UBS: Mainland China's car replacement subsidy is more generous than expected, but demand may be delayed. BYD COMPANY (01211) may once again become the biggest beneficiary.

UBS released a research report stating that the National Development and Reform Commission and the Ministry of Finance issued a notice on August 8, 2025, to implement a large-scale equipment renewal and trade-in policy for consumer goods. It mentioned the improvement of subsidies for replacing and updating cars. Individuals who transfer the ownership of their passenger cars and purchase new passenger cars under their own name will receive subsidies for car replacement and updates. The maximum subsidy for new energy and fuel passenger cars is RMB 15,000 and RMB 13,000 respectively. The bank stated that it has a more positive outlook on the prospects of the automotive industry for the whole year, and BYD COMPANY (01211) is likely to be the biggest beneficiary again, with a "buy" rating. The report stated that this round of subsidies is more generous than expected, but demand may be delayed again until the second half of this year. The bank believes that the total budget for this round of car replacement and upgrade subsidies may be higher than last year, reflecting the central government's firm determination to stimulate the economy. The bank expects that the stimulus effect of car replacement and upgrade subsidies will remain strong by the end of this year, but will be relatively slow at the beginning of the year. Approximately 3 million people applied for scrap car subsidies last year, while the number of applicants for trade-in subsidies exceeded 3 million, which the bank believes led to an increase in demand of about 2 million people for the whole year last year, and drove overall car demand up by over 20% in the past few months. UBS added that the aforementioned demand was met by the end of last year, and other eligible consumers were not eager to make their choices. Demand may still be relatively slow, which could lead investors to be more pessimistic, believing that even stimulus measures are no longer effective. The bank predicts that the electric vehicle market will be particularly strong by the end of this year, mainly due to the increase in the purchase tax for electric vehicles from 0% to 5% in 2026.