Global Auto Demand Diversifies, Execution Determines Outcome

Overview

This is Morgan Stanley’s Global Auto Monitor weekly observation report used to track global automotive sales and updates on covered stocks. The core judgment for this issue is that in an environment of mixed demand, operational execution has become more important than ever for automakers. The report summarizes April global automotive sales data and performance across regions and automakers, and also provides summaries of recent updates on Tesla, BYD, Li Auto, XPeng, Ferrari, CarMax, Stellantis, Toyota, and others, along with global top picks and regional industry views.

Core views

Demand Side: April global auto sales rose just 0.7% year-on-year, showing clear regional differentiation—US and China are still declining, mainly offset by strong growth in Europe, emerging markets, and Japan’s rebound. A notable structural change is that Premium car market shares globally are being overtaken by Mass market. Autonomous Driving and Intelligence: Tesla's autonomous driving is positioned as a 'rate-of-change' story—improving safety, expanding FSD usage, and climbing Austin Robotaxi fleet size lead the team to shift to a more positive outlook, building a tracking tool using standardized NHTSA data from Austin fleet. In China, BYD is viewed as entering a strategic turning point towards intelligent driving: its financial 'safety net' may accelerate city NOA activation at 3 million vehicle ownership, and through widespread hardware options across various models, it forms a powerful 'data flywheel' to train autonomous models, giving it scale advantages over peers in the mass market; its aggressive move toward self-developed chips and platforms is also noted as a highlight. New Entrants and Japanese Automakers: Li Auto defines Q126 as a 'trough quarter', aiming for over 40% YoY sales growth in the second half, management guidance indicates group gross margin above 10% in Q226, vehicle gross margin around 10%, and notes more material cost increases will be reflected in Q2, final vehicle gross margin depends on L9 delivery. XPeng expects sales to improve quarter-over-quarter to year-end, GX will drive volume starting June, and plans to launch L03, L05 SUVs among others. In Japan, Nikkei reports that Toyota will halt some EV development, the team believes the strategic direction is reasonable but asset impairment and supplier compensation risks are points of concern, with amounts potentially negatively interpreted by the market; Mitsubishi Motors views its May 29 mid-term vision event as a potential positive catalyst. Europe and Execution Risks: Ferrari launched its first-ever electric model, targeting the premium end of its existing 'range' series with a new design language but receiving mixed reactions, media and investor initial feedback leans negative, with stock falling about -8% post-launch. Stellantis conveyed clear transformation messages during its capital market day covering product, brand, cost, capacity utilization, investment, and profit margins, involving new partnerships, but the team believes its goals are ambitious with limited environmental help, focusing now on execution and delivery. North American CarMax is in a wait-and-see stance ahead of a 'early summer' strategic update, company reducing per-unit gross profit (GPU), managing operating expenses, and investing in digitalization to drive sales back to growth, team maintains 'peer level' rating, $35 target price, and considers risk-reward negative. Other Regions: In South Korea, Hankook Tire is expected to offset raw material cost pressure with upcoming tire price hikes, maintaining healthy tire margins, and with a ~5.6x P/E for 2026 expectations, the team sees risk-reward as attractive. In India, Ashok Leyland's quarterly performance met expectations, EBITDA exceeded forecasts by 4%, margin at 14.6% (down ~40 bps YoY), demand remains good but inflation headwinds need monitoring, company has raised prices by 1%-1.5% to combat commodity pressures. For Chinese OEMs overseas, BYD's April overseas registrations declined 10%-15% MoM (UK sales fell from March peak), but Latin America and Southeast Asia growth offset, YoY still up 55%-60%; Geely's overseas registrations increased 10%-15% MoM, driven by Brazil and Australia, YoY growth reaching 95%-100%. Allocation Outlook: The report recommends global top picks as General Motors, Carvana, Mercedes-Benz, Daimler Truck, and Suzuki Motors; industry view is India automotive 'attractive', while North America, Europe, China, Japan, and South Korea are all 'peer level'.

Analysis framework

Overall Theme: The report uses a framework of 'positioning in an uncertain cycle', combining macro demand tracking with bottom-up stock updates. First step is to assess total demand and structure—using global monthly sales YoY, country SAAR (seasonally adjusted annualized sales), and premium vs mass market share changes to determine where the automotive market stands in its cycle and which regions are driving momentum. Second step focuses on execution and marginal changes: in a flat demand environment, the team identifies who can execute strategies effectively as a key differentiator, thus paying special attention to signals like Tesla's FSD 'marginal improvements', BYD’s data flywheel, and Stellantis and CarMax's execution delivery, emphasizing direction and velocity (rate-of-change) rather than static levels when evaluating investment logic. Third step is horizontal valuation and relative ratings: the report uses extensive comparable company tables (P/E, EV/EBITDA, EV/Sales, P/B across multiple regions) for horizontal comparisons, adopting a relative rating system (buy/hold/sell based on analyst coverage scope, not absolute buy/sell), placing individual stocks within their respective regions and industries to gauge relative attractiveness.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply and Demand Framework

  Track automotive demand using global monthly sales YoY and country SAAR (seasonally adjusted annualized sales)

  SAAR converts single-month sales into annual rhythm and removes seasonal factors, providing a cleaner view of actual demand trends. The report analyzes country-level sales YoY and SAAR to identify which regions are driving and which are dragging the global automotive market.

