JP Morgan: Mainland car factories face price pressure, with discounts reaching a record high of 16.8% in April, potentially becoming the main headwind for the market.

J.P. Morgan released a research report stating that in April, the overall stock price of Chinese automotive stocks rose by 8%, driven by strong first-quarter earnings from companies such as GEELY AUTO (00175), leading sales companies like LEAPMOTOR (09863), and OEM car manufacturers. However, companies such as DONGFENG GROUP (00489), SAIC Motor Corporation (600104.SH), and Guangzhou Automobile Group (02238) which recently announced slower profit or sales growth performed poorly. J.P. Morgan believes that price pressure may become the main headwind in the market. The analysis by the bank on industry price discounts shows that by the end of April, overall discounts reached 16.8%, up 53 basis points from March, reaching a historical high since tracking the bi-weekly data began in 2017. The report indicates that recent sales data for April released by the China Association of Automobile Manufacturers shows continuous growth in new energy vehicles in mainland China. J.P. Morgan predicts that by 2030, new energy vehicles will account for about 80% of China's passenger car sales, with growth achieved at the expense of fuel vehicles. The data also shows that in recent years, exports from mainland China were driven by new energy vehicles while exports of fuel vehicles declined. At the same time, Chinese brands accounted for 72% of the passenger car market in China in April, with the bank predicting that by 2030, Chinese brands collectively will account for 80-85% of the market share. J.P. Morgan notes that there is rapid growth in the lower-end AB segment cars priced between 10-20 thousand RMB, which may reflect a trend of "consumer downgrading." However, the bank also observes that more and more B or C-class (large) models are pricing lower towards the range of A-class models due to intense price competition. In terms of inventory, overall inventory has slightly decreased from 1.6 months in March to 1.4 months in April, as inventories of imported and joint venture brands narrowed. However, the average inventory of self-owned brands expanded from 1.4 months in March to 1.5 months in April.