Auto:1Q26 carmakers’ margins under pressure amid rising discounts

1Q26carmakers’margins under pressureamid rising discounts We summarize the Feb 2026 price discounts at dealers for major automakersin this report. Note that Feb discounts for each automaker are calculatedbased on the weighted average of Jan 2026 retail sales volume for eachmodel, as Feb 2026 retail sales volume data have not been released yet. ChinaAuto Sector Ji SHI, CFA(852) 3761 8728shiji@cmbi.com.hk On the surface, China’s industrywide average discounts remained flat in Feb2026 vs. Jan 2026 and Dec 2025 based on our calculations, as narrowerdiscountsfor German brands offset wider discounts for other brands.However, it was at the cost of BMW and Mercedes-Benz cutting theirmanufacturer’s suggested retail price (MSRP) substantially for major modelsin Jan-Feb 2026. Although new orders post Chinese New Year appear torecover at a slower pace than last year based onour channel checks, webelieve the 1Q26 weakness for Chinese automakers’ profits has been largelypriced in,anda plethora of upcoming new models in Mar-Apr could be apositive catalyst for share prices. Wenjing DOU, CFA(852) 6939 4751douwenjing@cmbi.com.hk Austin Liang(852) 3900 0856austinliang@cmbi.com.hk TheNEV trio and Leapmotor.In Feb 2026,Li Auto’s averagediscounts remained flat MoM at 5.3% (Figure 2), lower than 4Q25 amidahigher salescontributionfromthelow-discounti6in Jan-Feb 2026.Discountwidened by 3pptsfor thei8in Jan-Feb 2026, vs. 4Q25.Weexpect the discounts for thecurrentL-series to rise in the followingmonths,asthe redesigned models are scheduled to be rolled out in2Q26, starting from theL9.Xpeng’s average discounts rose 2.9pptsMoM to 5.7% in Feb (Figure 3) with wider discounts for all themodelsexcept therecently launchedEREVmodels. We believe Xpengnowneeds a newvolume driver,especially as theMona M03starts to beaging.NewSUVs under the Mona series could be crucial, in our view.NIO’s average discounts widened 0.1ppts MoM to 1.6% in Feb (Figure1), mainly due to higher discounts for theES6/EC6and theET5/ET5T.We expect discounts for these four models to increase in the next fewmonths.The OnvoL90still offers no discountdespiteits sales plunge.Leapmotor’s average discounts rose 1.1ppts MoM to 8.5% in Feb(Figure 4), mainly due to the C-series. Starting from the launch of thebrand-newA10(small SUV) in Mar, Leapmotor aims to introduce fournew models in 2026,start from a small SUV A10 in Mar,which couldlead to lower discounts, in our view. Geely. Geely’s average discounts at dealers rose0.8ppts MoM to13.1%inFeb(Figure 6),the highest at least since 2017, based on ourcalculations. TheGalaxyL7andA7PHEVs posted thelargest discountincreases (nearly 6ppts MoM) last month,likely due to the upcominglaunch of their successors, theGalaxy M7andXingyao 7PHEVs. Galaxybrand’s rebates for dealers also increased by about 4ppts in Jan-Feb2026 compared with 4Q25, according to our channel checks. Despite itscostreduction initiatives under the“One Geely”strategy,1Q26profitability is likely under pressure, compounded with rising raw materialcosts. Related Reports:“China Auto Sector-Eyes on new models from Mar after a weak start”–2 Mar 2026 Great Wall Motor.Great Wall’s average discounts at dealers rose0.4ppts MoM to 13.0% inFeb(Figure 5), as the high-discountDagoucontributed a higher sales portion. Similar to Geely, Haval brand’srebates to dealers rose about 2ppts in Jan-Feb 2026 compared with4Q25, according to our channel checks, denting profitsin 1Q26. GreatWall’s first batch of new models this year, including the WeyV9X,Menglong PlusandTank700, is scheduled to be rolled out around theBeijing Auto Show in Apr. BYD. BYD’s average discounts at dealers remained largely flat MoM at7.0% inFeb(Figure 7), which madeBYD’s rebates to dealers largely flatin Jan-Feb 2026 compared with 4Q25,according to our channel checks.It appears to us that BYD has put a higher priorityonpricing stability thansales volume growth since 3Q25.The companyis toshowcasethe 2nd-generation blade battery and flash charging technologies on 5 Mar 2026,which are expected to be equippedonmore new models. The ADAS andflash charging features unveiled last year did not aid BYD’s sales volumemuch, which could bea hard lesson for BYD when launching newtechnologies this year. We are of the view that pricing is still the key toBYD’s target customers. GAC Group.GAC Trumpchi’s average discounts at dealersrose2.8pptsto17.6% inFeb 2026 compared with Dec 2025(Figure 8),partly due toa higher sales contribution from the high-discountGS3. GAC Aion’saverage discounts at dealers rose 2.3ppts to 10.2% in Feb comparedwith Dec 2025(Figure 9), driven by the AionYandi60. Aion’s retail salesvolume continued to be volatile. Discounts at GAC Toyota rose 2.1pptsto 20.3% in Feb compared with Dec 2025(Figure 10), driven by theFrontlander,WildlanderandbZ3XEV.Discounts for thebZ3XEV havewidened to about 7% since Jan2026 compared with almost null onaverage in 2025. GAC Honda’s average discounts rose 0.6ppts to 24.9%in Feb