Broker: UOB Kay Hian
Date of Report: 6 June 2025
China’s Auto Industry 2025: Regulatory Shakeup, Innovation Race, and Top Stock Picks
Executive Summary: Government Intervention and Market Outlook
China’s automobile sector is undergoing a transformation, as robust government intervention aims to restore order and promote sustainable growth. Key regulatory changes target predatory pricing, supplier exploitation, and inventory fraud, with new policies expected to drive a shift from discount-led competition to innovation-centric strategies. Despite these efforts, overcapacity remains a structural headwind. At the 2025 Guangdong-Hong Kong-Macau Greater Bay Area Auto Show, electrification, autonomous driving, and low-altitude mobility dominated headlines. UOB Kay Hian maintains a MARKET WEIGHT view on the sector, with Geely and XPeng as top BUYs.
Regulatory Overhaul: Cracking Down on Market Abuses
- Strict Payment Terms: Revised SME payment regulations now require suppliers to be paid within 60 days (down from the industry norm of 90–180 days), ban forced commercial drafts, and impose 0.05% daily fines for late payments. A national complaint platform can revoke market access for repeat offenders.
- Anti-Dumping & Fair Competition: The Ministry of Industry and Information Technology (MIIT) has banned below-cost dumping (such as BYD’s Rmb55,800 Seagull EV) and mandated that competition should center on R&D, not discounts. The Ministry of Commerce is curbing “zero-mileage second-hand cars” and penalizing OEMs that pressure dealers with excess inventory.
- Advertising Standards: Prohibition of misleading terms like “autonomous driving” in ADAS (Advanced Driver-Assistance Systems) marketing to prevent consumer deception.
Implications for the Market
- For OEMs: Companies like BYD must pivot from price-led strategies to innovation-driven growth (e.g., “Sky Eye” ADAS), adapt to shorter payment cycles, and accelerate overseas inventory exports. Innovators like Geely and XPeng stand to benefit from reduced discount pressure, while Geely’s premium EVs (e.g., Lynk & Co 900) are poised to gain share.
- For Parts Suppliers: Tier-1 suppliers (Minth, Tuopu) will see improved cash flow, but Tier-2/3 suppliers face bankruptcy risks if unable to meet rising EV/ADAS requirements or fall prey to “quality penalty” loopholes.
- Industry Dynamics: Overcapacity (43% utilization, dealer inventory >2 months) and slim industry margins (3.9%) may blunt immediate benefits. Cash flow for OEMs could be strained, affecting export agility. Ultimately, these policies are designed for long-term stability, supporting innovative smaller OEMs and disciplined suppliers but putting pressure on high-volume players like BYD. Effective enforcement will be critical.
Auto Show Spotlight: Electrification, Autonomy, and the Future of Mobility
The 2025 Guangdong-Hong Kong-Macau Greater Bay Area Auto Show underscored industry momentum in electrification and autonomous driving.
- BYD: Stole the spotlight with a 50,000m² exhibit. Highlights included the Yangwang U8L luxury extended-range SUV (with a longer wheelbase and premium rear seats), the Seal 06 EV, and tech demos such as U8’s floating capabilities and Bao 5’s slope-climbing prowess. BYD also showcased ultra-fast “oil-electric same-speed” charging (80% in 10 minutes) and plans for 15,000 new charging piles. The U8L, sharing 1,000+ km range, 800V charging, and quad-motor off-road tech with the standard U8, is positioned more for comfort than ruggedness.
- Geely: Displayed the Galaxy Xingyao 8, Zeekr 7X/9X, and Lynk & Co 900. Zeekr 7X’s 800V charging, luxury interiors, and rear passenger screens impressed, and both Zeekr 7X and Lynk & Co 900 will launch in Europe (Netherlands, Sweden, Norway) in 2025. Zeekr 7X, a Tesla Model Y rival, is priced 4% below Model Y and has over 58,000 orders in China. Lynk & Co 900, a luxury plug-in hybrid SUV on Volvo’s SPA Evo platform, targets the Mercedes-Benz EQS segment and boasts 845hp and Nvidia Thor (industry-first 1,000 TOPS autonomy).
- XPeng: Introduced the Mona M03 Max with L4-ready ADAS and enhanced urban NOA, targeting young buyers at Rmb150,000–180,000 and challenging legacy OEMs.
- Li Auto: Featured upgraded L-series models with dual Orin-X chips and extended-range technology (212km pure electric range).
- Great Wall Motor (GWM): Unveiled new Gaoshan MPV and Lanshan SUV models, emphasizing safety (81% high-strength steel) and Hi4 hybrid technology.
- Market Data: Flying cars and drone integrations, such as Hongqi “Tiannian 1,” aligned with Shenzhen’s “Drone City” vision. Huawei’s Qiankun ADS 4.0 enabled HD map-free autonomous driving, while BYD’s U8 demonstrated advanced battery sealing with emergency floating tech.
Market Performance: Insurance Registrations and Market Share Trends
China’s passenger vehicle (PV) insurance registrations in the 22nd week of 2025 rose to 458,000 units (+11.0% yoy, +8.3% mom, +16.8% wow). The breakdown:
- PEV (Passenger Electric Vehicles): 245,000 units (+27.8% yoy, +30.7% mom, +11.9% wow), capturing 53.5% market share.
- ICE (Internal Combustion Engine) Vehicles: 213,000 units (-3.6% yoy, -3.2% mom, +23.1% wow).
