Hong Kong, September 26, 2018 -- Moody's Investors Service says that China's aim to raise sales
of new energy vehicles (NEVs) -- which comprise electric, fuel-cell
and plug-in hybrids -- to more than 20% of total auto
sales by 2025 will pressure Chinese automakers, but will have only
a limited impact on other sectors.
"Automakers will be affected, as the rising costs of research
and development and investments associated with NEVs will be difficult
to offset through cost savings, especially amid rising competition
from new entrants to this market," says Ying Wang, a
Moody's Vice President and Senior Analyst.
"The impact on other sectors will likely be mixed and limited,
with the auto securitization sector more affected, while the chemicals
sector stands to benefit amid rising demand for NEV battery chemicals,"
adds Wang.
Moody's conclusions are included in its just-released report
"Cross-Sector -- China: Focus on new energy vehicles
to hurt automakers, have limited effect on others".
While ambitious -- NEVs accounted for just 2.7% of
auto sales in 2017 -- Moody's views the government's
aim as achievable, given its ability to influence supply and demand
through policy, China's low degree of auto penetration,
the strong potential for NEV sales growth, and an expectation that
NEV prices will decline with production volume increases and technological
advances.
By sector, Moody's says the impact on some auto-parts
suppliers will be credit negative as demand for combustion engine parts
could decline, while the impact on others will be limited as they
make parts that can also be used in NEVs.
The credit negative effect on Chinese refiners will be limited because
NEVs will overall remain a small portion of China's total auto market.
The impact will be immaterial for steel-makers, because their
exposure to the auto industry is relatively small.
The effect on large miners will be limited, because their product
portfolios are diverse, and their exposure to the NEV market is
small.
While NEVs will boost power demand, the incremental demand will
be too small to have an effect on the financial and credit metrics of
electric utilities.
Auto-related revenue will decline for regional and local governments
(RLGs), as NEVs are subject to fewer and lower taxes and fees than
conventional autos, but will continue to comprise only a small portion
of the RLGs' total revenue.
Finally, securitization backed by loans and leases on NEVs are riskier
than those on internal combustion engine vehicles because of the greater
residual value risk, higher loan-to-value ratios,
lower credit quality of borrowers, and the originators' lack
of experience in this area.
Subscribers can read the full report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1124332
The report may also be found through Moody's topic page "China's trade-off:
Deleveraging and stability", available at http://www.moodys.com/chinarebalancing.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's trade-off include:
• Government of China -- A1 Stable: Regular update
• Property -- China: Onshore liquidity conditions improve;
onshore bond issuance to increase
• Non-financial companies -- China: Shareholders'
use of share-pledged loans can weaken listed companies' credit
quality
• Quarterly China Shadow Banking Monitor
• Rated non-financial companies -- China: More
companies are likely to be affected as trade dispute with US escalates
• Property & casualty insurers -- China: Regulatory
focus to curb aggressive risk-taking underpins stable outlook
• Property -- China: Rated developers to face high refinancing
needs over the next 12 months
• Inside China: July 2018
• Government of China: Easing poses limited fiscal risk,
but suggests policy trade-offs are starting to bite
• Mass transit sector -- China: China's new policy
on metro construction is positive for sector development
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This publication does not announce a credit rating action. For
any credit ratings referenced in this publication, please see the
ratings tab on the issuer/entity page on www.moodys.com
for the most updated credit rating action information and rating history.
Ying Wang
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077