Zhao Yin Guo Ji·2025-12-09 03:23Investment Rating - The report assigns a "Buy" rating to several companies in the automotive sector, including Xpeng Motors, Geely Automobile, Great Wall Motors, BYD, GAC Group, and others, with target prices ranging from 2.5 to 125 [3][4]. Core Insights - The Chinese automotive industry is expected to achieve record-high retail and wholesale sales in 2025, with a more complex landscape anticipated in 2026 due to the phasing out of subsidies and tax incentives [2][4]. - The report expresses a more optimistic view on the resilience of the automotive sector compared to market expectations, predicting a slight decline in retail sales by 0.1% to 2,415 million units in 2026, while wholesale sales are expected to grow by 2.9% to 3,125 million units [4][22]. - The competition in the automotive sector is expected to intensify, with a record number of new models anticipated in 2026, leading to a potential increase in market share for domestic brands [4][24]. Summary by Sections Sales Forecast - Retail sales of passenger vehicles in China are projected to reach 2,418 million units in 2025, a 3.2% increase year-on-year, while wholesale sales are expected to exceed 3,000 million units for the first time [44][52]. - The report anticipates that the retail sales will remain stable in 2026, supported by the importance of automotive consumption to the Chinese economy and the introduction of new models [22][44]. Market Dynamics - The report highlights that the competition among automakers will become more fierce, with a record 173 new models expected to be launched in 2026 [23][24]. - The demand for electric vehicle batteries is expected to rise, potentially leading to increased battery prices, which could impact automaker profit margins [23][24]. Investment Strategy - The report recommends Geely Automobile as a top pick due to its solid fundamentals and attractive valuation, alongside the battery manufacturer Zhengli New Energy, which is expected to benefit from rising battery prices and a growing customer base [28][29]. - The report suggests that the valuation gap between traditional automakers and new entrants is likely to narrow as both groups adapt to market changes [25][26]. Export Potential - The report forecasts that China's passenger vehicle exports will increase by 16% in 2026, driven primarily by the growth in electric vehicle exports, which are expected to rise by 40% [61][62]. - The potential market for Chinese brands overseas is estimated at 7.8 million units, indicating significant growth opportunities in various regions [61][62].