Research From Cyclicals Team

• China expected to install 3–3.5 million EV charging piles during 2023 (in line with estimates in May) and 3.5–4.5 million during 2024 (vs. 3.75–5 million projected in May), installs expected up yy for all 10 sources during 2024
• Installation volumes during 2023 on target for 6 of 10 sources (vs. 7 of 10 in May); utilization rate of EV charging infrastructure up qq for 8 of 10 during 4Q23
• Battery-swapping station buildout falling below expectations for 4 of 10 sources, meeting for four (vs. 5 of 10 in May); China expected to install 1,500–2,000 units during 2023 (vs. 1,200–2,000 projected in May) and 2,000–3,500 units during 2024 (vs. 2,000–3,000 projected in May)
• EV charging system developers Star Charge and TGOOD (300001 CH) still identified as top beneficiaries; component producers XJ Electric (000400 CH) and NARI Technology (600406 CH), EV manufacturers BYD (1211 HK) and LI also benefiting

Government Support Continues Fueling Buildout

Sources said electric vehicle (EV) charging and battery-swapping infrastructure development has continued to grow during 4Q23 because of government support, continued demand strength of EVs and increased investment from market players, consistent with OTR Global’s May 12 note.

All 10 sources said government support has remained the main catalyst driving China’s buildout of EV infrastructure and includes strong stimulus policies for EV charging infrastructure, favorable policies on EV purchases and local government subsidies on EV purchases and EV infrastructure buildout. “China’s EV charging infrastructure market has surged during the past few years. According to the government’s 14th five-year plan, an EV charging infrastructure system will be in place by 2025 to meet the demand for more than 20 million EVs,” a system supplier said. Another said, “Central and local governments frequently introduce stimulus policies for charging infrastructure. The central government has put forward the general policy, and corresponding provinces and cities have made clear plans for the number of charging piles, investment funds and preferential subsidy standards, which helps to decrease operating costs and increase investment enthusiasm.”

Several sources also expect increased EV sales to accelerate demand for EV infrastructure. “EV sales have increased very quickly in the past two years. China’s EV penetration rate may reach about 36% in 2023, with total EV sales volume of about 9 million units. Charging piles expanded at a rapid pace in China on booming demand for EVs. Our company mainly supplies the Yangtze River region. Sales kept increasing this year,” a component supplier said.

Sources expect China to build 3–3.5 million EV charging piles during 2023, compared with 3–4 million projected in May. “As I know, there were 2.4 million new charging points by September. I think it’s possible to build 3 million charging piles in total if the growth rate doesn’t slow down,” a component supplier said. “The ratio of public charging piles to private charging piles is about 1:3.” Another said, “At least 3 million charging piles will be added in 2023, taking the vehicle-pile ratio to 2.6:1.”

Sources expect charging infrastructure development to accelerate during 2024; estimates range from 3.5–4.5 million units (compared with 3.75–5.0 million units forecasted in May). A system supplier said, “It is expected that about 4 million EV charging piles will be built in China in 2024. There are still not enough charging piles in small cities. Even in my city, which isn’t small, I think we still need more. But there are still many problems need to be solved, like it’s hard for small communities to have charging piles as they don’t have the space.”      

Installation Pace on Target Despite Challenges
Six of 10 sources said charging station installations have met target during 2023. “The buildout of charging piles for both public use and private use increased very quickly this year. Also, after the market found out about the shortage along highways, more charging piles were built along highways this year so that people that travel long distance can also easily charge their cars,” one said.

Although most sources were satisfied with the expansion of EV infrastructure, several complained about challenges such as the uneven distribution of charging facilities, low utilization, high investment, long payback periods and non-universal EV technical standards. “The early investment of EV infrastructure is large, and the income is unstable. Furthermore, the utilization rate of EV charging is low in some places. All these result in long payback periods,” one said.

