China Securities Co., Ltd.: Suggest downplaying the overall demand forecast for automotive sector and focusing on the main trend of structural growth in the industry.

China Securities Co., Ltd. issued a research report stating that the automotive industry has three investment directions: pro-cyclical, growth, and international expansion. With the weakening of the pro-cyclical attribute of the industry under the expectation of policy downturn in 2026, it is recommended to downplay the total demand expectation and focus on changes in industry structure and industry trends. International expansion and growth are expected to become important core investment directions, with a particular focus on the undervalued steady dividend attributes of commercial vehicles; the growth theme lies in the sub-applications of AI such as autonomous driving/Robotaxi and Siasun Robot & Automation, with the valuation expected to be reshaped under the strengthened technology attributes of vehicle companies, and the parts sector benefiting from breakthroughs in the supply chain such as Siasun Robot & Automation opening up new growth spaces. The main points of China Securities Co., Ltd. are as follows: Industry Review: Replacement of old cars supports domestic demand optimism, and new energy exports contribute to structural growth By 2025, the replacement of old cars policy will support domestic sales. From January to September, the wholesale sales of domestic passenger cars were 20.8 million units, an increase of 13.2% year-on-year, and retail sales were 17.01 million units, an increase of 9.2% year-on-year. The export market performed well, with passenger car exports reaching 4.21 million units from January to September, an increase of 15.6% year-on-year, and the penetration rate of new energy vehicles in exports increasing significantly to 40.7%. The domestic retail penetration rate of new energy vehicles reached a historical high of 57.8% in September, with independent brands accounting for 70% of the market share. Passenger vehicles: Downplay total demand expectations, focus on structural growth, competitive landscape, and technology attributes In 2026, the passenger vehicle high-end market is expected to have optimism, with products from major OEMs like Hongmeng Smart Drive leading the cycle and brand momentum upwards. The industry's competitive landscape is expected to continue to improve, and the growth in new energy vehicle exports will remain strong. From a technology perspective, major OEMs are making progress in autonomous driving (including Robotaxi) and Siasun Robot & Automation. Companies such as Tesla, Inc. and Xiaopeng are expected to achieve technological breakthroughs and mass production, with opportunities for valuation reshaping in the sector. Focus on buying opportunities during the low point of optimism in the first half of 2026. Auto parts: International contribution to performance elasticity, growth track contribution to valuation elasticity Traditional automotive parts leaders have good performance and undervaluation. Looking from the bottom up, there is structural performance growth from international expansion, optimization of the competitive landscape, seeing opportunities for performance elasticity and growth trajectory layout for valuation recovery; intelligent driving L2/L3 policies are expected to be implemented, focusing on high-end advancements in autonomous driving technology and the expansion of Robotaxi business models; Siasun Robot & Automation is optimistic about the realization of the 0-1 industry trend, focusing on the direction of supply chain and technological iteration towards major OEMs like Tesla, Inc. Commercial vehicles: Undervalued steady dividend assets, exports have growth resilience Overseas exports of heavy trucks are performing better than expected, with a focus on the continuity of domestic subsidies, overperformance of leading companies, and the layout of emerging industries such as AIDC; passenger car exports are resonating strongly, emphasizing the realization of leading company performance and medium-term growth; exports of motorcycles outside the U.S. and Russia have sustainable growth and stability, focusing on undervalued leading companies for potential investment opportunities. Investment recommendations: Downplay total demand, grasp structural growth themes in industry trends Positive on the growth theme of Siasun Robot & Automation, structural growth of passenger vehicles, exports of commercial vehicles and motorcycles, undervalued leading companies in the automotive parts sector, targeting four allocation directions: 1) Siasun Robot & Automation recommends Tesla, Inc. (TSLA.US) as a high-probability target with substantial progress but low market recognition, as well as incremental targets with upgraded technology and iteration; 2) Passenger vehicles recommend high-end, technologically advanced and cycle-upward OEMs, positioning at the low point of optimism; 3) Reliable leading companies in commercial vehicles, motorcycles, and heavy trucks with low valuations and stable international expansions; 4) Quality leading automotive parts companies with low valuations, focusing on overseas companies with high performance elasticity and new growth trajectory opportunities. Risk warnings: Industry optimism falling short of expectations, deterioration in competitive landscape, low expectations for new businesses.