Domestic Car Market Under Pressure, Exports Shine, Auto Manufacturers Diverge

Overview

This report reviews the first-quarter 2026 results and updates earnings forecasts and target prices for leading Chinese auto manufacturers Xiaomi, Geely, Great Wall, SAIC Motor, and GAC Group. Despite challenges in the domestic market with a 7.5% YoY drop in wholesale sales, robust export growth (+63.5%) provides critical support. In this context, automaker performances are diverging. The report maintains 'outperform' ratings for Xiaomi and Geely while keeping 'market perform' ratings for Great Wall, SAIC Motor, and GAC Group, though it generally lowers earnings forecasts and targets.

Core views

Q1 2026 saw weak domestic demand in China's automotive market, with a 7.5% YoY decline in wholesale sales, primarily due to high base effects, subsidy withdrawals, and pre-buying factors. Specifically, in new energy vehicles, sales plunged 27% YoY owing to subsidy reductions and a 5% purchase tax hike. However, exports performed exceptionally well, growing 63.5%, becoming a significant industry growth driver. Automakers with stronger overseas footprints outperformed peers but face pressure from RMB appreciation causing forex losses. Specifically, Xiaomi reported expected declines in Q1 revenue and profit, mainly due to high IoT business base, subsidy withdrawals, and underwhelming EV deliveries despite good smartphone and IoT margin performance. Geely beat expectations thanks to strong Lynk & Co brand performance and higher international sales penetration, though forex losses dampened net profits. Great Wall’s revenue rose but net profit plummeted 46% YoY, heavily impacted by forex fluctuations, and its export market dominated by ICE vehicles faces oil price hikes and geopolitical risks. SAIC Motor showed slight income drop, but core net profit fell 3% as profitability gains were lacking and local brands underperformed. GAC Group’s Q1 performance was roughly flat, showing early signs of stabilization without a decisive turnaround. For full-year 2026, the report projects industry wholesale sales will fall 4-8%, retail demand drop 5-9%, but exports could grow 10-20%. Long-term, NEV penetration is expected at 61%. In the fiercely competitive domestic market, overseas expansion remains a pivotal strategic opportunity.

Analysis framework

The report first analyzes the macro environment of China’s auto market in Q1 2026, highlighting the dichotomy between weak domestic demand and strong export growth. It then delves into individual stocks, evaluating Xiaomi, Geely, Great Wall, SAIC Motor, and GAC Group on revenue, profit, gross margin, and sales volume (domestic and overseas). External factors like subsidies, purchase taxes, and exchange rate fluctuations are emphasized. Finally, based on fundamental assessments, the report revises EPS forecasts, P/E multiples, sets target prices, and derives investment ratings.

Methodology notes

• Valuation MethodP/E Valuation

  Price-to-Earnings (P/E) Valuation

  Geely, Great Wall, and SAIC Motor use one-year forward P/E ratios for valuation—10x for Geely’s 2027 forecast, 8x for Great Wall, 14x for SAIC Motor. This method compares current stock price to future earnings per share to assess relative value.

• Valuation MethodSOTP Segmental Valuation

  Segmental Sum-of-the-Parts (SOTP) Valuation

  Xiaomi uses SOTP, independently valuing smartphones/IoT, internet services, and EV divisions before summing them up. Suitable for diversified firms, it better reflects each segment’s value contribution.

• Valuation MethodDCF Cash Flow Discounting

  Discounted Cash Flow (DCF) Valuation

  A DCF model values Xiaomi’s EV division using predicted free cash flows discounted at 12% WACC. It estimates intrinsic value by bringing future cash flows to present value.

• Industry/Industrial Analysis FrameworkVolume-Price Splitting

  Volume-Price Split Analysis

  Revenue changes are analyzed by splitting volume and price effects. For instance, Great Wall’s revenue growth stems from unit volume increases and higher average selling prices, while Xiaomi’s phone revenue drops involve both shipment and ASP shifts. This clarifies underlying drivers of revenue change.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Supply-Demand Framework Analysis

  The core analytical framework is supply-demand. Analyzing China’s auto sector, demand weakness contrasts with supply relying on exports. Firms adapt by expanding exports to offset domestic shortfalls.

Asset mapping & comparison

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

• Xiaomi (1810.HK)

  Maintain outperform rating but lower target price. Benefits from premiumization, overseas expansion, and EV progress but constrained short-term by memory costs and subsidies.

  Strengths

  Better-than-expected smartphone and IoT margin performance, strong SU7 preorder volumes, rapid overseas business growth.

