"Big Banks" UBS: Oil price fluctuations make the total cost of ownership of electric vehicles attractive; BYD, CATL, and Li Auto have good risk-return profiles

Some Chinese automotive and new energy stocks rose today, with Geely (00175.HK) increasing by 8.5% to HKD 17.44, and CATL (03750.HK) climbing 7.5% to HKD 591. UBS released a report stating that the current situation regarding the conflict between the U.S. and Israel is highly similar to the spike in oil and lithium prices following the outbreak of the Russia-Ukraine war in 2022. International oil prices and commodity prices are simultaneously driving up the operating costs of fuel vehicles and the manufacturing costs of electric vehicles. According to the bank's latest spot price estimates, compared to the fall of 2025, the costs of manufacturing a Battery Electric Vehicle (BEV), Extended Range Electric Vehicle (EREV), Plug-in Hybrid Electric Vehicle (PHEV), and Internal Combustion Engine Vehicle (ICE) have increased by approximately RMB 7,000, 6,000, 5,000, and 3,000 respectively; if oil prices remain at current levels, the annual operating cost of fuel vehicles may increase by about RMB 2,000. This slightly improves the economic viability of electric vehicles relative to fuel vehicles, partially offsetting the pressure from the withdrawal of stimulus policies and the introduction of new purchase taxes starting in 2026.

The bank noted that looking back to early 2022, oil prices surged from USD 80 per barrel to USD 130, while the retail price of 95-octane gasoline in China rose from RMB 7.3 to RMB 9 per liter. Currently, oil prices have jumped from around USD 60 per barrel in February to a peak of USD 120 per barrel in March, before falling back to USD 90 per barrel. If oil prices remain at this level, the retail gasoline price in China could rise again from RMB 7.5 to about RMB 9 per liter, implying an annual expenditure increase of about RMB 2,000 for households using fuel vehicles. Since the manufacturing cost of pure electric vehicles is about RMB 4,000 higher than that of comparable internal combustion engine vehicles, this is equivalent to two years of additional operating costs for fuel vehicles.

UBS stated that there are several differences compared to four years ago: the increase in metal prices is more moderate than in the 2022 cycle; the competitiveness of electric vehicle products has significantly improved; and increased overseas sales help alleviate commodity cost pressures.

More importantly, from the perspective of Total Cost of Ownership (TCO), the efficiency of the electric vehicle industry has greatly improved: the price of lithium iron phosphate (LFP) batteries has dropped to below RMB 500 per kilowatt-hour, about half of what it was in early 2022, charging speeds have doubled, and the number of public charging stations in China has exceeded 300,000, approximately three times that of gas stations, significantly improving convenience.

UBS pointed out that Chinese electric vehicle stocks have lagged the Hang Seng Index by about 10% this year. The bank believes that the weak demand in the first quarter has already been reflected in stock prices, and the profit pressure from rising commodity prices has also been partially absorbed by investors. The current volatility in oil prices makes electric vehicles more attractive from a total cost of ownership perspective. If the market forms inflation expectations regarding the transmission of commodity costs to vehicle prices, demand may recover faster than investors expect, warranting renewed attention. The bank believes that BYD (01211.HK), CATL (03750.HK), and Li Auto (02015.HK) (all rated "Buy") have good risk-return characteristics