European Electric Car Sales Growth Will Slow Before Spurting, While China Lurks

Sales of battery electric vehicles (BEVs) are exploding in Western Europe, but growth will slow over the next couple of years, restrained by the semiconductor shortage, and actions by manufacturers who will seek to push demand for internal combustion engine (ICE) powered vehicles before European Union regulations destroys ICE profitability.

Tesla TSLA +1.6% will retain its lead in BEV sales and profitability and only the best of traditional manufacturers like VW and Mercedes look like posing a serious challenge.

Meanwhile, Chinese carmakers, which tried and failed to penetrate Europe markets with traditional ICE cars, look like being much more of a threat with electric ones.

In Western Europe, BEVs are now linked with big numbers. Recently, sales passed one million in the year, while Germany recently announced there were now 1 million BEVs on its roads. BMW announced in early December it had sold its 1 millionth electric vehicle and plans to reach 2 million by 2025.

Western Europe includes the big markets of Germany, Britain, France, Italy and Spain.

BEV sales more than doubled in 2020 to just under 750,000 and jumped again this year with sales of 1,143,000, according to Schmidt Automotive Research, representing a market share of 10.3%. The pace of growth will slow though with market share rising to 12.0% in 2022, 13e.0% in 2023 and 15.0% in 2024, before jumping 5 points to 20.0% in 2025 and an estimated total of 2,860,000.

Fitch Ratings warns that even though the number of available electric cars and SUVs is increasing and battery technology is improving, range anxiety is still an issue, and a slow expansion of the charging infrastructure could impede a major step-up in EV sales.

In addition, EV profitability does not yet match that of ICE vehicles and (manufacturers) earnings and cash flows will remain burdened by further heavy technology investments over the next several years,” Fitch Ratings said in a report.

“Margin dilution from a higher share of EVs has been manageable for carmakers as government subsidies enticed EV buyers, but a gradual removal of the incentives could weigh on profitability in the medium term, diluting manufacturers’ margins but helping them to avoid (excess CO2) fines (from the EU). We also expect greater competition for European carmakers from new entrants, notably China,” Fitch Ratings said.

According to David Leah, analyst with LMC Automotive, the number of Chinese electric models in Europe has more than doubled over five years and government backing at home has given them a competitive advantage.

“This has allowed Chinese (manufacturers) to develop more competitive battery technology, as well as control large parts of the battery material chain, thus enabling them to achieve greater economies of scale. BEV prices have halved in China during the last 8 years, whilst increasing by 42%-55% in the West,” Leah said.

“As a result, Western (manufacturers) are playing catch up in the mass market BEV space, and the growing threat of new entrants has forced Western companies to reassess their competitiveness as competition intensifies,” Leah said.

Prospects for BEV sales won’t have been helped by news Wednesday one of the biggest selling electric cars in Europe, the Renault Zoe, was awarded zero stars in the Euro NCAP safety ratings, and the Dacia Spring only 1 star. Dacia is Renault’s value brand which uses mainly old technology to cut prices to the bone. Most modern vehicles score 5 stars in these tests.

Investment bank UBS expects strong global BEV sales, with Tesla remaining the undisputed leader.

“In 2021, Tesla has gapped away further from all others in terms of volume growth and margins, and Tesla’s lead should be undisputed in 2022 as battery cell supply could emerge as the next bottleneck for the industry,” UBS analyst Patrick Hummel said in a report.

“We expect global BEV sales to grow by about 60% again in 2022, reaching 7 million or 8% share globally. Only the fastest moving (traditional manufacturers) can avoid further bleeding to Tesla, such as Mercedes-Benz and VW Group. As BEV demand will likely continue to exceed supply, BEV pricing will be very solid and therefore margin parity vs. ICE cars reached over the next 1-2 years,” Hummel said.

And Schmidt Automotive Research said the slowing in BEV market share to 2024 is the result of manufacturers seeing a window to push profitable ICE vehicle sales before EU regulations on CO2 tighten. More regulation in 2027 will have a similar impact before BEV demand wins again, as ICE profit margins disintegrate.

Schmidt Automotive reckons BEV sales will gradually accelerate again and reach a market share of 60.0% by 2030, or 8.4 million vehicles.  VW has said its European BEV sales will hit 70% by 2030 while Ford Europe and Jaguar have set a 100% target.

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Source: European Electric Car Sales Growth Will Slow Before Spurting, While China Lurks

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Hong Kong Is China’s Financial Gateway To The World

Hong Kong is not only an international financial centre, it is the most important gateway to Mainland China – and connectivity is the key to enhancing cross-boundary transactions. The Chinese central government is committed to ensuring that Hong Kong maintains its status as a free port and a separate customs territory, and at the same time focus on the development of the Guangdong-Hong Kong-Macau Greater Bay Area (GBA).

Hong Kong has long been a gateway to and from Mainland China, and different data points show that the city originates and intermediates about two-thirds of China’s inward foreign direct investment and outward direct investments. As one of the Mainland’s principal trading partners, Hong Kong not only provides a channel for goods and services to go global, but also catalyses the international usage of renminbi along to the process.

