HONG KONG, 26 May 2020. Pengyuan International has today published a commentary on the automobile sector in response to the European Commission (EC)’s recently proposed exemption of Value-Added Tax (VAT) levied on zero-emission vehicles (ZEV). We believe this measure, if eventually to take effect, will be a strong push for Europe’s adoption of electric vehicle (EV) – a major type of ZEV in the post COVID-19 era.
Given our observation that VAT across the majority of European countries is about 21% on average, customers within Europe will be able to save this amount when purchasing a zero-emission car – primarily EV at the current stage – should VAT be waived. Europe is the second-largest market for EV globally – trailing only China – with a compound annual growth rate of 44% in volume from 2014 to 2019. In this report, we also outline some possible EV sales growth trajectories in Europe under three scenarios: “No COVID-19”, “COVID-19”, and “COVID-19 plus VAT exemption”, given the assumption that the majority of European countries would fully implement this VAT exemption.
We also use a passenger car model – Golf, the best-selling Volkswagen model in Europe – to illustrate the cost difference of owning its electric and gasoline versions in several major European metropolitan cities. The conclusion demonstrates that the possible removal of VAT would be strongly positive to EV consumption growth, as VAT on EV is, in general, far greater than that for conventional fuel-engine vehicles. Moreover, EV penetration in those cities studied is positively correlated to the cost advantage of having the electric Golf version over its gasoline equivalent – the higher the cost advantage of having the electric Golf version, the larger the EV penetration rate in the sampled city.
Additionally, we point out that the stimulus package to boost EV development taken by Europe looks more sustainable than those adopted by China. This is because Europe’s support policies for EV development focus more on the consumer side by attempting to reduce EV purchase costs, primarily via tax benefits. In contrast, China’s monetary sweetener is mainly offered to EV manufacturers rather than end-users. This resulted in an infamous situation in early 2016 when several automakers exaggerated their EV sales in order to obtain more subsidies from the central government. Since then, China has decided to gradually phase out subsidies granted to EV manufacturers, and is considering a more market-driven approach to support the EV development.
LG Chem, the No.1 EV battery supplier for European automakers (backlog basis), will be the biggest beneficiary from this proposed policy as the additional consumption on EV spurred by the VAT exemption would further help boost LG Chem’s operating profit margin for its EV battery business to be positive. CATL will also benefit from the possible move by the EC as it is catching up through an extension of its supply footprint in Europe since last year. Overall, we maintain our view that the progression towards electrification will worsen the creditworthiness of EV-related companies in the short run, but will pay off with a higher ROIC in the longer term. (see China set to metamorphosize with the transition towards EV).
+852 3615 8346
+852 3615 8278
+852 3615 8278
Ms. Charley Lui
Direct：+852 3615 8296
RATING SERVICES ENQUIRIES
Ms. Gloria Song
Direct：+852 3615 8324
Pengyuan Credit Rating (Hong Kong) Company Ltd (“Pengyuan International”, “Pengyuan”, “the Company”) prepares various credit research and related commentary (collectively “research”) in compliance with the established internal process. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.
The research is subject to disclaimers and limitations. RESEARCH AND CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF RESEARCH AND CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.
This research is based solely on the public data and information available to the authors at the time of publication of this research. For the purpose of this research, the Company obtains sufficient quality factual information from public sources believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses in the research. The Company is not responsible for any omissions, errors or inconsistencies of the public information used in the research.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.
This research focuses on observing trends from the credit markets. This research has not been made available to any issuer prior its distribution to the public. The Company does not receive compensation for its research.
The Company reserves the right to disseminate its research through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.
The Company’s research is not indented for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubt, please consult the relevant regulatory body or professional advisor and ensure compliance with applicable laws and regulations.
In the event of any dispute arising out of or in relation to our research, the Company shall have absolute discretion in all matters relating to resolving the dispute, including but not limited to the interpretation of disclaimers and policies.
Copyright © 2020 by Pengyuan Credit Rating (Hong Kong) Company Ltd. All rights reserved.