General Discussion Topics, page-58130

SOURCE : UBS NOTE

China: Recent demand air pocket normalising fast
Key takeaways from our call with UBS' China Autos analyst Paul Gong: 1) EV productionwas -40%/-50% m/m in Apr-22 but +80% m/m in May, with further gains expected in June as lock downs ease (UBSe 5.5m / 6-7mn EV sales in CY22/CY23). 2) Supply constraintschanging from semi-conductors and COVID lockdowns to battery raw materials. Inventory will likely shift from just-in-time to up to 2-3mths at the OEM and 3-5mths at the battery maker. 3) EV demand has been mixed; pressured from COVID lockdowns but orders now recovering strongly; order backlog 1-2mths average, 3-6mths popular models, EVs seen as more functional, faster, more digitally connected. 4) Policy support has increased very quickly to both ICE and EVs, supporting strong 2H22 sequential demand lift; no indication subsidies will extend beyond current cut-off date of 1-Jan-23. 5)Battery size to lift from current BEV average of ~50KWh towards 70KWh over time; car size is increasing; small 'compliance' car models lose money at current battery costs. 6) LFP vs NCM is going the way of LFP in China for now (~60% share) due to better stability, improved performance and lower cost reflecting cell-to-pack and cell-to-body manufacturing.


EU/RoW: EV orders sound for now; battery raw materials next bottleneck
Key takeaways from our call with UBS' Global Autos coordinator Patrick Hummel: 1) Global auto output currently annualising 79.5m; EV share lifts from 8% in 2021 to 22% in 2025 and 55% in 2030. 2) Chipshortageis still the supply chain bottleneck, next bottleneck is likely to be batteries / battery raw materials. 3)EV order backlogis 6-9mths, or >1yr for popular models, underpinned by consumer tastes and pro-EV regulations.Consumer demand for EVs continues to strengthenas shown by UBS' latest consumer preference survey. Global auto demand up to 20% below pre-pandemic levels for the 3rd year in a row hints at pent up demand. 4) 60-70kwh batteries are average size and likely to grow(excluding hybrids). In premium/luxury vehicles this is nearly ~100kwh. Fleet battery pack size will depend on battery (raw material) costs, range vs charging infrastructure availability and technology. 5) OEMs increasingly looking beyond offtake agreements and considering upstream investment to secure supply. Five years ago the idea of JV's for cell capacity was unheard of. 6) ESG focus remains, onshoring supply chain and geopolitics risks are front of mind. Beyond the environmental push for EV's, supply chain exposure risks extends from mining raw materials to production of vehicles.


UBS View: EV demand intact notwithstanding ex-China macro risks
UBS' global autos team confirmed China's EV recovery from COVID lock downs is underway. The team's conviction view remains bullish on EV's long term. Consumer sentiment has shifted with more than half of consumers preferring to buy an EV for their next car. Demand is expected to outpace supply notwithstanding macro risks into 2023/24. Raw materials are likely to become the next supply chain bottleneck. Car makers will increasingly explore beyond offtake agreements to reduce upstream supply risks as ESG and supply chains remain front of mind.