China Galaxy Securities: Tesla's FSD arriving in China will be an important catalyst for the industry's intelligentization process.

China Galaxy Securities released a research report stating that Tesla's FSD (Full Self-Driving) entering China will increase consumers' willingness to actively pay for advanced autonomous driving features, driving the industry from supply dissemination to experience enhancement and demand-driven payments. The industry's intelligent process will receive a significant catalyst. Continuously optimistic about the mainline intelligent driving, the landing of FSD is expected to drive the valuation repair and performance realization of intelligent core components such as line-controlled chassis, sensors, and domain controllers. The main viewpoints of China Galaxy Securities are as follows: The China Association of Automobile Manufacturers released the production and sales volume of the automotive market in April. In terms of total volume, sales declined both monthly and yearly, mainly due to some automotive companies adjusting their pricing systems and tightening financial schemes, in addition to the pressure of rising upstream material costs such as lithium carbonate and storage, which increased the threshold for consumers to purchase cars and the operating pressure for manufacturers, temporarily suppressing terminal transactions. Structurally, domestic demand is weak, with high export prosperity continuing against the backdrop of rising oil prices and overseas electrification promotion. Looking ahead, on one hand, based on the weak domestic demand in Q1 and the continued pressure on sales volume in April, there is likely to be pressure on domestic demand in the second quarter year-on-year, but with the concentrated delivery of new products after the auto show and the continued implementation of the promotion of trading in old cars for new cars under the national framework and supplemented by local measures, there is greater certainty of improvement in domestic demand month-on-month. On the other hand, overseas demand for new energy vehicles is strong, with the proportion of new energy vehicles exported increasing under high oil prices, and order demand continuing, export sales are expected to remain at a high level. In April, the automotive production volume was 2.575 million units, a year-on-year decrease of 1.7% and a month-on-month decrease of 11.7%. Sales volume was 2.526 million units, a year-on-year decrease of 2.5% and a month-on-month decrease of 12.9%. Among them, domestic sales were 1.625 million units, a year-on-year decrease of 21.6% and a month-on-month decrease of 19.7%. In April, the domestic automotive market experienced a decrease in both year-on-year and month-on-month sales, due to the high base brought about by policy subsidies in the same period last year, the weaker year-on-year performance is in line with expectations, and the month-on-month performance reflects the seasonal pattern of effective sales days reduced by the Qingming Festival and spring break. Export sales were 0.901 million units, a year-on-year increase of 74.4% and a month-on-month increase of 3%, continuing the high-growth trend against the backdrop of high overseas demand. The China Automobile Dealers Association predicts that the retail market size of narrow passenger vehicles in May is about 1.52 million units, an increase of 9.9% month-on-month, with new energy retail volume expected to be around 950,000 units, an increase of 12% month-on-month, with a penetration rate of about 62.5%. From May 1st to 10th, a total of 407,000 passenger vehicles were retailed nationwide, a decrease of 21% year-on-year, but an increase of 36% compared to the same period last month. Tesla's FSD Supervision Edition has officially been included in the open list in China, accelerating the industrialization pace of autonomous driving. On May 21, 2026, Tesla announced that China will be included in the global open list of FSD Supervision Edition. This version is based on the UN Regulation R-171 and is defined as Level 2 advanced driver assistance, not fully autonomous driving, with driving rights and responsibilities still belonging to the driver. The function is still in the domestic regulatory approval stage and has not yet been pushed to ordinary users. Tesla's CFO stated in April that FSD is expected to be approved in China in the third quarter of this year. Bi-weekly market review: Looking at the segment sectors, the bi-weekly change in the valuation of components, commercial vehicles, motorcycles and others, sales and services, and passenger vehicles are +0.67%, -0.05%, -2.22%, -5.89%, -8.10% respectively. In terms of valuation, the price-earnings ratios of sales and services, components, motorcycles and others, passenger vehicles, and commercial vehicles are 31.58x/30.98x/26.93x/23.24x/20.95x respectively. The price-to-book ratios of motorcycles and others, components, commercial vehicles, passenger vehicles, and sales and services are 3.41x/3.18x/2.42x/1.74x/1.39x respectively. Risk warning: Risks of automobile sales falling below expectations; risks of policy effects falling below expectations; risks of intensified industry competition; risks of Siasun Robot & Automation not meeting production expectations.