China Securities Co., Ltd.'s mid-term investment strategy for the automotive industry in 2026: Overseas expansion contributing to performance , AI empowering new growth .

China Securities Co., Ltd. released a research report stating that the current policy downturn is putting pressure on domestic demand expectations, which may have already reached the bottom. Passenger and commercial vehicles going overseas have strong performance contributions, and the first quarter report has been fully realized. Under high oil prices, the overseas outlook for new energy vehicles is expected to exceed expectations. The empowerment of AI is reflected in the physical AI end and unmanned driving, as well as the fusion of intelligent applications and industrial chains, such as diesel engines and gas turbines. Key points from China Securities Co., Ltd. include: Industry Review: 26 years of policy headwinds have put pressure on domestic sales and profits, with overseas markets becoming the strongest performers. In the 26 years of the policy headwinds in the domestic passenger vehicle sector, with the phasing out of subsidies for new energy vehicles and the introduction of new energy vehicle purchase taxes, market expectations for domestic demand have weakened. Combined with a significant increase in prices of materials such as chips and lithium carbonate, the pressure on industry sentiment and profit expectations has led to a significant pullback in stock prices. The current domestic demand sentiment and sector valuation may have bottomed out, with performance outlook favoring globalization and high-end structural alpha, and valuation outlook favoring physical AI reshaping technology attributes and growth space. Passenger Vehicles: Domestic demand may have bottomed out, with expectations for new energy vehicle overseas surpassing expectations and high-end acceleration in volume. The push for exceeding expectations in overseas passenger vehicle sales comes primarily from increased introduction of new energy vehicle models and channel construction by car companies overseas. The conflict in the Middle East pushing up oil prices is expected to further strengthen demand elasticity, with projected export sales of 4 million new energy passenger vehicles in 2026, a +60% year-on-year increase. The push for high-endization comes from strong supply of high-end new energy vehicles. Both of these structural alphas in 2026 have been strengthened and support profitability. Physical AI: Tesla leads industry transformation, intelligent driving advances to unmanned, Siasun Robot & Automation 0-1 enters mass production. In 2026, Tesla leads the commercialization turning point in intelligent driving and Siasun Robot & Automation under technological transformation. The breakthrough in the intelligent driving base model promotes the industry's advance from L2+ assisted driving to L3 conditional/L4 unmanned driving, with Robotaxi starting large-scale unmanned operations, and humanoid Siasun Robot & Automation beginning mass production. Due to factors such as market bias and unclear industry nodes affecting the market in the earlier period, there has been a significant pullback in the sector. The second half of 2026 may see a series of catalysts, including: Optimus V3 release and mass production, Yushu listing, Cybercab unmanned large-scale deployment, and FSD entry into China. Commercial Vehicles: Undervalued dividend, export contribution to business resilience, AIDC new business boosting valuation. Positive outlook on AI-powered electricity generation and leading whole vehicle export sector. Current AIDC diesel engine shipment guidance surpasses expectations and accelerates shipment to North America. In the main power sector, gas engine generator units and SOFC are experiencing a boom; heavy-duty trucks and passenger cars continue to benefit from high-margin export business, with strong and sustainable internal profit growth, combined with undervalued and stable high dividends, highlighting long-term investment value. Investment Suggestions: Foreign contribution to performance alpha, AI empowers new growth beta. Positive outlook on three investment themes: 1) Overseas expansion of new energy passenger vehicles is a highly sustainable structural alpha, followed by high-endization; 2) Intelligent driving is expected to advance to L3/L4 within 2-3 years, with technology and industry chain extension to intelligent physical AI applications, with a focus on Tier 1 solution providers, travel platforms, and incremental components; 3) Commercial vehicle exports and North American AI power shortages chain (diesel engines, gas turbines and SOFC). Risk Warning 1. Industry sentiment falls short of expectations. Since 2020, there has been a significant growth in automotive consumer demand, with rapid penetration of new energy vehicles. With the future downsizing of new energy support policies, industry sentiment may experience fluctuations. 2. Deterioration of industry competitive landscape. Under the trend of automotive electrification and intelligence, domestic vehicle manufacturers and components suppliers are actively expanding. With changes in supply factors such as technological advancement and new capacity deployment, future industry competition may intensify, leading to fluctuations in market share and profitability of vehicle and component companies. 3. Customer expansion and new project production progress fall short of expectations. Under the trend of automotive electrification and intelligence, the existing vehicle and component supply chain is undergoing restructuring, with component companies that obtain new customers and new projects expected to benefit. However, the market share of some component companies may be affected.