Broker: UOB Kay Hian
Date of Report: 15 August 2025

China Auto Sector Update August 2025: EV Sales Dip, Lithium Prices Surge, and Stock Picks to Watch

Overview: Mixed Signals as China’s Auto Sector Faces Hurdles and Opportunities

China’s automobile sector is experiencing a dynamic shift in 2025, with recent data showing the first year-on-year decline in passenger electric vehicle (PEV) sales growth while lithium prices rebound sharply. The industry is grappling with sluggish domestic sales, inventory adjustments, and intensifying competition, but new policy support and model launches are expected to revive activity later in the year. UOB Kay Hian maintains a MARKET WEIGHT view on the sector, with a clear preference for automotive parts makers over OEMs and dealers.

Key Industry Trends and Policy Developments

• PEV Sales Growth Turns Negative: For the first time, PEV insurance registrations fell year-on-year by 0.5% in early August, though the PEV market share hit a record 57.6%.
• Inventory Dumping Overseas: Chinese automakers exported excess inventory in July to counter weak domestic retail sales, reducing channel inventories for the third consecutive month.
• Policy Support Incoming: A new tiered auto loan subsidy policy launching 1 September is aimed at boosting car sales, especially in the mid-to-low-end market.
• Lithium Price Recovery: Lithium carbonate prices rebounded above Rmb80,000/tonne, fueled by supply discipline and inventory depletion, offering relief for battery and material suppliers.
• Stock Recommendations: Top picks are CATL, Geely, and Tuopu, while Ganfeng Lithium is upgraded from HOLD to BUY on the back of lithium price recovery.

Market and Sales Performance: A Closer Look

In July, wholesale shipments of passenger vehicles grew 13% year-on-year to 2.22 million units, but fell 11% sequentially. Exports soared 85% year-on-year to 694,000 units, as automakers diverted inventory abroad amid sluggish retail sales. Domestic insurance registrations, a proxy for retail demand, dropped 2% year-on-year to 1.79 million units and fell 17% month-on-month.

The sales weakness extended into August, with the first week seeing only 375,000 passenger vehicle insurance registrations—down 8.6% year-on-year and 18.8% week-on-week. Notably, three major OEMs—BYD, Tesla China, and Li Auto—posted significant year-on-year declines. The slump is attributed to seasonality, the end of promotional discounts, and a standoff between buyers and automakers over pricing.

Key Policy: Tiered Auto Loan Subsidies Effective September 1

From 1 September, China will introduce a tiered auto loan subsidy policy to stimulate demand:

• For loans above Rmb50,000 (covering purchase, insurance, and maintenance), the state offers a 1% annual interest reduction, capped at 50% of the original rate (e.g., a 4% loan drops to 3%, saving Rmb1,000/year).
• Loans under Rmb50,000 receive full interest coverage.
• Subsidies for larger loans are capped at Rmb3,000 per borrower per institution.

This initiative is expected to benefit mid-to-low-end vehicle sales, although luxury segments will remain dependent on manufacturer financing. The program’s narrow focus and per-institution limits may dilute its impact for buyers seeking larger loans.

Company Analysis and Stock Performance

BYD Company (1211 HK) – BUY, Target HK\$142.00

• Insurance registrations for BYD fell 23.8% year-on-year and 10.7% week-on-week to 59,470 units in early August, the sixth consecutive week of negative growth.
• Cumulative registrations for 2025 reached 1.925 million units, up 7.5% year-on-year, still tracking behind the full-year domestic retail sales estimate of 4.2 million units (+15%).
• Sales weakness is due to increased competition (notably from Geely), the expiration of promotional discounts, and customers waiting for new model launches.
• BYD unveiled its 5th-gen DM-i hybrid technology in August, with 2.6L/100km fuel efficiency, and plans to launch 12 new models through 2025.
• Net profit forecasts for 2025-27 are Rmb45.35b, Rmb51.13b, and Rmb57.66b, based on sales of 5.2m, 6.0m, and 7.0m units, respectively.
• The target price implies 26x 2025F PE.

Geely Automobile (175 HK) – BUY, Target HK\$35.00

• Insurance registrations grew 33.7% year-on-year and 3.9% week-on-week to 41,700 units, supported by strong performance from Zeekr (up 12.8% week-on-week).
• Cumulative registrations stand at 1.34 million units, with a full-year estimate of 2.55 million units.
• Geely’s Galaxy A7 sedan, launched in August, is priced 9-17% below BYD’s Qin L DM-i and 30-40% below JV-branded competitors, offering superior fuel efficiency, range, and advanced features.
• Galaxy A7 bookings surpassed 10,000 orders within 30 minutes; estimated at 20,000 units/month (7-8% of Geely’s total).
• Upcoming launches include the Galaxy M9 SUV, Zeekr 8X/9X SUVs, and Lynk & Co 10 EM-P.
• Net profit forecasts for 2025-27 are Rmb16.19b, Rmb16.56b, and Rmb20.35b on sales of 3.0m, 3.6m, and 4.3m units, respectively.
• The target is set at 23x 2025F PE.

