Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
#03c
67
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December 30, 2022

Fast-growing China new energy vehicle market ........................................................................................ 4

NEV market: growing fast but competitive

SOURCES: CGS-CIMB RESEARCH, CHINA STATE COUNIL

Government NEV penetration target

China NEV sales slowed down since July 2022

Figure 3: China NEV sales, monthly (Jan 2020 to Nov 2022)

SOURCES: CGS-CIMB RESEARCH, China Association of Automobile Manufacturers

China NEV sales growth rate to decelerate in 2023F

Figure 4: China’s NEV sales, by annual (2018 to 2025F), estimate by CGS-CIMB

SOURCES: CGS-CIMB RESEARCH ESTIMATES, China Association of Automobile Manufacturers

NEV penetration rate to 55% in 2025F and 85% in 2030F

SOURCES: CGS-CIMB RESEARCH ESTIMATES, China Association of Automobile Manufacturers

China NEV penetration to reach 85% in 2030F. We forecast China’s NEV

SOURCES: CGS-CIMB RESEARCH ESTIMATES, China Association of Automobile Manufacturers

EV delivery growth slowing

EV delivery trend in 2022

Figure 7: China EV makers’ NEV sales, by volume (11M21 vs. 11M22)

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, CNEVPOST

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, CNEVPOST

EV delivery forecasts for 2023F-2024F

BYD likely to continue its robust EV deliveries in FY23F and FY24F. We

NIO’s EV deliveries to grow 40%/93%/31% in FY22F/23F/24F. We estimate

XPeng’s FY23F EV deliveries likely to recover strongly. XPeng experienced

Nevertheless, we expect EV shipments to show a marked recovery in FY23F,

BYD likely to maintain its leading position in China’s NEV market. We

SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

EV portfolio comparison by price segment and product type

Cumulative deliveries 59,413 Upcoming <10k <10k 6,912

Company NIO NIO Li Auto BYD Tesla NIO

Cumulative deliveries 104,386 47,186 <10k 110,029 303,519 Upcoming

XPeng BYD Tesla

110,716 214,888 214,769

Company XPeng XPeng BYD XPeng

cumulative deliveries 11,788 53,233 368,281 10,400

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Profitability under pressure in 2023F

SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

Facing huge margin pressure on EV sales. We believe EV makers will continue

1) Higher EV battery costs hurting EV makers’ profitability:

Sustained pressure on EV sales margin. The continual rise in lithium carbonate

2) Competition intensifies with higher marketing and promotion expenses:

Figure 25: Price comparison of high-end and premium electric SUVs

No direct price cuts among automakers, but offers of promotions extended

3) Increasing R&D investment on autonomous driving system and smart

R&D expense to sale ratio(%)

When will smart EV makers turn profitable?

SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

Valuation and recommendation

Maintain Overweight on China smart EV sector

Reiterate Add on NIO, DCF-based target price of HK$130.30. We reiterate our

Reiterate Add on XPeng, DCF-based target price of HK$80.10. We reiterate

Figure 37: Peers comparison

Electric vehicle m anufacturers

China Autom oible m anufacturers

Foriegn autom obile m anufacturers

Electric vehicle parts m anufactuers

Autom otive softw are providers

SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG (PRICE AT AS 29 DEC 2022)

Appendix: China’s NEV policy