MMChina Autos & Shared MobilityDealers in EV Era: Confronting the Direct Sales ChallengeDirect sales is the new business model for EVs, calling into question the need for third-party dealers. We expect the profit pool for China's dealers to shrink, but EV evolution could accelerate dealer consolidation, bring higher ROE to top dealers under the agency model while phasing out laggards.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. September 12, 2021 09:00 PM GMT
MM2Morgan Stanley Asia Limited+Shelley Wang, CFAEquity Analyst+852 3963-0047Shelley.Wang@morganstanley.com Contributors Morgan Stanley Asia Limited+Jack YeungEquity Analyst+852 2239-7843Jack.Yeung@morganstanley.comMorgan Stanley Asia Limited+Tim HsiaoEquity Analyst+852 2848-1982Tim.Hsiao@morganstanley.comMorgan Stanley Asia Limited+Joey Xu, CFAEquity Analyst+852 3963-0337Joey.Xu@morganstanley.comMorgan Stanley Asia Limited+Cindy HuangResearch Associate+852 3963-3568Cindy.Huang@morganstanley.com
MMMorgan Stanley Research3Dealers in the EV Era: Confronting the Direct Sales ChallengeTransition from ICE franchise to EV agency model reduces dealer service content but improves ROE: We expect the direct sales model, including self and agent operated, to become the major distri-bution method for EV (electric vehicle) makers in China by 2025, accounting for 50-60% of China total EV sales, vs. the current fran-chise model for ICE (internal combustion engine) vehicle sales. We expect OEMs to be involved more in the distribution and after-ser-vice via self-operated stores, for direct customer access and future software revenue, thus leaving a reduced profit pool for the entire dealer industry to share. That said, we believe agency model will gain popularity over self-operated, as it best aligns the interests of OEMs and dealers. The agency model could bring >40% ROE to surviving dealers, vs. <30% ROE under the franchise model, thanks to: 1) lower upfront capex; 2) higher new car margins; and 3) little inventory financing cost. Industry ViewChina Autos & Shared Mobility | Asia PacificAttractiveLost value in EV after-sales is a long-term overhang for dealers, while we see upside potential in ASP and repair frequency: Per o...
