China's automobile industry has experienced rapid growth over the past few decades, making it one of the largest and most dynamic automobile markets in the world. According to data from the China Association of Automobile Manufacturers (CAAM), China produced over 25 million vehicles in 2022, and the total automobile sales volume exceeded 26 million units.
In addition, the production and adoption of New Energy Vehicles (NEVS) including electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell vehicles (FCVs) which are significant to the company being a global leader. On the trend of electric vehicles, global demand has increased and the Singapore Exchange SGX has also launched 4 energy metals products to help traders and producers last year.
Following the launch of the product, the focus on low-carbon alternatives, this article will explore more about the current state of China’s Automotive industry for traders seeking to understand more about the automobile global landscape.
About Electric Cars in China
In February, the growth rate of traditional fuel-powered vehicles' production and sales in China slowed down, and the industry shifted from “increasing the volume of vehicles” to a more conservative “stockpile model”.
For the month, short-term consumer spending on cars and the automobile industry is not strong. However, in replacement of the weak development of traditional fuel-powered vehicles, China's new energy vehicle market has grown rapidly.
In the automotive industry, China has the world's largest and most complete automotive supply chain, and it plays a crucial role in the global automotive supply chain.
The automotive industry value chain can be divided into four segments: upstream, midstream, downstream, and consumer purchase.
The value chain of traditional fuel-powered vehicles and new energy vehicles is similar, but the latter has been significantly improved based on the former, with significant differences in raw materials, key components, vehicle manufacturing, and service segments.
Key Raw Materials in China’s Electric Cars
The costs for automotive companies are mainly incurred from raw materials. For traditional fuel-powered vehicles, steel, cast iron, plastics, aluminium, rubber, glass, and copper are the most important raw materials. These vehicles are significantly impacted by changes in the prices of steel and aluminium, which increase costs.
Similarly, the cost structure of new energy vehicles uses the same materials but with significant differences in proportion, specifically, an increased proportion of new energy metals and aluminium. Unlike traditional fuel-powered vehicles, nickel, and copper are more influential in the pricing of new energy vehicles.
Risk Management for China’s Electric Car Industry
Analysts from Shanghai Orient Futures have studied various methods that listed automotive companies use to manage commodity price risks. Many of these automotive firms use financial derivatives for hedging. Some of the followings are general recommendations for hedging, as well as research and case studies on futures hedging and options hedging for managing commodity price risks faced by some companies.
Firstly, automotive companies engaging in risk management businesses generally have better financial performance.
In 2022, a total of 55 listed companies in China's automotive industry issued approximately 2602 announcements related to risk management, with a participation rate of 25.82%, which is above the industry average. Apart from that one company in the automotive sales and service sector, the remaining 54 companies are all exposed to risks from fluctuations in commodity prices. Through the establishment of an evaluation system for core financial performance indicators and key areas, Orient Futures’ analysts discovered that companies engaged in risk management businesses have significantly better profitability and growth indicators compared to those that do not participate. However, the impact of risk management activities on financial results is relatively small in terms of operational capability.
Source: 东证期货 - 深度报告-产业研究-汽车企业大宗商品风险管理-20230411
Market News
Regarding the topic of technology and the automobile industry, the President of the People’s Republic of China, Xi Jinping presided over the first meeting of the 20 Central Financial and Economic Commission on the afternoon of May 5.
The meeting emphasized multiple goals such as speeding up the construction of a modern industrial system supported by the real economy, grasping the wave of new scientific and technological revolutions like AI, maintaining industrial security as the top priority, paying more attention to storing grain in technology, and break through the restrictions on agricultural production caused by natural conditions such as arable land.
Overall, the meeting aims to deepen the reform and innovation of education and health regarding the construction of a strong education country as a strategic project for the development of China.
Source: Morning Brief 20230508
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