• Industry/Industrial Analysis FrameworkOthers

  Breakdown of Premium vs Mass Market Share

  Splitting total sales by price tier reveals consumer structure shifts. The report points out that premium cars are losing global YoY share to mass market, signaling a demand structure moving toward greater value-for-money focus.

• Cycle and Sentiment FrameworkSentiment Turnaround Analysis

  Use 'rate-of-change' to evaluate autonomous driving and similar themes

  This method focuses on the direction and speed of improvement rather than current absolute levels. The report refers to Tesla's autonomous driving as a 'rate-of-change story,' indicating ongoing improvements in safety, FSD usage, and fleet size, which are bullish indicators themselves.

• Competition and Strategy FrameworkEconomies of scale / learning curve

  Data Flywheel and Scale Advantage

  The larger the ownership base and the more real-world data collected, the better the autonomous models are trained, which in turn drives more sales, forming a self-reinforcing 'flywheel.' The report uses this to explain how BYD leverages 3 million vehicle ownership to roll out smart driving hardware, giving it scale advantage over mass market peers.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Chain Transmission

  Cost Inflation Price Pass-through (Price Hikes to Offset Raw Material Pressure)

  When upstream raw materials rise, whether companies can pass costs to downstream via pricing becomes critical for maintaining margins. The report concludes that Hankook Tire’s price hikes can offset input cost pressures, maintaining healthy margins; Ashok Leyland has already raised prices by 1%-1.5% to counter commodity headwinds.

• Valuation methodsEV/EBITDA valuation

  Horizontal Comparison of Valuations Across Regions

  The report compares companies across regions using multiples such as P/E, EV/EBITDA, EV/Sales, and P/B, enabling judgments on whether individual stocks are relatively expensive or cheap compared to peers, combined with target prices and ratings.

• Quantitative/Factor/Portfolio TheoryOthers

  Relative Rating System (Buy/Hold/Sell)

  Morgan Stanley’s ratings are not absolute buy/sell but relative to expected returns over 12–18 months within the analysts’ coverage scope; industry views (attractive/peer level/cautious) are relative to regional benchmark indices. Understanding this is key to interpreting the report's ratings correctly.

Asset mapping & comparison

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

• Tesla (TSLA)

  Benefiting from 'marginal improvement' theme in autonomous driving: safety improvements, expanded FSD use, Austin Robotaxi fleet scaling supporting more positive outlook

  Strengths

  Autonomous progress shows continuous directional improvement, team built an Austin fleet NHTSA data tracking tool

  Weaknesses

  Started slow in early year

• BYD (002594.SZ/1211.HK)

  Benefiting from strategic shift toward intelligent driving: financial safety net accelerating city NOA activation, data flywheel forming scale advantages, self-developed chip and platform

  Strengths

  3 million vehicle ownership + widespread hardware options form data flywheel, scale advantage over mass market peers; aggressive move toward self-developed chip platform

  Comparison

  Scale advantage over mass market peers

  Risks

  April overseas registrations declined 10%–15% (UK sales normalized decline)

• Li Auto (LI/2015.HK)

  Set Q126 as trough quarter, targeting YoY sales growth >40% in second half

  Strengths

  Management guidance: group gross margin >10% in Q226, vehicle gross margin ~10%

  Weaknesses

  More material cost increases reflected in Q2, i6 proportion increasing

  Risks

  Final vehicle gross margin depends on L9 delivery

• XPeng (XPEV/9868.HK)

  Growth logic of improving sales quarter-over-quarter to year-end

  Strengths

  GX to drive volume starting June, plans to launch L03, L05 SUVs to support quarterly growth

• Ferrari (RACE)

  Event-driven stock due to first electric model launch

  Strengths

  First EV model targets premium end of current range series, introducing new design language

  Weaknesses

  New design language receives mixed reactions, media and investors initially lean negative

  Risks

  Stock dropped ~-8% post-launch

• CarMax (KMX)

  Wait-and-see stock awaiting early summer strategic update

  Strengths

  Reducing GPU, managing opex, investing in digitization to push sales back to growth, possesses experience and brand recognition

