Huayuan Securities: The price difference between pure electric and hybrid vehicles narrowing does not necessarily lead to pressure on hybrid sales.

Huayuan Securities released a research report stating that despite the decrease in new energy vehicle purchase tax subsidies and the increase in technical requirements from 2026 to 2027, with the introduction of high-quality supply, it is expected that the sales of new energy vehicles will continue to grow. The rating for the automotive industry remains positive, and the following suggestions are given: 1) high-end car companies less affected by the reduction in new energy vehicle purchase tax subsidies: Anhui Jianghuai Automobile Group Corp., Ltd. (6000418.SH) among others; 2) companies with strong new car cycles and are expected to better offset the impact of subsidy reduction: GEELY AUTO (00175), LEAPMOTOR (09863) among others; 3) companies that are expected to create additional demand through technological innovations such as autonomous driving: LI AUTO-W (02015), XPENG-W (09868). Key points from Huayuan Securities include: The pure electric mileage requirements for plug-in and extended-range passenger vehicles eligible for purchase tax exemption from 2026-2027 will increase by over 100%. It is estimated that around 40% of plug-in and extended-range passenger vehicles with WLTC mileage between 43-100km and over 100km may no longer qualify for the subsidy in 2026-2027. This may particularly impact plug-in hybrid vehicles in the 70-200 thousand yuan range, such as those from BYD Company Limited. It is important to note that this is a static calculation and the actual impact may be lower due to manufacturers generally introducing upgraded models with increased mileage. The expected increase in prices of plug-in and extended-range vehicles due to the extension of battery life may affect the competitiveness of companies in terms of product and brand strength, as well as cost control capabilities. For example, BYD Company Limited has gradually introduced new models with extended battery life that meet the 2026-2027 purchase tax technical requirements. Depending on the pricing strategy, such as offering better value for money or higher value products, the competitiveness of BYD Company Limited will be tested based on brand strength and cost control capabilities. Under the influence of increased technical requirements, the narrowing gap between pure electric vehicles and plug-in/extended-range vehicles may not necessarily lead to a significant decline in sales of the latter. Consumer preferences, vehicle positioning, and range anxiety are important factors that influence the choice between pure electric and plug-in/extended-range vehicles. The decrease in price difference between the two types of vehicles may not necessarily lead to a drastic drop in sales of plug-in/extended-range vehicles. Risk factors include biased analysis due to changes in company strategies, intensified market competition leading to price wars, and lower-than-expected industry outlook for the automotive sector.