China auto OEMs 1Q26 preview: overseas and premium mix support profitability, while 2Q sales recovery becomes the key validation point

Overview

This report is Morgan Stanley's preview of China auto OEMs' 1Q26 earnings, focusing on BYD Company Limited, Geely Automobile Holdings, and Great Wall Motor Company Limited. The report believes that although the weaker market at the start of the year pressured sales and capacity utilization, overseas sales, premium model mix, and expense control may still help some automakers offset cost pressure. In addition to 1Q earnings, investors will also closely watch the sustainability of 2Q new model launches, overseas expansion, cost declines, and domestic demand recovery.

Core views

The core view is that 1Q26 earnings are unlikely to be a broad beat, but rather will reflect divergence among companies. BYD's higher overseas mix and ASP improvement help support gross profit, but the sharp QoQ drop in sales leads to profit contraction; Geely, driven by higher overseas sales and ZEEKR mix, is expected to report net profit in the middle of the raised market expectation range; GWM, supported by overseas mix and Russia-related tax rebates, is expected to see a clear QoQ recovery in 1Q earnings. Bulls may view 1Q as the earnings trough, while bears may believe a mild 2Q recovery is still insufficient to support full-year consensus expectations.

Analysis framework

The report uses an earnings preview approach, deriving 1Q profitability from dimensions such as shipment volume, overseas sales mix, product mix, ASP, gross margin, expense ratio, FX gains/losses, and tax rebates. The valuation and risk sections use frameworks such as DCF, SOTP, P/E multiples, and weighted bull/base/bear scenarios, combined with judgments on NEV penetration, overseas expansion, price competition, and protectionism risks.

Methodology notes

• Valuation methodDCF

  Base-case DCF

  Geely-related valuation disclosure uses base-case DCF, assuming WACC of 11.2% and terminal growth rate of 3%; GWM-related valuation disclosure also uses base-case DCF, with WACC of 11.5% and terminal growth rate of 3%.

• Valuation methodSOTP / scenario-weighted valuation

  BYD bull/base/bear weighted scenario

  BYD valuation disclosure uses a blended approach of 25% bull case, 50% base case, and 25% bear case; the bull case uses SOTP and implies 30x 2026E bull-case P/E, the base case uses DCF, and the bear case uses 12x 2026E P/E.

• Earnings preview frameworkUnit profit and mix analysis

  Breakdown of sales volume, ASP, gross margin, expense ratio, and FX impact

  The report uses quarterly shipment volume, overseas sales mix, premium or NEV model mix, ASP changes, gross margin, expense ratio, FX losses, and tax rebates to assess whether 1Q26 earnings will deviate from market expectations.

Asset mapping & comparison

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

• BYD Company Limited (1211.HK)

  Core covered name; 1Q26 earnings expected to be in line with expectations

  Strengths

  Significantly higher overseas sales mix, ASP expansion, and QoQ gross margin improvement, with BYDE contributing about Rmb0.4bn profit.

  Weaknesses

  1Q shipments declined clearly both QoQ and YoY, domestic demand is weak, and upgrades for models below Rmb150k as well as progress in intelligent driving still need validation.

  Comparison

  Compared with Geely and GWM, BYD saw the most obvious improvement in overseas mix, but also a relatively large decline in sales volume.

  Risks

  Domestic NEV demand weaker than expected, overseas expansion affected by protectionism, gross margin below expectations, and intensifying price competition.

• Geely Automobile Holdings (0175.HK)

  Core covered name; 1Q26 net profit expected to land in the middle of the Rmb4-5bn expectation range

  Strengths

  Higher overseas sales mix and ZEEKR mix, about 11% QoQ ASP expansion, and improved unit net profit.

  Weaknesses

  The share price has risen 36% while HSI is up 1%, so the market needs new catalysts; FX losses may drag reported profit.

  Comparison

  Geely's shipments still grew 1% YoY, making its sales performance relatively resilient among the three companies, while earnings improvement relies on mix upgrades and lower expenses.

  Risks

  Slower domestic demand, wider losses in the NEV business, slower overseas sales due to competition and protectionism, and larger FX losses.

• Great Wall Motor Company Limited (2333.HK)

  Core covered name; 1Q26 earnings expected to recover QoQ

  Strengths

  Overseas sales mix rose to 48%, Russia-related tax rebates may support profit, and new SUVs plus the model pipeline may support 1H sales.

