Broker: UOB Kay Hian
Date of Report: 4 July 2025

China Auto Sector 2025: Sales Surge, Inventory Headaches, and Top Stock Picks for Investors

China Auto Market Overview: June 2025 Sales Momentum and Challenges

China’s passenger vehicle (PV) market demonstrated resilience in the 26th week of 2025, with insurance registrations rising 6.9% year-on-year and 4.0% week-on-week to 570,000 units. This robust performance was largely driven by last-minute buying activity ahead of expiring promotional discounts. Passenger electric vehicles (PEVs) continued to gain traction, with 296,000 units registered (+26.0% yoy), representing a 51.9% market share, while internal combustion engine (ICE) car registrations fell 8.1% yoy to 274,000 units.

Cumulative PV insurance registrations in the first half of 2025 reached 10.59 million units, up 8.7% year-on-year, including 5.29 million PEVs (+30.6%) and 5.31 million ICE cars (-6.9%). The sector is forecast to achieve full-year 2025 PV retail sales of 24.1 million units (+5%) and PEV retail sales of 13.6 million units (+24%).

BYD Company: Sales Growth, Inventory Pains, and Adjusted Outlook

BYD Company’s performance in the final week of June was underwhelming. Insurance registrations totaled 85,840 units (+8.0% yoy, +29.0% mom, -5.0% wow), with segment breakdowns as follows:

• BYD Brand (Dynasty & Ocean Series): 78,340 units (+3.4% yoy, +31.4% mom, -5.9% wow)
• Denza: 3,010 units (+3.8% yoy, -7.1% mom, +1.7% wow)
• Fangchengbao (FCB): 4,400 units (+556.7% yoy, +21.2% mom, +5.3% wow)
• Yangwang (YW): 90 units (-34.8% yoy, +80.0% mom, +350.0% wow)

Based on insurance data, BYD’s June domestic retail sales are estimated at 336,500 units (+22% yoy, +20% mom), with 1.56 million units (+14% yoy) in 1H25, tracking behind its 2025 domestic sales target of 4.7 million units and total sales target of 5.5 million units (including 0.8 million overseas).

Despite 20% month-on-month growth in domestic retail sales, wholesale shipment remained flat at 382,585 units (+12% yoy) in June. For 1H25, wholesale shipments reached around 2.15 million units (+33% yoy), representing only 39% of the annual sales target. The year-on-year wholesale growth was largely due to a 234% surge in overseas shipments (90,000 units in June), while domestic shipments actually declined 7% yoy.

The gap between wholesale and retail sales is linked to persistent destocking efforts. BYD’s channel inventory stood above 90 days for five consecutive months (double the threshold), peaking at 870,000 units at end-May and easing slightly to 820,000 units by end-June. Inventory days dropped from 96 to 73 but remain elevated.

With most discounts ending from July, BYD may lower its full-year sales target to address high inventory. New management measures include prompt rebate payments, SKU reduction, and halting channel stuffing. For 2H25, domestic sales are expected to stabilize at 400,000-450,000 units per month, while overseas sales could exceed 80,000 units monthly, supported by new launches and factories in Thailand and Brazil.

Outlook and Valuation Adjustments:

• 2025-2027 sales estimates cut by 5%-8% to 5.2m/6.0m/7.0m units
• 2025-2027 net profit forecast trimmed by 6%-13% to Rmb45.35b/Rmb51.13b/Rmb57.66b
• Target price reduced from HK\$163.30 to HK\$142.00 (26x 2025F PE)

Geely Auto: Record Highs, Upgraded Targets, and EV Momentum

Geely Auto delivered a robust performance, with EV insurance registrations hitting 32,810 units (+102.9% yoy, +9.3% mom, +3.9% wow) in the 26th week, buoyed by strength in the Geely brand, Galaxy, and Lynk & Co, offsetting Zeekr’s softness:

• Geely Brand (including Galaxy): 24,760 units (+14.9% mom, +0.9% wow)
• Zeekr: 3,300 units (-23.8% yoy, -20.5% mom, +5.1% wow)
• Lynk & Co: 4,410 units (+6.3% mom, +18.5% wow)

Cumulative EV retail sales reached 568,857 units in 1H25.

June wholesale sales set a new record at 236,036 units (+42.1% yoy), with 1H25 shipments at 1.41 million units (+47.4% yoy), already 52% of the original full-year sales target (2.71m). On the back of surging momentum—especially in the Galaxy brand (+232% yoy)—Geely raised its 2025 target to 3 million units (+29% yoy). Overseas expansion is progressing, with new plants in Egypt, Indonesia, and Vietnam, and technology upgrades (L3-capable ADAS, Thunder EM-i hybrids, Shen Dun batteries) enhancing competitiveness. Over 10 new EV models and cost synergies from restructuring are expected to sustain growth.

