UBS: Lower export tax rebate rate for new energy vehicles removes some concerns; bullish on BYD Company Limited (01211) and Contemporary Amperex Technology (03750)

UBS released a research report stating that the Chinese auto sector had previously seen a significant pullback, partly due to market concerns that Brussels might impose additional tariffs on plug-in hybrid vehicles, and partly reflecting worries that Beijing might lower the VAT export rebate rate. With the VAT policy adjustment now announced and China-EU trade negotiations possibly reaching some kind of agreement by Thursday, the bank believes the uncertainties will soon be eliminated. The bank is bullish on BYD Company Limited (01211) and Contemporary Amperex Technology (03750), with target prices of HK$135 and HK$820, respectively. The Ministry of Finance and the State Taxation Administration announced on Monday that, starting from April 1, 2027, the VAT export rebate rate for new energy vehicles will be lowered from 13% to 9%. UBS stated that although the reduction in the export rebate rate cannot be regarded as a positive for the industry, it still believes the related impact has already been reflected in the recent decline in auto sector share prices, and the 4-percentage-point cut is relatively moderate compared with tariffs imposed by overseas governments in recent years. The bank pointed out that sales channels, brand awareness, and factory expansion can still continue to drive growth in Chinese automakers' overseas sales, and the potential to launch technologies already applied in China, such as ultra-fast charging and highway assisted driving, in overseas markets is also one of the growth drivers. UBS believes that as the industry's overseas sales continue to grow, automakers' overseas profit margins will show resilience in the coming quarters, and at least industry leaders are expected to usher in a value re-rating after the related concerns of the past month. On individual stocks, the bank believes BYD Company Limited has the best overseas layout, with its Hungary plant expected to begin production within the EU starting from the end of 2026, and a target price of HK$135. Contemporary Amperex Technology is expected to benefit from rising demand for battery electric vehicles in the EU and other global markets, with a target price of HK$820.