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Monthly Commentary on Key Themes – December 2024
China Electric Vehicle and Battery
Industry Update
- December EV sales another record high: According to CPCA estimates, December NEV wholesale volume reached another historical high level of 1.5mn, +35% YoY1, as driven by supportive trade-in policies. Major EV Brands delivered record-breaking December sales. BYD reported December NEV PV sales of 509k units, +50% YoY, with PHEV continuing to record strong growth. 2024 full year sales reached 4.25mn units, exceeding 4mn annual sales target. Xpeng (+73% YoY), Nio (+73% YoY), and Li Auto (+16% YoY) all delivered record-high sales in December. Xiaomi SU7 delivery exceeded 130k units in 2024, and targets 300k units delivery in 2025. Based on insurance registration, new energy vehicle (NEV) penetration declined slightly MoM to 47% in the last week of December.2
- Auto trade-in program expires on 31 Dec, all eyes on policy extension: Current trade-in stimulus expires on 31 Dec. By mid Dec, the Ministry of Commerce trade-in information platform has received 2.7mn+ applications for the auto trade-in subsidy program. Ministry of Commerce commented in an industry conference that plans for trade-in policies in 2025 is being formulated, though no further details have been disclosed at current stage. As 1Q is a traditionally slow season for auto market when the stimulus could be less effective, and part of the demand could have been front-loaded into 4Q24, trade-in subsidy could resume in 2Q25 after the March Two Sessions Meetings when further details might be disclosed.
- EU Tariff: Media reported at end-Nov that EU and China are nearing a solution over tariffs on Chinese electric vehicle (EV) imports, but this was later denied by EU officials.3 Though uncertainty still prevails, the EU tariff deals present potential upside for China EV market if materializes, as EU is the second largest EV market globally.
- Battery material costs further declined: China’s Battery grade lithium carbonate price Battery grade lithium carbonate price was Rmb75.9k/ton, -0.7% wow, -48%/-26%/-29%/-7% vs. average of 4Q23/1Q24/2Q24/3Q24. 4 Battery materials prices have decreased by over 80% from its peak in 2022, supporting the continued cost optimization for battery makers and EV manufacturers.
Stock Comments
Fuyao Glass recorded 11% gain in December. Fuyao Glass is the largest auto glass maker globally, commanding over 30% of global market share, and is a beneficiary of China’s strong EV sales in the past months. Fuyao’s operational and manufacturing strength brings higher-than-peer margin, and its effective R&D process allows continuous rollout of competitive new products that help to capture market share.
Ganfeng Lithium recorded 17% loss in DecemberThough lithium demand recovers on the back of strong EV and ESS demand, the excess capacity issue still persists, capping the lithium price upside. Lithium supply-demand dynamics and price outlook has yet to turn to a level that can support a fundamental turnaround for major players like Ganfeng.
Preview
We remain positive on the long term growth potential for EV and battery value chain, along with the upward EV penetration trajectory. Domestic old car replacement demand, as stimulated by scaled-up auto trade-in program (which is likely to be extended in 2025), together with export sales, should support China’s resilient auto momentum and benefit leading domestic brands. We expect the China auto market to stay competitive with strong new product line-up and technology innovations from leading EV and battery brands, and new entrants such as Xiaomi. Geopolitical tensions remain the key risks, but China EV models will still remain competitive under new tariff landscape thanks to its cost advantages. Localized production will be the longer term solution for Chinese brands.
China Consumer Brand
Industry Update
The key theme for China consumers in 2024 will be 'Policy.' Since 2H24, both central and local governments have consistently provided support to stimulate consumption. The central government has identified consumption as a critical policy priority. Despite policy efforts, household consumption in China remained weak in 2024 overall. The contribution of final consumption expenditure to headline GDP growth declined, falling to only 29% in Q3, down from 47% in Q2 and 59% in pre-Covid levels in 2019. In November, total retail sales grew by 3.0% YoY, down from 4.8% in October, bringing a YTD increase of 3.5% for 11M24. This slowdown in November's retail sales growth can be partially attributed to a diminished Double-11 effect, as many transactions were shifted to October. We believe that the ongoing lackluster consumption data will necessitate additional stimulus policies in 2025.
Stock Comments
- Trip.com (TCOM US): Trip.com achieved 8% return in December. The company's global presence is the key differentiator from other domestic OTAs. Trip.com's recent track record suggests that its strategy—focusing on the APAC region, leveraging its mobile app, maintaining competitive take-rates, and delivering high-quality customer service in international markets—is proving highly effective. Going forward, overseas revenue (c.10% of group revenue in 2024) are expected to be the key growth driver in 2025, supported by increased marketing investments since 4Q24 and more favorable inbound travel policies (e.g. visa-free entry).
