The automobile industry ushered in multiple favorable policies

The auto industry, which has been greatly affected by the repeated epidemics, has recently ushered in multiple favorable policies. On May 31, the three major policies were released on the same day, and the market moved, and a lot of money poured into the automotive sector.

First, the State Council issued the “Package of Policy Measures for Solidly Stabilizing the Economy”, proposing a steady increase in the consumption of automobiles and other large-scale goods. Among them, various regions shall not add new car purchase restrictions; comprehensively cancel the policy of restricting the relocation of used cars; and support policies such as parallel import business in the import ports of automobiles.

Second, the Ministry of Finance and the State Administration of Taxation issued the “Announcement on Reduction and Collection of Vehicle Purchase Tax for Some Passenger Vehicles”. For passenger cars with a displacement of 2.0 liters and below that exceed 300,000 yuan, the vehicle purchase tax will be halved.

Third, four departments including the Ministry of Industry and Information Technology issued the “Notice on Carrying out 2022 New Energy Vehicles Going to the Countryside Activities” to organize a new round of new energy vehicles going to the countryside activities. According to the attached statistics, 26 car companies, including BYD and Great Wall Motor, and a total of 70 new energy models under their umbrellas participated in this activity.

Benefiting from this, the main force in the auto sector has stopped the overall net outflow trend, and has continued to return since June, with a cumulative amount of 4.483 billion yuan, ranking second in all Shenwan industries; the industry index rose along with it, with a cumulative increase of 5.01%.

Extending the time, the auto sector has started to pull back from its high in December 2021. After the 11th meeting of the Central Financial and Economic Commission, the market bottomed out and rebounded, and the trading volume also increased simultaneously. Since April 27th, the industry index has increased by 33.87%.

The purchase tax preferential policy exceeds the expected 64 billion red envelopes

Automobile is one of the pillar industries of the national economy. In recent years, the proportion of my country’s automobile consumption in the total retail sales of domestic consumer goods has remained at about 10%. In April, affected by the repeated epidemics, domestic auto production and sales both fell by more than 45% year-on-year, the lowest monthly rate in the same period in the past 10 years.

In order to promote the recovery of the automobile industry, on May 23, the executive meeting of the State Council deployed a package of measures to stabilize the economy, including relaxing the restrictions on automobile purchases and reducing the purchase tax of some passenger vehicles by 60 billion yuan in stages. The announcement of the reduction of purchase tax is the follow-up implementation rules of the measure. Based on the annual sales volume in 2021, the purchase tax rate of 5% below 300,000 yuan, and the policy period of 7 months, the corresponding reduction and exemption amount is as high as nearly 64 billion yuan, which is unprecedented.

After the announcement of the purchase tax halving policy, more than 20 car companies announced their response one after another, and “paid for the other half of the purchase tax from their own pockets”, realizing the “purchase tax clearance” for consumers.

According to statistics from Securities Times·Databao, the domestic passenger car purchase tax reduction and exemption policy has been implemented twice before, and the results have been relatively significant. Among them, from January 20, 2009 to December 31, 2009, and from October 1, 2015 to December 31, 2016, the vehicle purchase tax will be temporarily reduced at a rate of 5% for the purchase of passenger cars with a displacement of 1.6 liters and below. ;For the whole year of 2010 and 2017, the policy is reduced to levy vehicle purchase tax at the rate of 7.5%.

The data shows that during the global financial crisis in 2009, the purchase tax reduction and exemption policy was the most effective, and the annual sales of passenger cars as a whole and passenger cars with a displacement of 1.6 liters and below increased by 53% and 71% year-on-year respectively, effectively stimulating Auto consumption growth. However, with the expansion of the base of car ownership in the whole society, the effect of the policy has weakened.

Specific to this reduction and exemption policy, in terms of displacement, based on the number of insurance coverage, in 2021, the sales volume of 2.0L and below models in my country’s fuel vehicle market will account for 95%. In terms of price, based on the data of the China Passenger Car Association, from 2019 to 2021, the average sales volume of cars priced at less than 250,000 yuan in my country will account for about 88% of the average. Capital Securities estimates that the price ceiling of 340,000 yuan including tax will cover 90% of my country’s auto market + car purchase demand.

