Broker: UOB Kay Hian
Date of Report: 11 July 2025

China Auto Sector Update: Sales Tumble Post-Promotions, but Innovation and Subsidies Promise a Rebound

China’s Auto Market in Focus: Post-Promotional Slump and the Road Ahead

China’s passenger vehicle (PV) sector experienced a sharp 30% week-on-week drop in insurance registrations during the 27th week of 2025, immediately after promotional discounts were rolled back at the end of June. While year-on-year growth remained positive at 16.9%, the abrupt shift highlights the market’s sensitivity to incentives and ongoing policy changes. The pullback was attributed to:

• The expiration of OEM promotions on 30 June 2025
• Typical low sales seasonality in July
• A temporary pause in electric vehicle (EV) purchase subsidies by some local governments due to budget exhaustion

However, new support is emerging as the Chongqing government announced the resumption of cash-for-clunker EV subsidies, allocating an additional RMB 90 million from July to December 2025, with a monthly quota of RMB 30 million. This move is expected to revive momentum, with other localities likely to follow suit.

China Auto Sector: Key Data and Market Trends

• PVs insurance registrations: 397,000 units (+16.9% YoY, +11.8% MoM, -30.4% WoW)
• Passenger Electric Vehicles (PEV): 212,000 units (+22.5% YoY, +6.5% MoM, -28.4% WoW), market share at 53.4%
• ICE Vehicles: 185,000 units (+11.1% YoY, +18.6% MoM, -32.5% WoW)

Despite the recent drop, the PEV segment continues to outpace ICE vehicles, holding over half the PV market.

Stock Performance and Sector Preferences

UOB Kay Hian maintains a MARKET WEIGHT on the China auto sector, favoring automotive part manufacturers over OEMs and dealers. The top BUY picks are CATL, Geely, and Tuopu.

Weekly Stock Performance (Top and Bottom Movers)

Company Deep Dives: Analysis and Outlook

BYD Company (1211 HK): Facing Inventory and Pricing Headwinds

BYD’s insurance registrations disappointed, coming in at 60,880 units (flat YoY, -1.0% MoM, -29.1% WoW). Detailed breakdown:

• BYD brand (Dynasty & Ocean): 55,370 units (-5.8% YoY, +1.2% MoM, -29.3% WoW)
• Denza: 2,250 units (+32.4% YoY, -2.2% MoM, -25.2% WoW)
• Fangchengbao (FCB): 3,180 units (+1035.7% YoY, -29.2% MoM, -27.7% WoW)
• Yangwang (YW): 80 units (-33.3% YoY, +100% MoM, -11.1% WoW)

Key issues:

• Sales fell as BYD ended promotions and enforced strict price controls from 1 July, penalizing unauthorized discounts.
• Channel inventory ballooned to 800,000 units (+70 days) as of 30 June, leading to a standoff: BYD wants to stabilize prices, but customers are holding out for further cuts.
• BYD’s high gearing (70% liabilities/assets, 0.45 quick ratio) and excess capacity (expected to rise from 6.3m in 2024 to 8.9m units by 2027) mean it cannot withstand prolonged weak sales.

BYD needs at least 15% YoY wholesale shipment growth (vs. 11% in June 2025) and 18% retail sales growth to normalize inventory. Prolonged underperformance for 3-4 months could trigger systematic risks.
Innovation remains a pillar: On 9 July, BYD launched L4 smart parking with a full liability commitment, a China-first, supported by its DiPilot ADAS and a 120,000-strong R&D team. Large-scale OTA upgrades are rolling out.

BYD Key Financials & Valuation

• 2025-27 net profit forecasts: RMB 45.35b / 51.13b / 57.66b
• Sales forecasts: 5.2m / 6.0m / 7.0m units
• Target price: HK\$142.00 (10-year DCF, WACC: 11%, terminal growth: 4%, 26x 2025F PE)

Geely Auto (175 HK): Technological Leap with SEA-S Platform

Geely’s EV insurance registrations reached 25,780 units (+105.9% YoY, +7.4% MoM, -21.4% WoW):

• Geely + Galaxy: 18,810 units (+8.9% MoM, -24.0% WoW)
• Zeekr: 3,230 units (-15.8% YoY, +1.3% MoM, -2.1% WoW)
• Lynk & Co: 3,050 units (+5.2% MoM, -30.8% WoW)

Highlights:

• Zeekr 9X unveiled, built on the new SEA-S platform (world’s first 900V hybrid), enables ultra-fast 6C charging (10-80% in 10.3 minutes), tri-silicon carbide motors, and features a 70kWh CATL battery.
• Performance: 1,381hp, 0-100km/h in 3.1s, 380km EV-only range, 1,000+ km total, L3-ready autonomy with dual Nvidia Thor chips (1,400 TOPS), and five LiDARs.
• Price: around RMB 600,000; pre-sales start late August.