- Midea Group (000333 CH): Midea recorded 8% return in December. NDRC recently revealed the details of the 2025 consumer goods trade-in program. Key highlights include: 1) coverage categories expanded from 8 to 12, with microwaves, water purifiers, dishwashers and rice cookers newly added; 2) the number of air conditioners eligible for subsidies per consumer will increase from one to three. We believe industry leaders like Midea, with high domestic exposure and high premium product mix tend to benefit more than peers under the extended consumer goods trade-in program.
- Wuliangye Yibin (000858 CH): WLY experienced 4% loss in December. WLY held its annual distributor conference and investor meetings on Dec 18, where management acknowledged the challenges in achieving the DD% YoY sales growth target for 2024 but assured that positive growth is still expected. Company remains cautious about 2025 outlook under the difficult macroeconomic environment, while aiming to steadily enhance its market share and brand equity. WLY did not disclose its 2025 sales growth plan at the meeting, while we expect a mid to high SD growth driven by 1) Puwu’s 5% price hike in end-2024 for c.20%+ distributor quota, and 80% will likely impact 2025; 2) robust retail sales momentum in 1618 under banquet scenarios, ongoing cultivation of Classic Wuliangye in key markets and further growth from series spirits as well as other non-Puwu products.
Preview
We believe policy stimulus remains key to enhancing consumer sentiment and bolstering stock performance for China consumer in 2025. We expect that macroeconomic recovery, supported by supportive policies, presents the largest upside risk for China’s consumer sector in 2025, especially given that demand was under pressure across nearly all subsectors in 2024. However, the path of policy rollout remains unclear. Therefore, we expect consumption recovery to unfold gradually, with a more noticeable improvement likely in 2H25. More time will be needed before fundamentals improve under the current policy setup. Key events to watch include the Two Sessions in March 25. By subsector, we like sectors that are direct focus of stimulus policies, such as home appliance under extended consumer goods trade-in programs, as well as sectors sensitive to macroeconomic changes, such as Baijiu.
China/Asia Semiconductor
Industry Update
- TSMC begins mass production at 1st Japan chip plant in Kumamoto
TSMC has commenced mass production at its inaugural factory in Japan, located in Kumamoto Prefecture. This facility will manufacture logic chips using 12 to 28 nanometer process technologies, primarily for automotive applications and image sensors, with clients including Sony and Denso. TSMC plans to construct a second factory nearby to produce more advanced 6-nanometer chips, with construction set to start by March 2025 and operations expected by late 2027. The Japanese government is supporting TSMC with over 1 trillion yen ($6.3 billion) in subsidies, emphasizing the importance of domestic chip production (Kyodo News) - SK Hynix to Showcase 16-layer HBM3E at CES 2025
SK Hynix is set to unveil its vision as a 'Full Stack AI Memory Provider' at CES 2025, scheduled for January 7-10. The company will showcase its 16-layer HBM3E memory and a massive 122TB enterprise SSD, highlighting its advancements in AI memory technology. Additionally, SK Hynix plans to produce its next-generation HBM4 technology by the second half of 2025, reinforcing its leadership in the memory market. (Trendforce)
Stock Comments
- SMIC +5.02%
Domestic foundry utilization continues to recover on restocking orders. Market turn more positive on China semiconductor demand after the government announced stimulus package. SMIC has projected a 13-15% Q/Q revenue growth for 3Q24. 3Q gross margin guidance of 18-20% exceeds expectations, due to rising ASP, given a higher 12-inch wafer shipment mix. - Will Semi +6.06%
China is looking to roll out subsidies program to include smartphones and more consumer electronics. Will semi is a key smartphone CIS supplier, well positioned to benefit should the smartphone sales grow in 2025 driven by new subsidies.
Preview
Increasing AI adoption in the data centre and increasing penetration of AI at the edge and on-device will be the key enabler of next upcycle semiconductor as AI-enabled devices have much higher semi-content. We expect volume growth in end devices to drive broad-based semiconductor cycle recovery in 2025. (Mirae 2025)
China Clean Energy
Industry Update
- China solar installation was accelerating in November, adding 25GW vs 20GW in October, sending 11M24 the total solar installation to 206GW, +26%yoy. EU-27 2024 solar installations are estimated at roughly 65.5GW, +4.3%yoy. The solar industry is demonstrating mixed signals at the beginning of 2025, with polysilicon and solar glass destocking but significant prices recovery remaining challenging. The supply-side policies appear not effective enough to help the industry get out of the woods, especially in the upcoming low season in January and February. Channel checks implied the utilization along solar value chain came down to less than 50% or even lower during the Chinese lunar new year holidays.