Bank of China Securities said that the purchase tax relief has a wider scope, and from March to May, the suspension of production by car companies in Changchun, Shanghai and other places, and the closure of cities in many places have resulted in some short-term suppression of production and sales. Car sales are expected to grow.

Judging from the previous two purchase tax reduction cycles, there is still a high probability that the purchase tax reduction policy will continue in 2023. In addition, new energy vehicles are still in the period of exemption from the acquisition and purchase tax policy, which will expire at the end of 2022.

The coverage of the event will be expanded to 26 car companies to participate in new energy vehicles going to the countryside

New energy vehicles also ushered in favorable policies. According to the notice from the Ministry of Industry and Information Technology and other four departments, from May to December 2022, the China Automobile Association will lead the implementation of new energy vehicles to the countryside jointly organized by the Ministry of Industry and Information Technology and other four departments. A total of 26 car companies and 70 new energy models are involved in this event, which is further expanded compared to the 2021 event.

The introduction of the policy is mainly to guide local governments to increase subsidies for the purchase of new energy passenger vehicles, because the market space for them to sink is very broad. In 2021, passenger vehicle sales in my country’s sinking markets (second-tier cities and below) will account for 66.4% of total sales, while new energy passenger vehicles will account for only 51.6%. West China Securities predicts that the new energy vehicles going to the countryside is expected to accelerate the penetration rate of new energy in the sinking market, driving the total volume to further increase, and the annual sales of new energy passenger vehicles is expected to exceed 5.3 million.

Under the policy increase, various regions have also introduced car purchase subsidy measures to promote consumption. According to statistics from Databao, as of June 1, 16 provinces and cities have introduced relevant plans. Among them, Shanghai will add 40,000 non-commercial passenger vehicle license plates within the year; Guangzhou will increase an additional 30,000 energy-saving vehicle purchase quota from May to June; Shenzhen will add an additional 20,000 ordinary car incremental quota and so on.

In terms of subsidies, Shanghai will give a subsidy of 10,000 yuan per unit to those who scrap, transfer out old cars and acquire pure electric vehicles; Shenzhen will give a subsidy of no more than 10,000 yuan per unit to newly purchased new energy vehicles during the year. Hubei, Jiangxi, Shandong and other places have also successively introduced subsidy policies for the purchase of new energy vehicles, and the subsidies are mostly in the range of 3,000-10,000 yuan.

With the improvement of the epidemic and the support of policies, the auto industry is recovering at an accelerated pace. Combined with the subsidy measures introduced by various provinces and cities, the demand for new energy vehicles is expected to continue to expand as the market gradually recovers.

Institutions are optimistic about the market outlook of the auto sector

Capital Securities believes that the purchase tax reduction + the policy of new energy vehicles going to the countryside will fully benefit the automotive industry chain.

Changan Automobile, Great Wall Motor, SAIC, BYD and other OEMs with rising product cycles deserve attention. China Merchants Securities also said that this round of stimulus policies exceeded expectations and will have a bottoming effect on annual sales. It is expected that this year’s sales are expected to be the same as 2021.

Data treasure statistics show that auto stocks have generally recorded gains since May. Among them, the cumulative increase of 13-connected Zhongtong Bus was as high as 284.62%; Dongfeng Motor, Yaxing Bus, Xiaokang shares and other stocks rose by more than 60%.

In terms of institutional attention, Great Wall Motor and BYD have about 35 institutional ratings; GAC Group and SAIC Group have more than 20 institutions involved. Companies such as Great Wall Motor and SAIC Group that previously enjoyed less sales and purchase tax concessions may benefit from marginal increases in this round of reductions and exemptions.

The latest valuation of the automobile sector is 33.99 times, and the latest rolling price-earnings ratios of 8 stocks such as SAIC Group, Changan Automobile, and GAC Group are all lower than this value. According to the unanimous forecast of institutions, BYD’s annual net profit growth is expected to reach 150%; Changan Automobile is about 94%; Jianghuai Automobile and Dongfeng Motor’s net profit growth is expected to be around 50%.

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