CITIC SEC Automotive 2025 Annual Report and 2026 First Quarter Review and Outlook: Profit differentiation among leading passenger car companies, components actively exploring emerging trends.

CITIC SEC released a research report stating that domestic demand for automobiles is expected to continue to grow by 2025, with impressive export performance, significantly boosting the operational quality of automotive companies. In the first quarter of 2026, domestic demand may be temporarily under pressure due to the tapering of subsidies; however, the escalation of conflicts in the Middle East has led to a significant increase in overseas demand for new energy vehicles due to rising oil prices. In the following quarters of 2026, passenger car exports are expected to continue to exceed expectations, and domestic demand sentiment is also expected to gradually recover; leading companies in the sector will demonstrate strong market share and profitability, enhancing the industry's leading effect. Key recommendations include: 1) Leading companies in the passenger car sector for overseas expansion and progress in high-end transformation; 2) Top commercial vehicle companies with upward cycle and long-term profit potential; 3) Companies in the component sector in the incremental growth track, with accelerated global expansion; 4) Leading companies in the two-wheeler sector with product upgrades and accelerated overseas expansion. CITIC SEC's main points are as follows: Passenger vehicles: Strong export growth offsets domestic pressure, leading car companies show profit differentiation. According to Marklines data, in 2025, the wholesale sales of narrow passenger vehicles reached 29.554 million units (up 8.8% year-on-year), retail sales reached 23.744 million units (up 3.8% year-on-year), and exports reached 5.739 million units (up 19.7% year-on-year). Due to seasonal fluctuations in domestic demand, overseas markets achieved high export growth through competitiveness in new energy and hybrid products, effectively offsetting domestic price wars and weak demand pressures; in Q1 2026, domestic demand showed significant seasonal characteristics, with retail sales falling by double digits year-on-year, but under the influence of geopolitical conflicts overseas, the transition in energy structure drove a surge in new energy orders, resulting in historically high export growth. In terms of performance, in 2025, the operating income of the passenger car sector increased by 10.9% year-on-year, and the attributable net profit increased by 3.0% year-on-year; in Q4 2025, operating income increased by 2.8% year-on-year, and net profit increased by 15.2% year-on-year, with profits outperforming revenue; in Q1 2026, affected by weak domestic demand, sector revenue decreased by 8.4% year-on-year, and net profit decreased by 37.8% year-on-year, with leading car companies with high export ratios like BYD Company Limited, GEELY AUTO, and CHERY AUTO showing relatively stable profits. Commercial vehicles: Strong profitability of leading companies. In Q1 2026, the sales volume of the commercial vehicle industry reached 1.115 million units, an increase of 6.1% year-on-year; among them, the cumulative sales volume of heavy trucks in Q1 2026 reached 318,000 units, an increase of 19.9% year-on-year; the cumulative sales volume of large and medium buses reached 24,000 units, an increase of 5.2% year-on-year. The growth in sales volume of commercial vehicles in Q1, with exports as the strongest driving force. Among the 20 A+H listed commercial vehicle companies, the total revenue in Q1 2026 was 155 billion yuan, an increase of 14.2% year-on-year, contributing a total of 6.2 billion yuan in attributable net profit, an increase of 12.5% year-on-year. Exports have become the strongest growth driver for Chinese commercial vehicles, with a total of 305,000 commercial vehicles exported in Q1 2026, an increase of 26.0% year-on-year; among them, the export of heavy trucks reached 101,000 units, an increase of 36.8% year-on-year, mainly due to increased demand for mining transportation, logistics, and freight in many regions of Africa and Southeast Asia. Components: Downstream consumer demand under pressure, actively opening up new growth paths. In 2025, the operating income of the automotive parts sector increased by 9.7% year-on-year, and the attributable net profit increased by 23.2% year-on-year; in Q1 2026, operating income increased by 2.7% year-on-year, performing better than the industry's -23.4%; attributable net profit decreased by 12.8% year-on-year, lagging behind the revenue growth rate. The sector's income growth has consistently outperformed the industry, but profitability is under pressure, mainly due to the low business sentiment in Q4 2025 and Q1 2026 in the automotive industry, as well as significant price increases in commodities and immense pressure on vehicle companies to reduce costs. Looking ahead to the next two to three quarters, industry terminal sales are expected to rebound, and part of the commodity price increases and cost reductions by vehicle companies are expected to gradually be absorbed, resulting in a significant improvement in revenue and profit quality. Platform-type companies with platform expansion capabilities in technology and processes, outside the automotive industry, have actively expanded into emerging businesses such as Siasun Robot & Automation, liquid cooling, engines, commercial aerospace, etc., outlining growth trajectories beyond the automotive business. It is expected that these industries will bring significant income and profit contributions to industrial chain companies in 2026. Two-wheelers: Domestic demand in Q2 is expected to warm up, and global expansion of two-wheeler products is timely. In 2025, 17 A/H listed companies in the two-wheeler sector achieved a revenue of 152.7 billion yuan, an increase of 24.2% year-on-year; attributable net profit was 12.2 billion yuan, an increase of 42.2% year-on-year. In 2025, income, profit, etc., all saw significant growth due to factors such as the transition to national standards and subsidies for replacement of old vehicles; however, due to the relatively high base in Q4 2024 and Q1 2025, combined with the rapid appreciation of the Renminbi in this period, the industry growth rate came under pressure in the consecutive two quarters of Q4 2025 and Q1 2026, with profits declining by 26.6% and 33.3% year-on-year, respectively. Considering the nearly two-quarter mismatch in demand cycles due to the national standards transition, combined with signs of recovery in domestic demand sales in March and April, it is expected that the domestic market will warm up in the second quarter. Risk Factors: The risk of further escalation of conflicts in the Middle East and other regions; the risk of intensifying international trade frictions; the risk of domestic macroeconomic performance falling short of expectations; the risk of insufficient overseas demand, domestic consumption, or government investment; the risk of industry policies not meeting expectations; the risk of slowing growth in automotive demand; the risk of significant price increases in key raw materials; the risk of sharp declines in the valuation of relevant companies due to accidents in autonomous driving; the risk of inadequate management of data privacy in smart car systems; the risk of rising risk-free rates and declining liquidity in overseas markets; the risk of declining market confidence in the development prospects of the new energy industry or smart vehicles.