Outlook and Valuation Adjustments:

• 2025-2027 sales estimates raised by 11%-13% to 3.0m/3.6m/4.3m units
• 2025-2027 net profit forecast lifted by 10%-5% to Rmb16.19b/Rmb16.56b/Rmb20.35b
• Core net profit forecasts up by 12%-5% to Rmb13.89b/Rmb16.56b/Rmb20.35b (29% CAGR)
• Target price increased from HK\$31.00 to HK\$35.00 (23x 2025F PE)

Li Auto: Delivery Misses and Strategic Challenges

Li Auto posted disappointing insurance registrations in the 26th week, with just 7,960 units (-38.8% yoy, -33.8% mom, -10.9% wow). June deliveries dropped 24.1% yoy and 11.2% mom to 36,279 units, totaling 203,938 units in 1H25 (+7.9% yoy), below expectations.

Key challenges include:

• Intensified competition in the EREV segment, eroding margins
• Product fatigue, with L8/L9 sales down ~30% and L6 underperforming due to weak differentiation
• Slower EV transition, exemplified by the MEGA’s poor performance and limited charging infrastructure

Li Auto has revised down its 2025 delivery target to 640,000 units.

Outlook:

• 2025-2027 net profit forecasts maintained at Rmb6.62b/Rmb8.27b/Rmb10.13b
• Delivery estimates: 500,000/600,000/700,000 units for 2025-2027
• Target price: HK\$100.00 (24x 2026F PE, 1.0x 2026F PEG)

XPeng: Surging Sales and Tech-Driven Growth

XPeng outperformed with 11,200 units of insurance registrations in the 26th week (+250.0% yoy, +53.8% mom, +31.1% wow). June deliveries soared 224.4% yoy and 3.2% mom to 34,611 units, totaling 197,189 units in 1H25 (+279.0% yoy).

Growth catalysts:

• Blockbuster models: MONA M03, G6/G9/P7+
• Tech democratization: XNGP, 800V platforms, in-house Turing chips
• User-driven operations: OTA updates shaped by 80,000+ user inputs
• Near-term launches: G7 SUV, next-gen P7 sports coupe, G01 EREV

Turing chips (3-7x industry standard) will further enhance XPeng’s edge from 2Q25.

Outlook:

• 2025-2027 delivery estimates: 400,000/500,000/650,000 units
• 2025 net loss forecast: Rmb1,591m
• 2026-2027 net profit forecast: Rmb1,098m/Rmb5,273m
• Target price: HK\$150.00 (10-year DCF, 14% WACC, 3% terminal growth)

Industry-Wide Dealer Strain and Inventory Risks

Auto dealer groups across the Yangtze River Delta have sounded alarms over unsustainably high inventory levels, with conversion rates plunging over 30% and widespread “price inversion” (selling below cost). Over 50% of dealers reported losses in 1H24, with 4,419 dealerships exiting nationwide.

Among key OEMs, BYD continues to have the highest channel inventory (73 days as of 30 June vs Geely’s 41 days and industry average of 50-60 days). Two major BYD dealer groups went bankrupt in May. BYD has responded with:

• Reducing vehicle SKUs per model from 4-5 to 2-3
• Implementing an “inventory circuit-breaker” to halt shipments when stocks exceed safe levels
• Accelerating rebate payments
• Stabilizing retail pricing

Great Wall Motor is also at risk, with inventory days above 100 for five months. By contrast, Geely has maintained inventory days below 50. XPeng and Li Auto, selling mainly through owned stores, avoid many of these inventory and dealer conflicts.

Peer Comparison Table

Top Picks and Sector Preference

UOB Kay Hian maintains a MARKET WEIGHT view on China’s auto sector, with a preference order: automotive part manufacturers > OEMs > automobile dealers. The new 60-day payment regulation further strengthens the case for auto parts companies. Dealers are expected to continue facing headwinds from vehicle electrification.

Top BUYs:

• CATL
• Geely
• Tuopu

Geely replaces Desay SV in the top picks, with stronger near-term catalysts expected.

Conclusion: Navigating 2025’s Opportunities and Risks

The Chinese auto sector in 2025 is marked by robust EV growth, aggressive promotional activity, and significant inventory and dealer channel management challenges. Investors should monitor inventory discipline, product innovation, and overseas expansion as key strategic levers for leading companies. Geely and XPeng stand out for their sales momentum and technology edge, while BYD’s inventory situation and channel reforms remain critical watchpoints.

With sector headwinds and evolving competitive dynamics, selective stock picking—focused on leading OEMs and top auto parts players—remains the optimal approach for maximizing returns in the coming quarters.