Traditional cars race past EVs on 60b yuan tax breaks

Shares of traditional car manufacturers jumped yesterday while those of electric vehicle makers fell after China eased restrictions on car purchases and reduced taxes that buyers pay on some cars by 60 billion yuan (HK$70.62 billion).

The cut was part of the 140 billion yuan tax breaks announced by China on Monday to stimulate the economy, which has been hit by Covid lockdowns.

Geely Automobile (0175) closed 3.5 percent higher yesterday, the best performer among blue chips while Great Wall Motor (2333) jumped 5.1 percent.

Meanwhile, EV makers fell. BYD (1211) was down 5.8 percent while XPeng (9868) plunged 9.1 percent after the Guangzhou-based EV maker reported a wider-than-expected quarterly loss, which more than doubled to 1.7 billion yuan in the first quarter this year.

Nio (9866) slumped 8.1 percent and Li Auto (2015) went down 2.6 percent.

China rolled out a broad package of measures to support businesses and stimulate demand, Xinhua News Agency reported on Monday, including reducing the tax on some passenger vehicles by a total of 60 billion yuan.

Investors may shift their stock portfolios from EV producers and their upstream companies to conventional automakers, Citibank said, while Morgan Stanley believes there is still uncertainty on whether the automotive industry can benefit from the supportive policies amid a flagging economy.

Citibank expects the tax cut would drive up demand for gas-fueled vehicles from 2 million to 2.5 million with Geely and Great Wall Motor expected to be the main beneficiaries. The bank raised its target price for Geely to HK$17.89 from HK$14.96 after reiterating its "buy" rating on the automaker.

Citi also raised Great Wall Motor's target price from HK$24.8 to HK$29.1, expecting the company will benefit from the policy in the second half of this year and next year.

Macquarie believes the policy will drive up more demand for gas-fueled vehicles, as electric vehicles are already exempt from the sales tax.

In other news, Autohome (2518), a Chinese online auto services platform, yesterday reported a 51 percent drop in net profit to 307.5 million yuan in the first quarter.

Net revenue over the same period fell 20 percent to 1.47 billion while income from media services declined 55 percent to 266.8 million yuan.

Autohome's mobile daily active users grew by 7.5 percent to 45.2 million in March, the firm said citing data from QuestMobile.