2025 sand table deduction, evolution path of passenger car industry

We believe that from the historical data of Japan and South Korea, when the car ownership of 1,000 people increased to 200, the growth rate of domestic car sales has been low to single-digit growth, and is greatly affected by the marginal impact of economic growth, policy, international situation and other aspects. But there is no denying that the growth of thousands of car ownership is still continuing to occur. At present, China has entered the third "decade" of the passenger car popularization process, which belongs to the stage of slow growth in demand, if according to the past data of Japan and South Korea, the number of thousand cars in the Chinese car market in 2025 will be more similar to Japan in 1976 and South Korea in 2002. However, due to different economic development conditions and great changes in car buyers and consumption motives, it is expected that the growth law of passenger car market sales in China in the next 5 or 10 years may not copy the law of South Korea and Japan, and we will discuss our arguments in detail below.

2 Total volume: The replacement cycle is about to start, and the growth of passenger cars is expected to exceed expectations

Discussion of time dimension: Passenger car scrapping is also cyclical

Since 2016, the proportion of first purchase in China's auto market has continued to decrease, and the proportion of replacement purchase and increase purchase has gradually increased. Replacement and family purchase will become the main driving force for automobile consumption, and we expect that the replacement demand brought by the scrapping of old cars will strongly support the replacement demand in the next five years. Since demand in China's passenger car market has been dominated by first-time car purchases and additional household purchases over the past 20 years, the impact of replacement purchases on total demand has not been accurately measured. As can be seen from the data of the Passenger Association and McKinsey, the proportion of demand for exchange and additional purchase has gradually increased to about 50% since 2016, and the demand for exchange and additional purchase is mainly concentrated in first and second-tier cities and wealthy people. In fact, the impact of the demand for replacement on the total amount is divided into two categories: (1) Due to the renewal of vehicles brought by scrap, old vehicles directly exit the circulation link, and replacement does not affect the increase of the number of vehicles; (2) The old cars after replacement continue to circulate and be used in the market in the form of two-handed vehicles, and the replacement directly increases the total number of passenger cars. Due to the current market of concentrated scrap passenger cars are mainly concentrated in 2005-2008, when passenger car sales are not high, so scrap volume has no great impact on the sales of the last vehicle end. However, in the next five years, it is expected that the demand for the replacement of old cars will bring strong support to the sales of the passenger car industry.

The replacement cycle brought about by the scrapping of stock cars has gradually approached. As the cars in China's peak sales years in 2009-2010 are about to usher in mass elimination, the passenger car market will usher in the renewal and replacement peak of stock cars in the next five years. According to the global probability distribution of passenger car scrapping, the peak of car scrapping is from the 13th to the 15th year, and about 50% of vehicles are scrapped in these three years. In 2020, the theoretical scrap volume of passenger cars in China is 4.09 million (registered scrap volume is only 2.07 million). By 2025/2026, we expect there will be about 11.7 million / 13.5 million scrapped vehicles, there will be a huge replacement demand.

2025 Sales Outlook: The passenger car industry selling more than 30 million units is not a dream, and the market may have systematically underestimated the growth potential of the passenger car industry. Looking back at Japan's performance in 1971-1977, and South Korea's performance in 1995-2002, we predict that China is expected to reach 265 and 278 cars per thousand people in 2025 and 2026, respectively, and the total industry ownership will rise to about 380 million. The replacement of ownership due to scrapping will become a new driving force that cannot be ignored in China's passenger car market. At the same time, the consumption upgrade brought by replacement will be another manifestation of the passenger car industry, and it is expected that the supply of high-quality production capacity in the industry is expected to further fill the broad demand space of the market. According to the calculation of ownership demand and scrap model, we estimate that the sales volume of China's passenger car industry is expected to exceed 30 million units in 2025, and the CAGR of the industry is expected to reach more than 7% in the next four years. At the same time, we estimate that China's new energy vehicle sales are expected to reach 9 million in 2025, with a market share of 30%.