Market Players Benefiting from EV Charging Infrastructure Buildout

Sources said demand for EV charging infrastructure has continued to climb because of government support and growing EV demand, ushering in greater opportunities for system developers, component suppliers and EV manufacturers. Sources most often cited Qingdao TGOOD Electric Co. Ltd. (300001 CH), Wanbang Digital Energy Co. Ltd.’s Star Charge and State Grid Corp. of China as the EV charging system developers benefiting the most. “As a private firm, Star Charge has flexible operation model and strong background. For the total installation number, I think it’s one of the top three players in the EV charging points at present,” one said. Another said, “I am sure that TGOOD is benefiting most because it has the most EV charging piles and the widest coverage in the market.” Sources expect EV manufacturers such as BYD Co. Ltd. (1211 HK) and Li Auto Inc. to benefit from the buildout as well because they continue to actively deploy charging stations to improve mileage efficiency and user experience. “EV makers such as BYD and Li Auto seem to be benefiting the most from spending on EV charging infrastructure. They continue to provide charging piles to their customers and their sales are expanding fast.” NARI Technology Co. Ltd. (600406 CH) and Xuji Electric Co. Ltd. (000400 CH) were also cited as key component suppliers benefiting from spending on infrastructure development.

4Q23 Public Charger Utilization Up QQ

Utilization of EV charging and battery-swapping stations has increased qq during 4Q23 for eight of 10 sources, who noted an increasing number of EVs on the road, improving performance of charging stations and better integration of related technology. “I think the EV utilization rate of the grid kept increasing as the number of newly sold EVs kept increasing. And there are more EVs on the road during the long October holiday,” one said. Another said, “According to our profitability analysis for public charging piles on the highway, the utilization rate needs to reach at least 7% if we want to make profits. The return on investment period is about six to 10 years.”

Installations of EV Battery-Swapping Infrastructure Below Expectations

Sources said construction levels of battery-swapping stations are much lower compared with standard EV charging stations, challenged by a limited number of market players, high costs, longer payback periods and non-universal EV technical standards. Current development of EV battery-swapping infrastructure is still lagging expectations for four of 10 sources said, compared with five of 10 in May, while four met. “There is a lack of universal technical standards on EV battery-swapping. Due to high costs, there is a big risk for the construction. Normally, setting up a battery-swapping station will cost about several million yuan. Half of the cost is the EV batteries and the other half comes from equipment, transformers and so on,” one said. As a result, sources expect 1,500–2,000 battery swapping stations to be constructed during 2023 (compared with 1,200–2,000 units projected in May) and 2,500–3,500 units during 2024 (compared with 2,000–3,000 units projected in May).

Sources said market players for battery swapping remained limited because of continued challenges and market uncertainty. Sources said Nio Inc. is most aggressively develop EV battery-swapping infrastructure and others include Aulton New Energy Automotive Technology Co. Ltd., Geely Automobile Holdings Ltd. (175 HK) and Contemporary Amperex Technology Co. Ltd. (CATL [300750 CH]). “It is expected that 2,000 new battery-swapping stations will be built in 2023 and China will own about 4,000 battery-swapping stations by the end of 2023, of which Nio, Aulton New Energy and Geely Auto account for the majority,” one said. Another said, “I think total number of swapping stations won’t be big in 2024 either. The number of players in that market remains limited, Nio is still one of the biggest and leading players. It plans to have 3,000 swapping stations by 2025. The numbers for other companies won’t be as big as Nio’s.”

ADDITIONAL QUOTES
On Demand for EV Infrastructure
“The negative factor is that currently operators only make profits from charging fees, which makes the concept of charging services too one dimensional. In addition to providing users with convenient charging, the value of charging piles should also add value, such as improving service quality and convenience.”

“[The] Chinese government supports EV infrastructure buildout to ease the buyers’ concerns over charging problems. The most important positive factors include national policies, local government subsidy and huge market demand.” 

“The Chinese government continues to support the EV industry — such as car license limitation policy, the exemption of purchase tax for EVs and local governments’ subsidies.”

