Domestic Auto Market Recovery Remains Out of Reach, with Exports Providing the Main Buffer

Overview

Bernstein believes China’s auto market still lacks momentum for a near-term recovery. Demand pull-forward from 2024–2025 subsidies, a high comparison base, higher purchase taxes, macro pressures, and weak consumer sentiment are jointly depressing domestic retail sales. Exports continue to grow rapidly and are a key source of cushioning industry volume pressure, but are insufficient to fully alter the landscape of domestic competition and profitability pressure.

Core views

Domestic demand is unlikely to improve meaningfully before base effects normalize in November–December, and the government has limited room to introduce further powerful stimulus. The long-term EV penetration trend remains intact, but domestic EV sales growth in 2026 is expected to be only approximately 1% to 3%, with market competition remaining intense. Improvements in BEV range, charging convenience, and price competitiveness are eroding PHEVs’ relative value; the importance of overseas markets continues to rise.

Analysis framework

The report uses China’s compulsory first-time insurance registrations to measure retail end-market sales, combined with seasonally adjusted annualized sales, wholesale-retail gaps, channel inventories, end-market prices, export composition, and credit impulse to assess industry conditions, demand, and the competitive landscape.

Methodology notes

• Industry TrackingCompulsory First-Time Insurance Registration Retail Tracking

  End-Market Retail Penetration

  Uses compulsory first-time auto insurance registrations as a proxy for retail sales, aiming to more accurately reflect actual end-market deliveries.

• Demand AnalysisSeasonally Adjusted Annualized Sales

  Normalized Demand Comparison

  Adjusts for historical monthly seasonality and the timing of the Lunar New Year, converts monthly retail volumes into annualized scale, and compares them with normalized annual demand estimates.

• Inventory AnalysisWholesale-Retail Gap and Channel Inventory

  Destocking or Restocking

  Compares domestic wholesale and retail sales to identify changes in industry and EV channel inventories.

• Macro AnalysisCredit Impulse

  Credit Availability and Auto Demand

  The report notes that auto demand has a historical correlation of approximately 0.6 with credit availability, and therefore uses the credit impulse as a leading indicator for monitoring demand.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BYD

  China New Energy Vehicle Leader

  Strengths

  July China EV sales were 221,000 units, representing a 23.9% share; demand for fast-charging models was strong, deliveries are expected to accelerate after battery supply constraints ease, and exports rose 122% YoY.

  Weaknesses

  July retail sales fell 19% YoY; weak domestic demand and price competition remain pressures, while channel inventory is relatively high.

  Comparison

  Ranks first in China EV market share, ahead of Geely and Leapmotor.

  Risks

  Domestic price wars, sales volatility following demand pull-forward, channel inventory, and overseas-market uncertainty.

• Xiaomi

  New Energy Vehicle Participant

  Strengths

  The new SU7 continues to be delivered, with July sales up 3% YoY; rated Outperform.

  Weaknesses

  Growth is limited in a weak domestic market, and scale remains below leading automakers.

  Comparison

  July EV sales were approximately 31,000 units, with market share of approximately 3.4%.

  Risks

  Product-cycle sustainability, intensifying competition, and weak domestic demand.

• Geely

  Chinese Automaker and New Energy Vehicle Participant

  Strengths

  Rated Outperform; July EV sales were 106,000 units with an 11.4% share, while exports totaled 106,000 units and rose 201% YoY.

  Weaknesses

  Excluding Zeekr, July retail sales fell 25% YoY.

  Comparison

  Ranks second in China EV sales, behind only BYD.

  Risks

  Weak domestic demand, price competition, and changes in brand mix.

• XPeng

  Chinese Battery Electric Vehicle Manufacturer

  Strengths

  Has an EV product lineup.

  Weaknesses

  The report does not provide its July YoY growth rate; rated Market-Perform amid an intensely competitive environment.

  Comparison

  July EV sales were approximately 26,000 units, with market share of approximately 2.8%.

  Risks

  Intensifying competition, slow demand recovery, and profitability pressure.

• Li Auto

  Chinese New Energy Vehicle Manufacturer

  Strengths

  Has an EV product lineup.

  Weaknesses

  The report does not provide its July YoY growth rate; rated Market-Perform amid an intensely competitive environment.

  Comparison

  July EV sales were approximately 30,000 units, with market share of approximately 3.3%.

  Risks

  Weakening PHEV demand, price competition, and weak domestic demand.

• NIO

  Chinese Battery Electric Vehicle Manufacturer

  Strengths

  Supported by a strong product cycle and a low comparison base, July retail sales rose 74% YoY.

  Weaknesses

  Scale remains small relative to leading automakers; rated Market-Perform.

  Comparison

  July EV sales were approximately 21,000 units, with market share of approximately 2.3%.

  Risks

  Intense competition, changes in the product cycle, and profitability pressure.

Key data

• July Passenger-Vehicle Retail Sales1.48 million units, -20.6% YoYThe second-weakest July performance in the past 11 years.
• July Annualized Retail Volume20.8 million unitsSlightly above June’s 20.7 million units, but below the estimated normalized demand of approximately 22 million units.
• July EV Penetration62.3%BEVs accounted for 42.5% and PHEVs for 19.8%.
• July EV Sales900,000 units, -6.1% YoYBEVs were +2.1% YoY and PHEVs were -19.9% YoY.
• July Passenger-Vehicle Exports+84.6% YoYICE was +32% YoY, EVs were +151% YoY, and exports accounted for 41% of passenger-vehicle wholesale sales.
• July Channel Inventory ChangeIndustry net destocking of 112,000 units; EV restocking of 83,000 unitsIndustry destocking was below June’s 178,000 units.
• July Credit Impulse21.2%Below 22.2% a year earlier; the 12-month change was -3.7%.
• 2026 Industry ForecastWholesale sales of 29 million to 30 million units, flat to -3% YoYDomestic retail sales are expected at 20 million to 21 million units, -11% to -13% YoY; exports are expected at 8.5 million to 9 million units, +40% to +50% YoY.

Impact & implications

Industry allocation should place greater emphasis on export capability, product cycles, and BEV competitiveness rather than expecting a rapid rebound in near-term domestic volume. Strong export growth can support Chinese automakers with overseas channels and competitive product offerings; however, domestic price competition, inventory disparities, weakening PHEV demand, and cost inflation may still erode profitability.

Risks

• The phaseout of subsidies and higher EV purchase taxes could further suppress end-market demand.
• Consumers may wait for deeper discounts or policy support, delaying demand recovery.
• Materials cost inflation, price wars, and expanding discounts may compress vehicle profit margins.
• Continued weakening in PHEV demand could affect relevant product mix and company sales.
• A weakening credit impulse may continue to weigh on auto demand.
• Export growth faces risks from overseas demand, trade policy, and changes in competition.

What to watch

• Whether domestic retail sales improve after base effects normalize in November–December.
• Whether new demand stimulus or promotional policies are introduced.
• Changes in BEV and PHEV sales growth and penetration mix.
• Export growth, the share of EVs in exports, and overseas deliveries by major automakers.
• Whether end-market discounts, channel inventories, and wholesale-retail gaps deteriorate further.
• Changes in credit impulse, auto loan issuance, and consumer purchase willingness.