XPeng (9868 HK) – BUY, Target HK\$150.00

• Insurance registrations in early August were 7,870 units, up 363% year-on-year, driven by Mona M03 and G7 models, though down 13% week-on-week.
• Upcoming new models: Next-gen P7 sports coupe (Rmb300,000) in 3Q25 and G01 EREV SUV (Rmb250,000–300,000) in 4Q25. Over 30,000 orders for the new P7 were booked within 48 hours.
• Expected to contribute 10,000 units/month (>20% of XPeng’s total sales volume).
• 2025-27 delivery estimates are 400,000, 500,000, and 650,000 units. Forecasts include a net loss of Rmb1.59b in 2025, turning to profits of Rmb1.10b and Rmb5.27b in 2026 and 2027, respectively.

Li Auto (2015 HK) – SELL, Target HK\$85.00

• Insurance registrations crashed 52% year-on-year and 3% week-on-week to 5,320 units, the worst among EV peers.
• Model breakdown: L6/L7/L8/L9 registrations fell 60%, 60%, 67%, and 40%, respectively.
• Sales decline attributed to the shrinking EREV market (-11% year-on-year in July) and fierce competition from Aito.
• Weak response to the new i8 pure electric SUV; price cut by Rmb10,000, targeting 8,000 units delivered by end-September. Launch of the i6 pure electric SUV, with 720km range, is expected in September.
• Net profit forecasts for 2025-27 are Rmb5.26b, Rmb5.87b, and Rmb6.54b, based on deliveries of 400,000, 450,000, and 500,000 units, respectively.
• The target price implies 28x 2026F PE.

Ganfeng Lithium (1772 HK) – BUY, Target HK\$40.00 (Upgraded)

• Upgraded from HOLD to BUY following a strong lithium price rebound, spurred by CATL’s suspension of a major Jiangxi mine (46,000 tonnes LCE per annum, 3% of global output).
• This and other production cuts could reduce the expected 2025 global lithium surplus by 20%, with further reductions from global and regulatory actions.
• Lithium carbonate prices rebounded from Rmb60,000/tonne in June to over Rmb80,000/tonne, with forecasts of Rmb90,000/tonne by end-2025 and above Rmb100,000/tonne in 2026.
• 2025-27 ASP assumptions raised by 15-23%. The 2025 net loss estimate is trimmed by 61% to Rmb149m, with net profits of Rmb1.36b and Rmb2.73b projected for 2026 and 2027.
• New target price raised to HK\$40.00, implying 1.8x 2025F P/B.

CATL (300750 CH) – BUY, Target RMB 390.00

• CATL remains a top pick, benefiting from lithium price recovery and strong battery demand.
• Current price RMB 279.89, with a target of RMB 390.00, offering 39.3% upside.
• Estimated PE for 2025/2026 is 19.2x and 16.0x, respectively.

Tuopu (601689 CH) – BUY, Target RMB 80.00

• Automotive parts manufacturer Tuopu is favored for its robust growth prospects amid sector transformation.
• Stock price RMB 46.81; target RMB 80.00, implying a 70.9% upside.
• Estimated PE for 2025/2026 is 25.2x and 18.5x, respectively.

PEV and ICE Market Breakdown: August 2025 Snapshot

Relative Sector Preferences and Conclusion

• UOB Kay Hian maintains MARKET WEIGHT on China’s auto sector, with a clear order of preference: automotive parts manufacturers > OEMs > auto dealers.
• Auto parts suppliers are favored due to government anti-involution initiatives, while dealers face ongoing headwinds from electrification trends.
• Top BUYs: CATL, Geely, and Tuopu.

Lithium Market Outlook

• Supply discipline and production cuts have driven lithium carbonate prices from Rmb60,000/tonne in June to over Rmb80,000/tonne, with further increases expected as oversupply eases.
• Global lithium surplus in 2025 is now projected at less than 100,000 tonnes, with rebalancing expected in 2026 as high-cost mines exit the market.
• Demand diversification (energy storage, robotics, eVTOL) will help offset slowing EV sector growth.

Summary

Despite short-term headwinds, China’s auto sector is gearing up for a recovery in late 2025, powered by new policy support, fresh model launches, and a rebound in lithium prices. Investors should watch for opportunities among leading battery and parts suppliers, as well as agile OEMs with strong innovation pipelines. The coming months will be crucial for the sector’s transition and long-term positioning.