The 9X sets new luxury hybrid SUV benchmarks, outperforming rivals like BYD Yangwang U8. The SEA-S platform blurs PHEV and BEV lines, driving Geely’s hybrid transition.

Geely Key Financials & Valuation

• 2025-27 net profit forecasts: RMB 16.19b / 16.56b / 20.35b
• Sales forecasts: 3.0m / 3.6m / 4.3m units
• Target price: HK\$35.00 (23x 2025F PE)

XPeng (9868 HK): Aggressive Growth with G7 Launch and In-House AI Chips

XPeng logged 6,460 insurance registrations (+258.9% YoY, +54.2% MoM, -42.3% WoW). Growth drivers:

• G7 SUV launched 4 July, powered by XPeng’s in-house Turing AI chip (2,250 TOPS), the highest smart driving computing power among EVs.
• G7 received over 10,000 orders in nine minutes, priced from RMB 195,800, undercutting Tesla Model Y with larger dimensions.
• 80% of Shanghai buyers chose the top trim; XPeng targets 100,000 G7 sales in 2025 (55,000 in 2H25).
• Next-gen P7 sports coupe due 3Q25, and G01 EREV in 4Q25; Turing chips to further enhance the brand’s tech edge in 2H25.

June deliveries: 34,611 units; 1H25 total: 197,189, already exceeding all of 2024.

XPeng Key Financials & Valuation

• 2025-27 delivery estimates: 400,000 / 500,000 / 650,000 units
• 2025 net loss: RMB 1.59b; 2026-27 net profit: RMB 1.10b / 5.27b
• Target price: HK\$150.00 (10-year DCF, WACC: 14%, terminal growth: 3%)

Li Auto (2015 HK): Weak Transition and Intensifying Competition

Li Auto’s 7,160 insurance registrations (-10.5% YoY, -13.4% MoM, -10.1% WoW) underperformed expectations due to:

• Heightened competition in the EREV segment
• Product fatigue with L8/L9; the L6 saw weak differentiation
• Lagging EV transition: MEGA model underperformed; limited 5C charging infrastructure

Upcoming: Li i8, the brand’s first pure electric SUV, launches 29 July. Designed as a six-seater with MPV-like profile, prioritizing space, aerodynamics, and safety. Li Auto has accelerated charging infrastructure, now operating 2,826 supercharging stations.

Li Auto Key Financials & Valuation

• 2025-27 net profit forecasts: RMB 6.62b / 8.27b / 10.13b
• Deliveries: 500,000 / 600,000 / 700,000 units
• Target price: HK\$100.00 (10-year DCF, WACC: 14%, terminal growth: 4%)

CATL: Dominating Global Battery Supply

CATL and BYD remain global EV battery leaders, accounting for 55.5% of global installations in the first five months of 2025:

• CATL: 152.7 GWh, 38.1% share (the only company above 30%), +40.6% YoY
• BYD: 70.0 GWh, 17.4% share, up from 15.4% last year, +57.1% YoY

Their lead over international competitors continues to widen, reinforcing China’s dominance in the EV battery supply chain.

Peer Comparison Table

EV Battle: ZEEKR 9X vs. Key Competitors

Conclusion and Sector Outlook

The post-promotion sales slump in July 2025 underscores how policy shifts and incentives remain critical to China’s auto sector. While inventory issues and price standoffs threaten short-term stability, the medium-term outlook is buoyed by technological innovation, government support, and aggressive product rollouts. UOB Kay Hian continues to favor auto parts suppliers, with CATL, Geely, and Tuopu as top picks for investors seeking exposure to China’s dynamic auto landscape.