“The two modes of standard EV charging stations and battery-swapping stations are ushering in a key stage of their development. At present, in terms of the size of suppliers or the number of users, the development of charging mode is far ahead. It is a contest of efficiency and scale in the long term.”  

“EV demand remains good during 2H23, and it’s expected the demand strength may continue in 2024.”

“Charging stations and piles have a large number of charging points, relatively lower construction cost and vast coverage to improve EV charging efficiency, while key advantage of battery swapping is the short time required to recharge.”

On Installations of EV Charging Infrastructure
“It is expected that 3.1 million new electric vehicle charging stations will be built in China in 2023. So far this year, about 2.6 million charging piles have been built.”

“In the Yangtze River region, I think the market in tier-1 and tier-2 cities is almost saturated. So we’ll start to explore the tier-3 and tier-4 cities. For smaller cities, I think the buildout still depends on local economic development and local government support. But I still expect the market to be better in 2024 than it was this year.”

“I think the EV charging points deployment is in line with the target, but the EV battery swapping stations buildout is falling behind target at present.”

“As a state-owned corporation, we will boost the overall EV charging points buildout widely because we have enough spending every year. At present, we are planning to expand the coverage into more urban areas now.”

“In the EV charging equipment market, I think NARI Technology and XI Electric will continue to benefit most because of their brand reputation and technology.”

“Large EV operators like TGOOD and Star Charge may benefit most from the demand trends because of increased investment and high penetration rate.”

“I think State Grid is positioned as the top-class player in the China EV charging grid at present. So far, State Grid charging points cover almost all highway networks around the country. Meanwhile, State Grid is expanding the coverage in the more urban areas now.”

On Utilization of Charging Facilities
“I think EV utilization rate of the grid has remained the same during 4Q23 to date qq. People like to travel during the summer holiday and National Day’s holiday.”

“So far, during 4Q23, EV utilization on the grid [the entire current charging infrastructure] has increased slightly quarter to quarter. The number of public charging piles is growing rapidly, and the utilization rate is also improved.”

“It’s always a challenge to improve the utilization rate of the public charging infrastructure. In some areas, EV utilization rate of charging infrastructure is very low and there is a lot of waste. In some other areas, utilization of the charging grid is too high.”

On Installations of EV Battery-Swapping Infrastructure
“At present, I think battery-swapping stations are not popular in the market due to the high cost. The new installed swapping stations will not exceed 1,500 units in China in 2023.”

“I don’t see many swapping battery stations built in my region. I think it’s still not the main type. Battery-swapping stations need more investment. Also, batteries are not the same type. It means that each EV company needs to have their own swapping station. I think this is very inconvenient at the moment.”

“I heard many companies would like to join in battery swapping but they didn’t because the threshold remains high, and it requires a lot of investment. I think maybe no more than 2,000 swapping stations will be built this year. Nio remains the leading player in building swapping. This year Nio alone will have built about 1,000 swapping stations.”

“I think the development of swapping stations might remain slow in 2024. There are too many restrictions in this area. Different EV companies have different batteries, and they are not compatible. Small players don’t have the ability to do swapping as it requires big investment and it’s hard to get the land to do it.”

“It is expected that about 3,500 battery exchange stations will be built in China by 2024. Next year should have better momentum than this year.”

“Companies such as Geely, Aulton, Nio, Southern Power Grid and others seem to benefit the most from spending on battery-exchange infrastructure. This includes professional operators, vehicle companies, national power groups and other related industries have benefited a lot.”

“Nio is doing better in swapping stations than others as it invested a lot in this area. It owns about 40% of total installed swapping stations in the market at present. Aulton is also doing well because of its well-established network and technology.”

“Nio plans to build 2,300 battery swapping stations by the end of 2023. It’s still the largest battery-swapping provider in the market. CATL is the largest battery manufacturers in the world, and the company plans to invest on the battery swapping market.”

“The number of players for battery-swapping stations are very small now due to high costs and risks.”