  Weaknesses

  Shipments and revenue both declined about 33% QoQ, domestic demand is under pressure, and part of the profit depends on the timing of tax rebates.

  Comparison

  GWM's unit profit is expected to rise from Rmb3.1k in 4Q to Rmb7.5-8k, showing notable QoQ improvement, but earnings quality is more affected by one-off or deferred factors.

  Risks

  2026 earnings below expectations, deterioration in China SUV demand, intensified competition constraining margin expansion, and weaker-than-expected ramp-up of new SUVs.

Key data

• Industry viewAsia Pacific Industry View: In-LineThe report page shows the China autos & shared mobility industry view as In-Line.
• BYD 1Q26 shipmentsabout 700k units, QoQ -48%, YoY -30%Overseas sales mix rose to 47%, versus 26% in 4Q25; premium brand mix was stable QoQ at 12%.
• BYD 1Q26 revenue and gross marginrevenue about Rmb134bn; excluding BYDE about Rmb103bn; GPM about 18.4%Revenue is expected to decline 44% QoQ, but the higher overseas mix brings high-single-digit ASP expansion QoQ, and gross margin is expected to improve by 1ppt QoQ.
• BYD 1Q26 net profitabout Rmb4.6bnExcluding BYDE, unit net profit is about Rmb6.3k, lower than 4Q's Rmb6.8k; including about Rmb0.4bn profit contribution from BYDE.
• Geely 1Q26 shipmentsabout 709k units, QoQ -17%, YoY +1%Overseas sales mix was 29%, above 15% in 4Q25; ZEEKR sales mix increased 2ppts QoQ to 11%.
• Geely 1Q26 revenue and gross marginrevenue about Rmb98bn, QoQ -8%; GM about 17.0%Improved product mix drove about 11% QoQ ASP growth, but the report assumes several hundred million renminbi of FX losses.
• Geely 1Q26 net profitabout Rmb4.3bnAbove 4Q's Rmb3.7bn; unit net profit about Rmb6.1k, above 4Q's Rmb4.4k.
• GWM 1Q26 shipmentsabout 269k units, QoQ -33%Overseas sales mix rose to 48%, above 43% in 4Q25, while domestic demand remained under pressure.
• GWM 1Q26 revenue and gross marginrevenue about Rmb46bn, QoQ -33%; gross margin 17%+The report expects ASP to be flat QoQ, with overseas mix helping offset scale and raw material cost impacts.
• GWM 1Q26 net profitabout Rmb2.0-2.1bn, QoQ +66%Unit profit about Rmb7.5-8k, above 4Q's Rmb3.1k; Russia sales-related tax rebates are a key variable.

Impact & implications

In terms of investment implications, 1Q26 earnings themselves may not become a one-way catalyst; the key lies in management guidance on 2Q sales recovery, the new model cycle, overseas expansion, and cost declines. If overseas sales and premium model mix continue to improve, the profit bottom may be confirmed; but if the 2Q recovery is mild, domestic price competition intensifies, or FX losses widen, full-year consensus earnings expectations still face downside revision risk.

Risks

• Domestic auto and NEV demand slows more than expected.
• Intensified price competition leads to gross margin and unit profit below expectations.
• Overseas expansion is affected by competition, protectionism, or trade barriers.
• Rising raw material costs and lower capacity utilization weaken scale effects.
• FX losses drag on profit, especially for automakers with rising overseas revenue mix.
• There is uncertainty around GWM's Russia-related tax rebates.
• New model launches, rollout of intelligent driving features, and SUV ramp-up fall short of expectations.

What to watch

• Whether 2Q26 sales will see a clear recovery as guided by management.
• Whether market sentiment will inflect around auto shows in Beijing/Shanghai and elsewhere.
• BYD's upgrades for models below Rmb150k, post-intelligent-driving-day order conversion, and progress toward overseas targets.
• Geely's overseas sales, ZEEKR 8x, and changes in vehicle gross margin.
• GWM's new SUV pipeline, WEY hybrid model transition, and the confirmation pace of Russia tax rebates.
• Whether a higher overseas sales mix can continue to offset domestic price competition and cost pressure.
• Expense ratio control, the proportion of R&D capitalization, and changes in FX gains/losses.