Demand analysis: policy decline, short-term disturbance, pure electricity demand dominates the new energy market

The volume of light vehicle sales continues to recover in Europe. European light vehicle sales in 2023 were 16.25 million units, +17.83% YoY, and 2017-2023 CAGR was -3.0%. Light vehicle sales in January-May 2024 were 6.78 million units, up 3.59% year over year. Affected by declining policies in some countries, the penetration rate of new energy sources has declined slightly, and demand for pure electricity dominates the new energy market. From January to May 2024, pure electric sales volume was 0.723 million vehicles, -1.09% YoY, penetration rate 10.67%; plug-in hybrid sales volume was 0.342 million vehicles, +1.24% YoY, with a penetration rate of 5.04%. By country, from January to May 2024, the light vehicle market in mainstream markets such as Germany, France, Britain and other mainstream markets resumed growth. With the exception of Germany and Austria, the NEV penetration rate increased. The NEV penetration rate in mainstream European markets was around 15% to 45%. The Netherlands and Denmark had the highest NEV penetration rates, reaching 44.0% and 42.6% respectively. By type, the increase in the penetration rate of new energy in the mainstream market is mainly pure electricity. Among them, the Dutch, Danish, and Belgian markets have pure electricity penetration rates of +2.5 pct/+9.8 pct/+3.1 pct, respectively.

Model requirements: The preference is for compact and small cars. The penetration rate of new energy between medium and medium and large is similar to the light vehicle consumption characteristics of countries leading the European market, mainly compact and small cars. From January to May 2024, European compact SUVs, compact cars and compact cars accounted for a relatively high proportion of 27.7%/14.5%/15.5%, respectively. Looking at representative models, the best-selling compact SUVs from January to May 2024 were the Volkswagen Tange T-Roc and Tiguan, which sold 0.092 million/ 0.076 million units respectively; the highest-selling compact car was the Dacia Sandero, which sold 0.119 million units; and the best-selling compact car was the Volkswagen Golf, which sold 0.119 million units.

In terms of new energy vehicles, the penetration rate of new energy in the medium and medium to large class is far ahead of the high-share compact and compact car market.

In the European market, SUV-D, SUV-E, D, and E new energy penetration rates were leading, with 43.3%/41.9%/28.9%/53.4%, respectively. In terms of representative models, the market share of the Tesla Model Y and Model 3 segments in the mid-size car market is far ahead of other models.

BYD's competitiveness: Based on brand building and channels, multi-market layout. Judging from the competitive pattern, the European light vehicle market is dominated by local cars, with Japanese Toyota ranking second. By brand, Volkswagen continues to rank first, with sales volume of 0.6317 million vehicles from January to May 2024, with a market share of 9.3%. With the exception of Toyota and Ford, the top ten brands are all European brands. Tesla is highly competitive in the new energy market, and Model Y has the largest market share. Tesla leads the European NEV market. From January to May 2024, Tesla sold 0.113 million vehicles, with a market share of 10.6%. Starting in the second half of 2022, BYD will accelerate its multi-market layout in Europe. Continued enrichment of the NEV product matrix is expected to gradually demonstrate product competitiveness. As a pioneer of its own brands, BYD's current focus is on brand building and channel layout. On the one hand, we are cooperating with large local dealer groups to quickly lay out channel systems and cooperate in depth with Dutch dealer group Louwman and European dealer group Hedin Mobility; on the other hand, we are cooperating with leasing companies to enter the B-side market.

Investment suggestions: The basic market for technology and products is stable. Going overseas and moving towards a new peak The company will usher in a new year of new technology and new products in 2024. With the support of the DM5.0 and e 4.0 platforms, the main models of Dynasty Ocean Network will usher in facelift and replacement, continue to upgrade product strength, and stand firm in the mainstream market. Tension, Yangzheng, and Fangchengbao high-end brand models are rich in reserves, speeding up the deployment of the high-end market. Overseas travel continues to gain strength, and the overseas channel layout and model matrix will be further improved. Supported by the scale effect, with overseas expansion and high-end expansion, profitability is expected to remain high without fear of competition. The company's net profit from 2024-2026 is estimated to be 38.6, 51.1, and 65 billion yuan, corresponding to PE 17X, 13X, and 10X, maintaining a “buy” rating.

Risk warning

1. Weak market demand led to lower sales of new energy vehicles than expected; 2. Cost reduction of power batteries fell short of expectations; 3. Demand in overseas markets was lower than expected; 4. Risk that profit forecasting assumptions were not true or fell short of expectations.