HSBC Research: Raw material prices surge significantly impacting automakers' costs, still optimistic about BYD and Chang'an's resilience

HSBC Global Research published a report indicating that the recent surge in prices of upstream raw materials such as metals and memory chips is expected to bring significant cost pressure to Chinese automakers in the short term. Due to the higher density of raw material usage in electric vehicles, manufacturers will face even greater resistance. Lithium prices have soared approximately 127% over the past three months, and it is estimated that the increase in metal material prices could lead to an additional cost of RMB 3,000 to 5,000 per vehicle, while the rise in memory chip prices may add another RMB 1,000 to 3,000 in costs, directly impacting the cost structure of electric vehicles.

The bank noted that the current price increase is mainly due to supply bottlenecks. It believes that, amid a trend of consumer downgrading and the traditional off-season in the first quarter, automakers will find it difficult to pass on costs to consumers who are highly sensitive to price. Companies will need to absorb the additional costs through vertical integration and technological upgrades, and may also have to rely on operational strategies, including negotiating larger annual price reductions with suppliers.

In terms of stock selection, HSBC Research expects BYD (01211.HK) and Great Wall Motor (02333.HK) to be relatively resilient in the face of rising costs, and anticipates that Fuyao Glass (03606.HK) will be less affected by the increase in material prices. All three are rated "Buy," with target prices of RMB 139, RMB 21.6, and RMB 91.2, respectively