The renminbi (RMB) has retained its position as the fifth most active currency for international payments by value, with a share of 2.15% as of August 2021, according to Swift data. Since the launch of the pilot scheme for cross-border trade settlement in renminbi in 2009, RMB trade settlement handled by banks in Hong Kong has seen exponential growth.

Hong Kong remains the most important offshore RMB economy by weight, accounting for more than 75% of the global total. For the financial services sector, central and Hong Kong authorities are seeking to further promote cross-boundary RMB investment and financing activities, encourage competitive Mainland Chinese enterprises are also issuing green and sustainability related products in Hong Kong, aiming it to become a hub for green finance within the GBA.

“With complementary advantages of respective markets and systems in the GBA, the financial services industry in Hong Kong has much expectation on the coordinated development of the region,” said Laurence Li, chairman of the Financial Services Development Council (FSDC), a high-level cross-sectoral advisory body set up by HKSAR Government in 2013 to promote Hong Kong’s financial services industry.

“At the same time, different stakeholders have been engaging in conversations and preparatory work to enhance the connectivity and standards of financial services and product offerings. With some favourable measures being introduced and implemented in an orderly manner, the industry believes the ever-improving connectivity of financial markets will lead to uncharted market potentials.”

The FSDC has made efforts in facilitating Hong Kong’s financial services industry to capture market opportunities in the GBA. FSDC has recommended and advocated for connecting cross-boundary payment and transfer infrastructure, enhancing the convenience of remote account opening procedures, as well as fostering cross-boundary mortgage financing, mutual funds, insurance and wealth management.

In a recent research paper, the FSDC recommended connecting cross-boundary payment and transfer infrastructure, enhancing convenience of remote account opening procedures, as well as fostering cross-boundary mortgage financing, insurance and wealth management businesses. Through capitalizing on its unparalleled strengths, Hong Kong can play a unique role in driving the concerted development of the financial services industry, and in turn enjoy the growth momentum in the region.

The newly launched Wealth Management Connect scheme will help diversify investment portfolios through exposure to overseas markets via retail funds domiciled and regulated in Hong Kong, while attracting offshore investments to onshore wealth management products in Mainland. It will also allow Hong Kong investors to broaden their mainland exposure.

Wealth Management is a major breakthrough in which retail investment funds domiciled in Hong Kong and authorized by the Securities and Futures Commission (SFC) are eligible for the scheme instead of the traditional product by product approval approach.

The scheme further integrates the Mainland and Hong Kong markets and promotes cross-border trading, following on from the successful launch of the two Stock Connect schemes that linked the stock markets of Hong Kong with Shanghai and Shenzhen in 2014 and 2016, respectively.

According to a recent KPMG client note, Wealth Management Connect represents another “significant development” in the liberalization of Mainland China’s capital account following the launch of QFII/QDII, the Mainland-Hong Kong Mutual Recognition of Funds scheme and the Stock Connect and Bond Connect schemes. The firm expected these developments would accelerate RMB internationalization and strengthen Hong Kong’s position as a global offshore RMB hub.

Meanwhile, the new southbound leg of China’s Bond Connect programed will stimulate demand from Mainland Chinese investors for Hong Kong and US dollar-denominated bonds, boosting liquidity and, thus, facilitate a more efficient price discovery process. The launch of the southbound link could broaden the investor base for both Hong Kong dollar and offshore RMB bonds, whereas the support for the US dollar bond market could be strengthened even further.

Hong Kong should also be a main contributor to the collaboration in green finance, development of Fintech and digital assets in the GBA in the future. Last but not least, the various financial liberalization measures carried out in the region will foster closer exchange among different stakeholders, including regulators and market participants, provide an appropriate market dynamic, and are in line with the longer-term national objectives of financial liberalization and internationalization. Hong Kong, in this context, will continue to play its unique role as China’s only international financial centre.

The cross-boundary nature of Hong Kong’s financial services sector, especially asset management, is constantly being reshaped thanks to the joint efforts of the government and the sector, leading to an increasing number of available product types, a wider reach to more local, international and Mainland investors with different experiences, and more diversified investment strategies and preferences. Just as the Wealth Management Connect is on the horizon, Hong Kong is marching steadily towards its vision of becoming the world’s premier wealth and asset management centre.

Follow FSDC on Twitter or LinkedIn. Check out www.fsdc.org.hk to stay in touch with their thought leadership.

Financial Services Development Council (FSDC) was established in 2013 by the Hong Kong Special Administrative Region Government as a high-level, cross-sectoral advisory body to engage the industry in formulating proposals to promote the further development of the financial services industry of Hong Kong and to map out the strategic direction for the development. The FSDC has been incorporated as a company limited by guarantee with effect from September 2018 to allow it to better discharge its functions through research, market promotion and human capital development with more flexibility.

Source: Hong Kong BrandVoice: Hong Kong Is China’s Financial Gateway To The World

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