GF SEC: Where is the excess profit of future passenger car sales?

GF Securities released a research report stating that in the context of the auto industry facing homogenized competition and squeezed profits, the source of excess profits in the auto industry may come from the business model revolution of autonomous driving and the provision of personalized driving experiences. In the medium term, the certainty of the latter is stronger. The firm believes that scale, efficiency, and diversification of power sources will be the foundation for car companies to navigate the industry cycles, and product personalization will be the key lever to break through homogenization and realize excess profits. They recommend focusing on Chinese brand groups that possess and exhibit these four characteristics. GF Securities' main points are as follows: - Profit margins in the auto industry continue to be squeezed, with future excess profits potentially coming from technological transformation and the creation of driving experiences. - In the context of slowing domestic sales growth and intensifying competition in the new energy sector, profit margins in the auto industry continue to be squeezed. - The firm predicts that industry value will concentrate in two directions: transitioning to mobility services using autonomous driving for advanced business models, and creating high-value submarkets with demand outstripping supply, similar to the growth trajectory of high-displacement motorcycles. - In the medium term, with autonomous driving not yet widely adopted, personalized products may be the focus of attention; in the long term, as Robotaxis become widespread and private cars are systematically replaced for transportation, the "tool value" of cars may weaken, but the demand for driving pleasure, performance experience, identity, and emotional attachment will increase, and personalized products that cater to driving experiences can continue to generate excess profits. By reviewing the development history of high-displacement motorcycles and global performance vehicles, brand building, technological foundation, and group empowerment are identified as common factors for success. - High-displacement motorcycles: According to the China Motorcycle Association, domestic motorcycle sales have decreased from 11.93 million units in 2022 to 6.5 million units in 2025, with the sales volume of high-displacement motorcycles increasing from 327,000 units in 2023 to 419,000 units in 2025. The market share of high-displacement motorcycles as a percentage of total motorcycles increased from 3.6% in 2022 to 6.4% in 2025, showing a year-on-year upward trend. Domestic independent brands like CFMOTO have accurately targeted the core needs of driving pleasure, niche attributes, and mass consumption in the high-displacement market since 2024, maintaining a market share of over 50% which led to the systematic rise of domestic motorcycle brands. - Global performance vehicles: Global performance vehicles have endured the cycles of fuel, hybrid, and electric power and are resilient. They can be summarized as being based on big groups, irreplaceable core technology, strong cultural circles, and product genes that can cross energy cycles. Scale, efficiency, diversification, and product personalization are the important foundations for the survival of car companies and the source of excess profits. The firm identifies four key features for car companies to achieve long-term excess profits: scale, efficiency, diversification, and product personalization. They believe that scale, efficiency, and diversification form the core foundation for companies to navigate industry cycles and ensure industry survival, while product personalization is the key lever to break through homogenization and achieve excess profits. Risk factors: Risks of regulatory policy changes; risks of inability to manifest product differentiation; risks of industry downturn.