China wind installation added 5.95GW in November, +46%yoy and -11%mom, sending 11M24 accumulated wind installation to 51.8GW, +25%yoy. China’s grid infrastructure investment as of 11M24 ended at Rmb529bn, +18.7%yoy, in which November investment was Rmb78.8bn, +8.39%yoy.
Stock Comments
Key Contributors:
- China Yangtze Power Co., Ltd Class A: The company has a solid track record of earnings delivery thanks to the high-quality hydropower business model. Stock rally in December may be mainly to the market turning to the high-dividend play by the year end.
- Hainan Jinpan Smart Technology Co., Ltd. Class A: Company is one of the key beneficiaries from power equipment exports to the US market, while December exports to the US was accelerating.
Key Detractors:
- Longi Green Energy Technology Co., Ltd. Class A: The company’ stock price rallied a lot due to the high expectation on the supply-side policies, which turned out disappointing.
Preview
We expect a modest growth rate for the European solar power market, mainly because the residential solar demand slowed down for the decreasing ROI as electricity prices normalized and the impacts of the energy crisis faded. China’s supply-side policies on solar may take more time to play out, despite the worst time behind. We are constructive on China’s wind equipment exporting for better profitability. We remain constructive on the global clean energy growth and the trend of energy transition, just staying cautious about the near-term broad mismatch between supply and demand.
India Market
Market Update
- The MSCI India Index was down 2.85% (in USD terms) over the December reporting period underperforming the MSCI APxJ/EM Indices due to concerns on global macro uncertainties, weak Indian rupee, and domestic growth concerns. That said, for the full year CY24, the MSCI India Index ended +12.41% (in USD terms) outperforming the APxJ/EM region for the fourth consecutive year.
- Domestic demand-based high-frequency data for December showed an improving trend, yet the pace of recovery has been slower than anticipated. While PMI for manufacturing softened to a 12 month-low of 56.4, services PMI rose to a 4-month high of 59.3 in December. Power demand also rose to a five-month high of 5.9% and credit card spending stood at a 3-month high with average daily spending growing 13.5%yoy. Naukri job index picked up with recovery in hiring activity across the board. That said, the pace of pickup in government capex has been slower at average of 3.7% in Oct-Nov and a lagged impact of tighter monetary policy led to a slower growth recovery pace for this quarter.
- November CPI softened to 5.5% with steady Core CPI (ex food, fuel) at 3.7%yoy. Food inflation remained high but it is expected to moderate in coming months with an improved outlook for summer and winter crops. Also, core inflation has been trending down in the past 12 months thus this may give a room for the RBI to start an easing cycle from 1QCY25 onwards.
- Indian equity flows from foreign institutional investors ended with a net buying of USD 1.9 billion (vs. net selling of USD 2.7 billion in November) and ended CY2024 flows with flattish at USD -0.1bn, while domestic institutional investors maintained their buying trend for the 17th consecutive month by net buying USD 4.0 billion in December (vs. USD + 5.3 billion in November).
Stock Comments
- Sun Pharmaceutical (SUNP IN) and Infosys (INFO IN) were the major contributor in December as pharmaceutical and IT services outperformed the market post the US election as the companies in these two sectors are exporters who can benefit from strong US dollars and also considered as defensive sectors amid macro uncertainties and domestic growth concerns. IT services is expected to benefit from strong US economy next year and the latest Naukri job index also showed recovery hiring trend for the sector.
- Hindustan Unilever (HUVR IN) was the major detractor in December due to concerns on mass market consumption growth as one of its peers, Godrej Consumer, reported profit warning for 3QFY25E. Rising raw material prices also increased concerns on margins for staples companies including Hindustan Unilever. Moreover, a robust growth of quick commerce channel increased competition for traditional FMCG companies as this reduced big FMCG companies’ distribution moat in traditional channel and this concern has continued to weigh down on stock performance.
Preview
- This confluence of strong GDP growth, moderate inflation, and recovery in consumption suggests a buoyant outlook for the Indian equity markets, and we believe these conditions will be conducive to capitalizing on potential growth opportunities during this fiscal year in India. We remain constructive on India market.
1 CPCA, December 2024
2 Goldman Sachs, December 2024
3 Reuters, November 2024
4 Goldman Sachs, December 2024
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Authors: Ahn Sol, Chan Tsz Wang Edward, Qiu Chuqi, Zhou Yuan, Bingyao Chan, (Licensed by the Securities and Futures Commission for Types 4 and 9 regulated activities under the Securities and Futures Ordinance), and Yimin Huang (Licensed by the Securities and Futures Commission for Types 1 and 4 regulated activities under the Securities and Futures Ordinance)The authors and their associate(s) do not hold the securities/fund mentioned in the article.
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