Zhi Tong Cai Jing·2025-07-09 12:39Core Viewpoint - UBS recently released a research report on the Chinese automotive industry, suggesting that the trend against "involution" is positive for industry profit margins and stock market sentiment, assigning buy ratings to CATL, BYD, Li Auto, Great Wall Motors, and Seres [1] Industry Summary - Signs of price competition easing have been observed, including adjustments in sales guidance by Li Auto and limited sales achievements by XPeng and NIO [2] - BYD's production in June was approximately 10% lower than its wholesale volume and 20% lower than its retail volume, indicating a restraint in production [2] - The central government has called for avoiding a vicious cycle of low-price competition, with media outlets urging the industry to follow reasonable economic laws [2][3] Profit Margin Impact - While a sudden shift from intense competition to orderly consolidation is hard to imagine, there is potential for a temporary halt in price wars [3] - Consumer behavior may be influenced by inflation expectations, potentially accelerating car purchase decisions if prices are anticipated to rise [3] Stock Market Impact - The news is viewed positively for industry profit margins and stock market sentiment, despite it being too early to calculate the impact on earnings [4] - Concerns over price competition have persisted since BYD initiated a new round of price cuts on May 23 [4] - Buy ratings have been assigned to CATL, BYD, Li Auto, Great Wall Motors, and Seres based on various valuation methods including PE, EV/sales multiples, DCF, and SOTP [4] Company-Specific Insights BYD - Valuation is conducted using SOTP, with each business segment valued by EV/sales multiples [6] - Downside risks include changes in favorable policies for new energy vehicles and sudden price changes in key raw materials [6] Li Auto - Valuation is based on the price-to-sales method [7] - Key risks include weaker-than-expected demand due to economic slowdown and increased raw material costs [7] CATL - Target price is derived from PE multiples [8] - Downside risks include geopolitical issues affecting exports and price competition among industry peers [8] Great Wall Motors - Valuation is based on PE methods, considering historical performance and growth prospects [9] - Downside risks include industry slowdown and intensified competition [9] Seres - Valuation is based on PE methods [11] - Downside risks include weaker-than-expected demand for high-end vehicles and increased competition in the EREV segment [11]