  Weaknesses

  Expected Q1 revenue and profit declines, EV deliveries pressured by production transitions, weaker YU7 momentum.

  Comparison

  Competes with BYD, NIO, LI Auto in EV space.

  Risks

  Underperformance in hardware sales, failure in premiumization, quality issues, soft consumer demand

• Geely (175.HK)

  Maintain outperform rating, raised target price. Benefiting from Lynk & Co brand strength and export-led margin expansion.

  Strengths

  Significant growth and ASP improvement in Lynk & Co sales, fast export growth, optimized product mix driving improved gross margins.

  Weaknesses

  Weak domestic demand may hinder full-year sales guidance achievement, forex losses impacting net profits.

  Comparison

  Outperforms other traditional Chinese automakers.

  Risks

  Continued weak domestic demand, execution delays in new vehicle launches

• Great Wall (2333.HK)

  Maintain market perform rating, reduced target price. Dragged down by forex losses and fuel-centric export risks.

  Strengths

  Overseas sales growth, market diversification (e.g., increased Latin American contributions), improved margins due to higher offshore sales ratio.

  Weaknesses

  Net profit down 46% YoY, lagging NEV transition, declining EV sales share.

  Comparison

  Competes with Geely, SAIC Motor, GAC Group among traditional Chinese automakers.

  Risks

  Slowing overseas demand, delayed new vehicle launches, oil price hikes impacting ICE demand, Middle East geopolitical tensions

• SAIC Motor (600104.CH)

  Maintain market perform rating, reduced target price. Domestic operations strained, local brands lack traction, reliance on foreign markets for support.

  Strengths

  Overseas sales are critical for profitability and marginal improvements, now accounting for 33.4%.

  Weaknesses

  Core net profit declined, local brands (e.g., Flyme, IM Motors) far below expectations, joint ventures (e.g., SAIC Volkswagen) still under pressure.

  Comparison

  Competes with Geely, Great Wall, GAC Group among traditional Chinese automakers.

  Risks

  Accelerating loss of joint venture market shares, slower than expected local brand ramp-up

• GAC Group (2238.HK)

  Maintain market perform rating, unchanged target price. Performance shows initial stability but no decisive reversal yet.

  Strengths

  Local brands (Chuanqi, Enyan) sales up YoY, fast-growing overseas sales, offshore ratio up to 14.3%.

  Weaknesses

  Overall performance still in the red, local brand retail share recovery but wholesale exceeds retail, channel inventory rising.

  Comparison

  Competes with Geely, Great Wall, SAIC Motor among traditional Chinese automakers.

  Risks

  Toyota and Honda’s accelerating market share loss in China, Enyan brand’s slow ramp-up

Key data

• China Auto Wholesale Sales YoY Q1-7.5%Primarily affected by weak domestic demand
• China Auto Export Sales YoY Q1+63.5%Key supportive factor for the industry
• China EV Sales YoY Q1-27%Impacted by subsidy reduction and purchase tax increase
• Geely 2026 Target PriceHK$25.00Increased target price maintained outperform rating
• Xiaomi 2026 Target PriceHK$43.00Reduced target price maintained outperform rating

Impact & implications

The report posits that given weak domestic growth, exports have become the defining factor for automaker performance. Companies with robust overseas channels and product competitiveness (like Geely) exhibit greater resilience. Investors should focus on those making tangible progress in global expansion. Meanwhile, multiple risks persist: ongoing weak consumer sentiment domestically, inflation-driven raw material cost pressures, RMB volatility causing forex losses, intensified competition within the industry, and specific risks for firms reliant on ICE exports such as Great Wall facing oil price swings and regional geopolitics. Additionally, sluggish NEV transitions pose technology adoption risks.

Risks

• Softening domestic consumption, persistent macroeconomic and consumer sentiment downturn.
• Raw material cost inflation adding cost pressure.
• RMB exchange rate volatility leading to forex losses affecting net profit.
• Intensified market competition increasing price war risks.
• Great Wall-type exporters dependent on ICE face oil price hikes and geopolitical risks.
• Slower-than-expected NEV transitions and technological shifts.

What to watch

• Recovery of domestic auto retail demand.
• Monthly export data for major automakers.
• Delivery volumes and market feedback for new models like Xiaomi SU7 and YU7.
• Market performance of Geely’s Lynk & Co brand and i-HEV technology.
• New model launches and market acceptance by local brands of Great Wall, SAIC Motor, and GAC Group.