FoundationMChina Autos & Shared MobilityReshaping China's auto industryDespite the distorted industry cycle in recent years from aspects such as COVID and supply issues, we think the Chinese auto industry is being reshaped, amid the emergence of replacement demand and the rise of hybrid vehicles due to tightening policy requirements on fuel consumption.Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Research. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision.For analyst certification and other important disclosures, refer to the Disclosure Section, located at the end of this report.+= Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to FINRA restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. March 15, 2022 08:01 PM GMT
FoundationM2Morgan Stanley Asia Limited+Joey Xu, CFAEquity Analyst+852 3963-0337Joey.Xu@morganstanley.com Contributors Morgan Stanley Asia Limited+Jack YeungEquity Analyst+852 2239-7843Jack.Yeung@morganstanley.comMorgan Stanley MUFG Securities Co., Ltd.+Shinji KakiuchiEquity Analyst+81 3 6836-5416Shinji.Kakiuchi@morganstanleymufg.comMorgan Stanley Asia Limited+Tim HsiaoEquity Analyst+852 2848-1982Tim.Hsiao@morganstanley.comMorgan Stanley Asia Limited+Shelley Wang, CFAEquity Analyst+852 3963-0047Shelley.Wang@morganstanley.comMorgan Stanley Asia Limited+Cindy HuangResearch Associate+852 3963-3568Cindy.Huang@morganstanley.com
FoundationMMorgan Stanley Research3Moving to a more mature stage of China's auto industry: In spite of the near-term supply/demand disruptions in the China passenger vehicle industry (i.e. fluctuating demand from a policy reset and pre-vailing supply constraints), we expect the Chinese auto industry to enter a new phase of development, whereby replacement demand will become increasingly important in shaping demand, whereas pre-viously rapidly-deepening vehicle ownership due to demand from first-time buyers was the key driver of industry growth. This is also evidenced by steady used car sales in both 2020 (which were flat YoY despite COVID) and 2021 (+26% YoY). On the other hand, with an average age of six years for used-car sales and an average of 15 years for passenger vehicle scrappage (the assumption under old stan-dards), 2021-25 could be a time of increasing replacement demand - with both upgrade demand from the 2015-18 industry upcycle (as we have seen from robust luxury vehicle sales in 2H20) as well as replacement demand from the 2009-10 auto industry upturn after a post-crisis stimulus (albeit less notable given more modest sales...
