In a report released on Feb 22, Fitch suggested that China’s start-up EV leaders have established themselves in a booming market where branding, product, value for money, and after-sales service are playing a bigger role.
However, the upcoming competition will be more intense, and thus they might require significant investment to retain competitiveness.
NIO, XPeng and Li Auto’s growth in market share
In a 12-page report, Fitch suggested that the EV industry in China, with the respective products and features of NIO, XPeng, and Li Auto would be the agency’s first coverage of the analysis.
Fitch is now expecting significant growth in passenger EVs in China to continue at a 28 percent CAGR over the period 2021-2025 and to exceed 35 percent share by 2025.
The report suggests the key beneficiaries of the strong growth are the three publicly traded EV startups, NIO, XPeng, and Li Auto. After surviving the industry downturn in 2019, those three companies have emerged as market leaders, particularly in the smart EV segment.
In 2021, Chinese startup brands had a 15 percent market share of all EVs sold, with these three brands contributing 57 percent, the report noted.
In a previous analysis of China’s passenger-vehicle (PV) market, Fitch suggested that the market is likely to sustain mid-single-digit steady growth in 2022 after wholesale deliveries rebounded 6.5% yoy to 21.5 million units in 2021.
The growth will be further propelled by strong electric-vehicle (EV) demand and dealership restocking after production bottlenecks due to a microchip shortage eased from 4Q21.
Upgrade of competition in the EV market
Fitch expects the three EV leaders to maintain strong growth as the market becomes less policy-driven and less dependent on government subsidies, towards one that is more competitive, with:
- branding
- product feature
- value for money
- and after-sales service playing a greater role.
They could also face stiff competition from new EV marques of existing Chinese automakers, global automakers, and new entrants backed by domestic tech giants such as Baidu, Xiaomi, and Huawei.
To differentiate their brands and upgrade the service, they must require intensive R&D and significant upfront investment.
Fitch expects their business profiles to remain weak in the near term, with small size, short track record, limited diversification and high execution risk.
