Damo: Chinese car companies' second-quarter results were broadly in line with expectations, optimistic about BYD shares (01211) and Geely (00175)
The Zhitong Finance App learned that Morgan Stanley released a research report saying that companies that prefer export scale, rich products, overseas exposure growth and average sales price support are optimistic about BYD shares (01211) and Geely Auto (00175) due to their size, layout and product cycle; the fundamentals of SAIC Motor Group (600104.SH) are improving, and Rantu Auto (07489) is showing resilience. In the field of electric vehicles, the bank believes that Xiaopeng Group-W (09868) and NIO - SW (09866) have tactical upside.
Chinese car companies announced second-quarter results that were broadly in line with expectations, and the results covered up widening differentiation, so the bank was priced at market value. BYD and Geely benefited from overseas portfolios and operating expenditure discipline; electric vehicle startups guided weak sales in the third quarter, and joint ventures dragged down traditional OEM manufacturers; under weak domestic demand, capturing export growth became the key.
According to the report, mainland car companies' second-quarter results were in line with expectations, but quality was divided. The profit of BYD and Geely increased 30% to 40% year over year due to improved gross margin and operating expenses discipline absorbing exchange losses. Electric vehicle startups narrowed losses due to improved profit margins, but sales weakened, while joint venture foundries faced the double impact of declining scale and loss of exchange/fair value. Electric vertical take-off vehicle company Ehang Intelligence (EH.US) saw a quarterly recovery in revenue/delivery, although the withdrawal of its revenue guidance highlighted potential commercialization risks.
Damo believes that the next step in determining the share is the release of new cars, not demand. Ahead of any convincing recovery in demand, the third season had an unusually intense lineup of new car releases. The bank is observing whether more aggressive promotions from founders/channels can lock in orders before the October Golden Week and anchor the seasonal recovery in the fourth quarter.
Overseas growth is still strong, but the strategy is shifting from export to localization. Rising tariff barriers, including 35% in Brazil and 50% in Mexico, plus potential EU tariffs on plug-in hybrid vehicles, local content rules, and a possible reduction in China's 13% VAT rebate on exports, are increasing the urgency of local production, although profit margins will be diluted in the medium term.
Damo said the debate is turning to 2027. The bank's model predicts that China's passenger car wholesale volume will be roughly flat at 28.9 million units in 2027, as weak domestic demand offsets strong exports (NEV exports nearly doubled). Exports are a buffer, not an antidote. They are reconfiguring rather than solving overcapacity, and they are widening the gap between large-scale exporters (which can drive up average overseas sales prices) and focus on domestic gasoline vehicle production capacity (facing utilization risk).
The bank reflected more conservative sales for the second half of 2026/2027, resilient gross profit margins, higher artificial/autonomous driving operating expenses that are still subject to discipline, and greater exchange headwinds, and a strong revaluation of overseas revenue and accounts receivable due to the strengthening of the RMB. The bank lowered sales forecasts for most foundries to reflect the weakening of domestic sales from the beginning of the year, partially offset by resilient overseas demand. The bank believes that overseas exposure is an increasingly important profit differentiator, supporting not only scale, but also average sales price and gross profit margin.