Overall stable production and sales data for March

Production: In March, the production of narrow passenger vehicles in China increased by 13.8% year-on-year/24.9% month on month to 2.079 million units, and the cumulative production in 1Q23 increased by -5.3% year-on-year to 5.087 million units. Retail: In March, retail sales increased by+0.3% year-on-year/+14.3% month on month to 1.587 million vehicles, while cumulative sales in 1Q23 increased by -13.4% year-on-year to 4.261 million vehicles. Wholesale: Wholesale sales in March increased by+9.3% year-on-year/+22.9% month on month to 1.987 million vehicles, and cumulative sales in 1Q23 increased by -7.3% year-on-year to 5.052 million vehicles. We believe that the phased and strong subsidy policy for fuel vehicles has a supportive effect on monthly sales, but the long-term stable growth of sales may depend on the repair of consumer demand supported by policy support/local consumption subsidies.

March new energy vehicle retail penetration rate of 34%+

Production: In March, the production of new energy passenger vehicles increased by+43.5% year-on-year/+21.5% month on month to 629000 vehicles, and the cumulative production in 1Q23 increased by+26.1% year-on-year to 1.541 million vehicles. Retail: In March, the year-on-year sales volume increased by 21.9%/month on month by 23.6% to 543000 vehicles (penetration rate increased by 6.1 pcts/month on month by 2.6 pcts to 34.2%), and the cumulative sales volume in 1Q23 increased by 22.4% year-on-year to 1.313 million vehicles (penetration rate increased by 9.0 pcts to 30.8%). Wholesale: In March, the year-on-year sales rate was+35.2%/month on month (MoM)+24.5% to 617000 vehicles (penetration rate was+6.0pcts/month on month (MoM)+0.4pcts to 31.1%), and the cumulative sales rate in 1Q23 was+25.8% year-on-year to 1.501 million vehicles (penetration rate was+7.8pcts to 29.7% year-on-year). 1) In March, the wholesale penetration rate of domestic brands increased from 0.7pcs to 46.4% month on month, while the retail penetration rate increased from 1.8pcs to 54.7% month on month; 2) In March, Tesla's wholesale sales increased by 19.4% month on month to 89000 vehicles, while retail sales increased by 1260% month on month to 77000 vehicles.

Price war may continue to unfold

The essential reason for the price reduction of this round of fuel vehicles is the weak product strength of the joint venture model, resulting in a longer inventory cycle. We believe that most fuel car companies have already cut prices by the end of March. According to the inventory warning index of car dealerships, the joint venture brand's March month on month index was+6.8pcts to 63.6%, indicating that dealers still face pressure to go out of stock. 2) Due to factors such as the price decline of lithium carbonate and technological cost reduction, there is also room for cost exploration/price reduction of new energy passenger vehicles. It is not ruled out that there is a possibility of further price reduction/equity amplification of new energy vehicles. 3) Overall, the price war may continue to unfold. Given the economic benefits of new energy vehicles after price reductions, combined with increased product strength, and the pace of new vehicle launch, it is expected that the stable increase in new energy vehicle penetration rate will partially erode the market share of fuel vehicles.

Focus on top car companies' production and sales targets+pricing

As of April 10th, some local governments have implemented time limited subsidy policies for car consumption relying on activities such as auto shows. 1) Maintaining the judgment of 9 million domestic new energy passenger vehicle wholesale in 2023, the largest variable may be related to demand recovery, production and sales targets of leading manufacturers, and pricing strategies. 2) Given the decline in lithium carbonate prices, the annual decline in the industrial chain, and the risk of performance downgrades caused by price reductions in some hedging factories due to economies of scale, it is expected that the profitability of the entire vehicle will outperform that of the components. 3) We are optimistic about leading independent new energy vehicle companies with strong plug-in and export layout, strong industrial chain cost control capabilities, and strong sales and performance fulfillment capabilities in 2023, new force vehicle companies with differentiated positioning competition in user profiles, and component companies with increased market share/new targeted release, strong annual decline digestion ability, and diversified business.

Risk reminder: policy fluctuations; Production capacity/supply chain is less than expected; The price of raw materials has increased; Industry demand falls short of expectations; The launch and uphill performance of the vehicle model did not meet expectations; Cost control is not as expected; Market risk.