Predicted growth for EV market with Chinese firms leading the way

The electric vehicle (EV) market is expected to maintain growth in the second half of 2022, with Chinese EV brands performing well, according to financial services group Nomura.

"We are confident that electric vehicles will remain on a structurally growing trend and are well-positioned to capture pent-up demand in the second half of the year, despite the latest purchase tax cut only benefiting internal combustion engine (ICE) vehicles," said Benjamin Lo, head of Hong Kong Research & China Autos Research at Nomura.

The wider adoption of lithium iron phosphate (LFP) batteries, dominated by Chinese battery makers, should help underpin further EV sales penetration in the future as more LFP-installed, mass-market EV models become available, Lo said.

The increasing availability of plug-in hybrid electric vehicles (PHEVs) is also expected to help turn consumers away from ICE vehicles given the current high price of gasoline.

"We are positive on Chinese EV brands thanks to their higher adoption of LFP batteries and more advanced smart-driving capabilities," Lo said. "They are pulling farther ahead from traditional foreign automakers, which should serve as a warning signal to the latter which have yet to come up with competitive EV products in the world's largest EV market."

For China's EV battery sector, the risks of weakening consumer demand and intensified competition in the short term may disrupt the supply chain.

"However, in the longer run, we believe leading industry players will enjoy multi-year secular growth in both China and globally, driven by higher EV penetration, technology upgrades and cost efficiencies," said Duan Bing, an analyst with China Telecom and Technology Research at Nomura.

The cloud software or SaaS (software as a service) segment experienced headwinds in the first six months of this year due to a weak macro environment, leading to a postponement of IT spending by the government and enterprise customers.

Despite that, analysts still hold a positive view of long-term secular growth, believing this segment will remain intact as leading players have largely completed migrating to the cloud and may focus on improving operating efficiencies go forward.

"We think the rising penetration of smart automobiles will be a long-term trend in China, and software will play an increasingly important role with the continuous adoption of smart cockpits and autonomous driving applications," Duan said.