中国汽车：2026年展望——国内逆风下持谨慎态度，出口前景向好

Chinese Autos: 2026 Outlook — Cautious on domestic headwinds,Promising export prospects Eunice Lee, CFA+852 2123 26062026 will be challenging for Chinese auto OEMs, facing multiple headwinds includinga scaled-down subsidy policy combined with a high comparison base from last year. For EVs, purchase tax will increase to 5% in 2026, up from 0% in 2025, though still below the10% rate for ICE. Additional pressures include higher year-end channel inventory and risingmaterial costs, such as aluminum and lithium, which will pressure margins.We forecastdomestic auto demand to decline 5-9%, with a January boost from pre-Lunar New Year buying and delayed year-end purchases, though overall demand through Q3 is expectedto be weak. Total wholesale (domestic plus export) is expected to fall 4-8% to 28-29 mnunits,partly offset by 10-15% export growth.EV demand growth will moderate to10-15%, down from nearly 20% in 2025, as EV penetration has hit c.60%. We expect penetration to reach 63% in 2026 and near 90% by 2030. Despite challenges, EV adoptionremains strong due to price competitiveness and technological advantages.Premium to outperform mass market, which faces increased pressure from the immediately, government direction is clear. Competition will persist however, as seen withBMW’s recent discounts and Xiaomi’s financing promotions. Competition will also intensifyin large SUV or MPV, and EREV segments with notable launches from Xiaomi, XPeng, etc.Exports remain a bright spot and a key strategic focus for OEMs.The Middle East &Africa surpassed Eastern & Central Europe as the top export destination, as OEMs diversify markets confront higher EV import tariffs in Brazil (10% to 35%) and proposed tariff hikesin Mexico (up to 50%) amid USMCA talks. 2026: The year of L3 autonomous driving.China granted its first L3 permits to BAIC andChangan in December, allowing limited operation on designated expressways with speedand lane restrictions. This shift from testing to deployment marks a significant milestone. view ADAS supply chain players as better investment opportunities than OEMs, given ADASfeatures are becoming commoditized with limited monetization for OEMs. BYD is our top Outperform pick.Based on its dominant scale—being the #1 EVmanufacturer and #2 battery maker globally, BYD benefits from a strong cost advantagedriven by vertical integration and robust R&D capabilities, with growth supported by Outperform, andXPeng, Li Auto, NIO, Great Wall, SAIC, and GACMarket-Perform. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We maintain a cautious outlook for the sector entering 2026. The reduction in subsidies and a 5% purchase tax hike on EVsare expected to slow market momentum. This follows strong demand pulled forward into 2024-2025 and a high comparison base, while macro headwinds and weak consumer sentiment persist. We forecast domestic retail demand to decline 5-9% yoyin 2026. However, exports should remain a growth driver. We expect industry wholesale volumes to fall 4-8%, reaching 28-29mn units—comprising 21-22 mn units (-8-12% yoy) domestically and 6.5-7 mn units (10-15% yoy) in exports.The long term secular growth outlook for EVs remains intact and even though EV transition has come to the mass adoption Within our traditional Chinese OEMs coverage, we rateGeely OutperformandGreat Wall, GAC, and SAIC Market-Perform. OUR MOST READ REPORTS IN 2025, THAT ARE STILL RELEVANT 1. Electric Revolution: Divergence — China's path to leading EV adoption, blueprint for global electrification efforts 2. China EV: Proprietary survey 2025, Part 3. 10-year anniversary, Bonus edition — China vs. International OEMs' EVtechnology gap 3. BYD vs. Toyota: Can BYD become the next Toyota? 4. BYD: Ready, steady, ship — Rising above the domestic competition and thriving overseas; Reiterate Outperform 5. BYD: Charging ahead — Top 6 questions on the latest 10C ultra fast-charging technology 6. Xiaomi's EV-olution: A unique synergistic ecosystem with promising EV prospects; Initiating at Outperform — PT HK$55 VALUATION COMPS TABLEASIAN AUTOS Table Of Contents Industry wholesale volumes forecasted to decline 4-8% in 2026, with domestic demand down 5-9%, exports up 10-15%......... 5Domestic EV sales growth expected to moderate to 10-15%, implying 63% EV penetration............................................................ 6Trade-in / Replacement Subsidy extended into 2026 at reduced scale; EV tax hike to further pressure sales..............................9Latest developments on the ground.......................................................................................................................................................................12Premium segment to outperform as mass market faces consolidation; Competition intensifies in upmarket, large-format, andEREV vehicles............................................................................................................................................