BYD led with 66,550 insurance registrations. Denza (BYD’s premium line) saw 3,240 units, Fangchengbao 3,630 units, and Yangwang 50 units. Geely’s Galaxy and Zeekr brands recorded 9,000 and 4,100 units respectively. Li Auto achieved 12,020 units, while XPeng registered 7,300 units.
Company-by-Company Analysis and Financial Metrics
| Company |
Ticker |
Rec |
Price (lcy) |
Target Price (lcy) |
Upside (%) |
Market Cap (US\$m) |
PE 2025F |
PE 2026F |
P/B 2025F |
P/B 2026F |
ROE 2025F (%) |
Gearing (%) |
| BYD Company |
1211 HK |
BUY |
412.00 |
490.00 |
18.9 |
1,198,618 |
24.8 |
20.7 |
4.3 |
3.7 |
20.5 |
(33.6) |
| Geely Automobile |
175 HK |
BUY |
18.10 |
31.00 |
71.3 |
182,147 |
13.4 |
10.9 |
1.7 |
1.5 |
13.3 |
(39.6) |
| Great Wall Motors |
2333 HK |
SELL |
12.52 |
10.00 |
(20.1) |
107,123 |
14.7 |
12.7 |
1.1 |
1.0 |
11.7 |
(12.2) |
| Guangzhou Auto |
2238 HK |
SELL |
2.73 |
1.00 |
(63.4) |
28,232 |
Loss |
Loss |
0.2 |
0.2 |
(3.7) |
(12.1) |
| Li Auto Inc |
2015 HK |
BUY |
116.80 |
145.00 |
24.1 |
243,528 |
24.4 |
19.1 |
3.7 |
3.7 |
12.0 |
(137.0) |
| XPeng |
9868 HK |
BUY |
79.30 |
150.00 |
89.2 |
150,703 |
0.0 |
0.0 |
0.0 |
0.0 |
(5.2) |
(76.9) |
Other notable names with BUY ratings include Weichai Power, Fuyao Glass, Desay SV, Minth, Ningbo Tuopu, Joyson Electronics, CATL, EVE Energy, Ganfeng Lithium, and Tinci Materials. Sell/Hold calls were issued for Great Wall Motors, Guangzhou Auto, Nexteer, Zhongsheng Group, and Yadea Group. Please refer to the table above for their detailed figures.
Spec Comparison: Geely, BYD, Zeekr, Tesla, BMW
| Model |
Geely Starry 8 |
BYD Han |
Zeekr 7X |
Tesla Model Y |
Zeekr 9X |
BMW X7 |
| Pre-orders/Sales |
20,000 |
10,000-16,000 |
58,000+ |
25,000+ |
1,000+ |
– |
| MSRP (Rmb) |
129,800-163,800 |
143,800-200,800 |
229,900-249,900 |
263,500-313,500 |
>1m |
900k-1.37m |
| Segment |
B |
B |
B |
B |
D |
D |
| Type |
Sedan |
Sedan |
SUV |
SUV |
SUV |
SUV |
| Energy |
PHEV |
PHEV |
BEV |
BEV |
PHEV/EREV |
HEV |
| Engine |
1.5L 112hp L4 |
1.5T 156hp L4 |
– |
– |
2.0T (200kW) |
3.0T/4.4T (250-390kW) |
| Motor Power (Ps) |
238 |
272 |
422-646 |
299-450 |
700kW/939hp |
48V mild hybrid (up to 20hp) |
| 0-100km/h (s) |
8.4 |
6.9 |
3.8-5.8 |
4.3-5.9 |
3.0 |
5.8 |
| CLTC Electric Range (km) |
60 |
125 |
605-780 |
593-719 |
380 |
– |
| Battery (kWh) |
8.5 |
18.3 |
75-100 |
62.5-78.4 |
150 |
– |
| Fast Charging (min) |
– |
27 |
11-15 |
– |
9 |
– |
| Key ADAS |
DiPilot B/C |
Haohan H9; L3 ADAS |
Urban NOA for free |
FSD at Rmb64,000 |
L2++ (5 LiDAR, L3-ready) |
L2 (Driving Assistant Pro) |
Weekly Stock Performance
- Top gainers include Xusheng (+12.1%), Li Auto (+7.9%), Zhongsheng (+5.8%), and Ganfeng (+2.8%).
- Biggest losers: Desay SV (-8.3%), Nexteer (-7.2%), Minth (-5.9%), Weichai (-2.9%).
Outlook and Investment Strategy
- UOB Kay Hian maintains a MARKET WEIGHT stance on China’s auto sector.
- Preferred segment order: OEMs > automotive part manufacturers > automobile dealers, as OEMs have stronger bargaining power and lower exposure to US tariffs.
- Top stock picks: Geely and XPeng, favored for their innovation focus and alignment with policy direction.
- Automobile dealers to face continued earnings headwinds from ongoing electrification trends.
Conclusion
China’s automotive sector stands at a crossroads, with regulatory reforms designed to replace destructive discounting with innovation-led competition. Overcapacity and margin compression will remain near-term challenges, but the policy push toward sustainable growth, coupled with rapid advances in electrification and autonomous driving, bodes well for agile, R&D-driven players. Investors should focus on leaders in innovation, especially in the OEM segment, with Geely and XPeng topping the list for 2025.
