UOB Kay Hian
Date of Report: September 5, 2025
China’s Auto Sector 2025: Price War, Margin Squeeze, and the Survival of the Fittest

Executive Summary: Turbulence and Opportunity in China’s Auto Industry

China’s automobile sector has entered a new phase in 2025, marked by intensifying price wars, squeezed margins, and aggressive government subsidies. The market is undergoing rapid consolidation, with established giants and nimble newcomers vying for dominance. UOB Kay Hian maintains a “Market Weight” view, with top BUYs on CATL and Geely, and contrarian SELLs on BYD and Li Auto.

Price Wars Return: Margin Pressures and Government Subsidies

The price war has returned in force, slicing margins across the supply chain.
Local governments are fueling the price cuts with increased subsidies; BYD received RMB 6.4 billion in 1H25, accounting for 41% of its net profit.
Most OEMs faced margin contraction, with BYD and GWM hit hardest. XPeng and Geely stood out for margin improvement, thanks to disciplined pricing.
OEMs are passing pressure downstream: BYD shortened dealer receivables to 25 days, while GWM extended supplier payables to 105 days.

Stock Calls and Weekly Performance

Peer Comparison: Valuation and Key Metrics

Company Deep-Dives: Performance, Strategy, and Outlook

BYD Company (1211 HK) – Peaking Margins, Heavy Reliance on Subsidies

BYD’s insurance registrations for the 35th week of 2025 came in at 75,000 units, down 18% YoY, marking eight weeks of negative growth.
China PEV market share fell by 9.6ppt YoY and 2.7ppt WoW to 26.3%.
August registrations totaled 310,150 units (-17% YoY, +18% MoM), reducing channel inventories slightly but remaining elevated above 70 days for eight months.
To reach its original 2025 sales target of 5.5m units, BYD would have to ramp up monthly sales from 373,626 to approximately 659,000 units. Reuters reported a downward revision of the 2025 target to 4.6m units (+8% YoY), below UOB’s forecast of 5.0m.
Plans to launch 12 new models before year-end, but impact is uncertain amid competition and a vast product lineup.
Overseas sales are a key growth focus, with August shipments up 157% YoY to 80,810 units (totaling 625,816 units for 8M25, +136% YoY).
Risks include high inventory (160 days) and overseas plant construction problems (Brazil, Turkey).
Government subsidies represent a substantial portion of net profit (41% in 1H25).
Net profit forecasts for 2025-2027 are RMB 32.08b/31.92b/31.28b, based on sales volumes of 5.0m/5.5m/6.0m units.

Geely Auto (175 HK) – Rapid Sales Growth and Product Innovation

Insurance registrations surged 42% YoY and 7% WoW to 57,300 units in the 35th week, driven by the Galaxy series.
August registrations reached 224,400 units (+37% YoY, +15% MoM), with inventories under 45 days YTD, well below alert thresholds.
Recently launched four new EVs: Galaxy A7, Galaxy M9, Galaxy Starray 6, and Zeekr 9X.
Galaxy A7 is a mid-sized plug-in hybrid sedan, disrupting the B-segment with C-segment space, 2.67L/100km fuel efficiency, 2,100km range, and smart cockpit features.
Galaxy M9 offers AI-driven features and luxury SUV experience.
Zeekr 9X is a premium all-electric SUV benchmarked against Rolls Royce Cullinan, with ultra-fast charging and 623km range.
More EV launches planned, including Galaxy Starray 6, Lynk & Co 10 EM-P, and Zeekr 8X SUV.
Core net profit forecasts for 2025-2027: RMB 13.56b/16.56b/20.35b, based on sales volumes of 3.0m/3.6m/4.3m units.

XPeng (9868 HK) – Delivery Momentum and Tech-Driven Appeal

August deliveries reached a record 37,709 units (+169% YoY, +3% MoM).
Weekly insurance registrations spiked 140% YoY, driven by new P7 deliveries.
New P7 variants (Pro and Gull-wing) feature advanced tech, AR-HUD, and proprietary AI chip, with 30,000+ orders in 48 hours.
Upcoming launch: Kunpeng Super EV X9, boasts 800V platform, 740km range, 5C charging, and L4-ready autonomy.
Delivery estimates for 2025-2027: 400,000/500,000/650,000 units.
Net loss forecast for 2025: RMB 1,591m; net profit estimates for 2026-27: RMB 1,098m/5,273m.

Li Auto (2015 HK) – Sales Decline, Margin Pressure, and Product Bets

August deliveries plummeted 41% YoY and 7% MoM to 28,529 units.
Weekly insurance registrations rebounded 11% WoW, but dropped 25% YoY.
Price cuts on L9 and Mega models drove short-term rebound.
New i8 model booked 3,200 registrations, versus 8,000 target for September.
Upcoming i6, a pure electric SUV with 720km range, is set for September launch.
Net profit forecasts for 2025-2027: RMB 5.26b/5.87b/6.54b, based on delivery volumes of 400,000/450,000/500,000 units.

Key Sector Trends: Consolidation, Inventory, and Market Share

Industry consolidation is accelerating, with established privately owned (Geely, BYD, Chery, GWM) and state-owned OEMs (FAW, SAIC, Dongfeng, Changan, Guangzhou Auto, BAIC, JAC) expected to survive, possibly via state-orchestrated M&A.
Young companies (XPeng, Leapmotor, Aito) are thriving, with turnarounds in earnings and cash flow.
PV insurance registrations in week 35 grew 10% WoW to 514,000 units, flat YoY; passenger EVs accounted for 55.4% market share.
Four of ten tracked EV brands posted negative YoY insurance registration growth: BYD, Tesla China, Li Auto, and Aito.

Financial Highlights: 2Q25 and 1H25 Performance Table

Conclusion: Sector Outlook and Strategic Calls

UOB Kay Hian maintains a “Market Weight” on China’s auto sector.
Preferred segments: automotive part manufacturers > OEMs > automobile dealers.
Top BUYs: CATL (battery leader) and Geely (product innovation).
Top SELLs: BYD and Li Auto, due to peaking domestic sales and mounting price/margin pressure.
The sector is entering a survival game, with consolidation favoring big names and innovative new entrants. Investors should watch for margin discipline, inventory management, and product launches as key differentiators.
This comprehensive analysis provides investors and market observers a detailed roadmap through the challenges and opportunities shaping China’s automotive industry in 2025.