Guosheng: Domestic auto demand shifts down a gear, high overseas growth drives passenger vehicle prosperity.

Guosheng released a research report stating that in the first eight months of 2026, passenger vehicle retail sales fell about 21% year-on-year, while passenger vehicle and new energy vehicle exports reached 6.25 million and 3.44 million units, respectively, up sharply by 72% and 120% year-on-year, creating a divergence between a downshift in domestic demand and high overseas growth. The bank believes that in 2026H2 there will still be many high-quality new models launched, and as model deliveries and the peak sales season arrive, domestic sales are expected to improve marginally; automakers are accelerating their overseas strategic push, and combined with a supportive international environment, the main logic of going overseas continues to strengthen, and it is recommended to pay attention to targets related to the two main lines of exports and new models. Guosheng's main views are as follows: Market review: The sector underwent a relatively deep correction, with domestic demand under pressure and automakers stepping up efforts to go overseas From January to August 2026, the passenger vehicle/auto parts/Siasun Robot&Automation sector indices fell -26%/-16%/-6%. By stage: in 2026H1, with the optimization of the "two new" policies plus the halving of the new energy purchase tax, passenger vehicle retail sales fell 20% year-on-year, with domestic demand pressure prominent; the U.S.-Iran conflict pushed up oil prices and freight rates, and prices of raw materials such as lithium and storage rose, dealing a relatively large blow to the profitability of automakers and the supply chain, and the sector underwent a deep correction; in 2026Q3, pessimistic expectations for domestic demand were fully released, leading companies' overseas businesses performed brilliantly, and export profits drove performance. BYD Company Limited, Geely and others outperformed market expectations in operations, and the automaker index performed better than auto parts; at the individual stock level: BYD Company Limited and Geely, relying on strong exports, significantly outperformed peers in share price. Domestic demand shifts down a gear, overseas growth exceeds expectations In 2026, the ""two new"" policies were implemented, with subsidies changed from a fixed amount to a proportion of the selling price, and the new energy purchase tax adjusted from 0 to a halved levy, bringing a structural adjustment to domestic car-buying policies. The domestic demand side came under significant pressure, with passenger vehicle retail sales falling about 21% year-on-year in the first eight months. In contrast, automakers' overseas strategies continued to land, and combined with rising oil prices boosting overseas demand, passenger vehicle/new energy vehicle exports in the first eight months were 6.25 million/3.44 million units, respectively, up sharply by 72%/120% year-on-year, exceeding expectations. The export market structure showed clear divergence, with the Russian and Brazilian markets growing rapidly and the European market steadily making breakthroughs. Automakers' overseas layout capabilities became the core factor in performance and valuation divergence during the year. Dense launch of new models combined with high export growth reshapes the sales and profitability landscape Automakers did not reduce their pace of new model launches. Geely, BYD Company Limited, and Leapmotor improved their model matrices, XPeng stepped up its range-extended offerings, and HarmonyOS's ""Five Realms"" continued to release new products. In 2026H1, Leapmotor/NIO sales were 360,000/190,000 units, up +60.8%/+67.4% year-on-year, while in the same period Chery/BYD Company Limited/Geely/Leapmotor export sales were 940,000/790,000/470,000/100,000 units, respectively, up +71.5%/+70.6%/+157.6%/+372.6% year-on-year. On the cost side, lithium carbonate rose by more than 150% at its peak, and 32Gb NANDFlash prices rose more than 8-fold, significantly raising automakers' procurement costs. Divergence in sales and exports further affected performance. Although ""anti-involution"" eased terminal price-cut pressure, against the backdrop of domestic demand pressure and sales of mid- to high-end models falling short of expectations, automakers with a high export share and strong cost control showed more prominent profit resilience. Risk warnings: policy implementation falling short of expectations, overseas demand & policies falling short of expectations, risks arising from estimates, differences in data calibers