  Weaknesses

  In wait-and-see/holding pattern status

  Risks

  Maintains 'peer level' rating, $35 target, risk-reward bias negative

• Stellantis (STLA)

  Transformation story from capital market day, focus shifts to execution

  Strengths

  Clear transformation message covers products, brands, cost, capacity utilization, investments, and profit margins, including new partnerships

  Weaknesses

  Goals are quite ambitious

  Risks

  Limited environmental help, execution and delivery are key risk factors

• Toyota Motor (7203)

  Event-driven stock due to Nikkei report on halting some EV development

  Strengths

  Strategic direction considered reasonable by team

  Risks

  Asset impairment and supplier compensation risks, potentially negatively interpreted by market depending on amount

• Hankook Tire (161390.KS)

  Logic of price hikes offsetting input cost pressure

  Strengths

  Expected tire price hikes to offset raw material cost increases, maintain healthy margins; ~5.6x 2026 expected P/E, risk-reward attractive

  Weaknesses

  Market initially concerned about input cost headwinds pressuring 2H26 earnings

  Risks

  Input cost headwinds

• Ashok Leyland (ASOK.NS)

  Quarterly performance meets expectations but inflation headwinds keep EW

  Strengths

  EBITDA exceeds estimate by 4%, margin at 14.6%; demand remains good; Switch mobile business turns profitable, starts battery pack manufacturing

  Weaknesses

  Margin down ~40 bps YoY; commodity headwinds unquantified

  Risks

  Need to monitor commodity/inflation headwinds

• Global Top Picks (General Motors, Carvana, Mercedes-Benz, Daimler Truck, Suzuki)

  Preferred stocks selected from major regions

  Comparison

  Top picks across major regions

Key data

• April Global Auto Sales+0.7% YoYUS and China still declining, supported by strong growth in Europe, emerging markets, and Japan's recovery
• Ferrari Stock PriceAbout -8%Post-launch stock performance at time of writing, reflecting negative market feedback
• BYD April Overseas Registrations-10%~-15% MoM, +55%~60% YoYUK sales dropped from March peak (5k vs 15k), offset by Latin America (~+2.5k) and Southeast Asia (~+1k)
• Geely April Overseas Registrations+10%~15% MoM, +95%~100% YoYDriven by Brazil (~+2.5k) and Australia (~+1k)
• Hankook Tire Valuation5.6x 2026 Expected P/ETeam considers risk-reward attractive
• Ashok Leyland Quarterly MarginEBITDA Margin 14.6% (YoY -40bps)EBITDA exceeds estimates by 4%, price increase of 1%–1.5% applied to combat commodity headwinds
• Li Auto Q226 GuidanceGroup Gross Margin >10%, Vehicle Gross Margin ~10%More material cost increases reflected in Q2, final vehicle gross margin depends on L9 delivery; target sales YoY +40%+ in second half
• Carmax Rating and Target PriceMaintains 'peer level', $35 TargetRisk-reward bias is negative

Impact & implications

The report suggests that in a flat demand and regionally differentiated cycle, automaker divergence will be driven by execution: companies that deliver on autonomous driving/intelligence (Tesla, BYD), overseas expansion (BYD, Geely), and cost pass-through (Hankook Tire, Ashok Leyland) are preferred, while those with uncertain execution (Carmax, Stellantis) are treated more cautiously. Structurally, the premium market share being eroded by the mass market indicates demand is shifting toward value-for-money. In terms of allocation, the team’s global top picks are General Motors, Carvana, Mercedes-Benz, Daimler Truck, and Suzuki, with a particular emphasis on India automotive ('attractive'), and other major markets maintained at 'peer level'. All these are the report’s own judgments and insights.

Risks

• If Nikkei report is accurate, asset impairments and supplier compensation related to Toyota’s partial EV development termination could be negatively interpreted by the market depending on the amount
• Carmax risk-reward is negative, in wait-and-see phase before strategic update
• Stellantis goals are ambitious with limited environmental support, execution and delivery uncertainty
• Commodity/raw material and input cost inflation poses headwind to margins for component and tire companies (Ashok Leyland, Hankook Tire)
• Q126 supply chain faces weak output, inventory/commodity inflation, and macro uncertainty
• Premium car market share globally overtaken by mass market

What to watch

• Carmax 'early summer'/June strategic update
• Mitsubishi Motors May 29 mid-term vision event (potential catalyst)
• Tesla Austin Robotaxi fleet NHTSA safety data (team built tracking tool)
• Stellantis capital market day objectives and follow-through execution
• Ashok Leyland commodity/inflation headwinds
• Chinese OEM overseas registrations and export sales MoM/YoY changes