A Closer Look At General Motors’ Hybrid Vehicles Plan In China

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Reports suggest that General Motors (NYSE:GM) is planning to launch 10 new electric and hybrid vehicles in China by 2020. The Chinese government is considering regulating that 12% of each manufacturer’s sales by 2020 should be electric and hybrid cars and we believe this move by General Motors is in line with the push for electric vehicles in the region. The electric vehicles market worldwide is mainly driven by government initiatives which are aimed towards low or zero emission from vehicles. The push by Chinese regulators towards clean energy vehicles is likely to act as a catalyst for growth for this already strong market in the region. China is the largest market for plug-in vehicles (known as new energy vehicles in the region). In 2016, 351,000 plug ins were delivered in the region which was an 85% increase from the previous year. Electric vehicles account for 1.45% of total passenger cars sold in China and while this number is much lower compared to other nations such as Norway, it is significantly high for a large car market. Total passenger cars sold in China in 2016 were nearly 25 million. As the government pushes for higher new energy vehicles, General Motors is targeting annual sales of 150,000 new energy vehicles in the region by 2020. While this segment is fiercely competitive with local players and international industry leaders such as Volkswagen in the foray, General Motors believes that  its healthy pipeline will put the company in a good position to take advantage of the increasing demand for these vehicles in the region. The company also plans to produce these vehicles in China.

According to our estimates, China is the largest segment for General Motors, accounting for nearly 50% of its valuation. We expect General Motors’ market share in the region to decline slightly from 14.9% in 2017 to 14.6% by the end of our forecast period.

A higher market share in China can impact the company’s valuation positively and lead to an upside in our price estimate. A focus on new energy vehicles can help General Motors continue its dominance in the Chinese market.

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The first model General Motors plans to sell under the 10 new electric vehicles  lined up for launch in China will be under the Buick brand. This is a second generation Chevy Volt which will be sold in China in the form of a plug-in hybrid called the Buick Velite 5. Given China’s preference for the Buick brand, this launch is likely to enjoy success in the region.

As the auto industry in China moves toward new energy vehicles, we believe General Motors’ strategy to introduce several new models in this segment which will be manufactured in China should drive revenues for the company in the long term.

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