Nomura lowers China auto and EV forecasts, seeing 2026 as a year of industry transition

Overview

This report covers China’s auto, EV, battery and lithium materials supply chains. Nomura believes the weak start to 2026 signals that the China auto industry has entered a transition phase: domestic demand has cooled notably due to anti-involution measures, the phase-out of purchase tax incentives, tighter subsidy policies and a shift in pricing strategy, but export growth, higher EV penetration, technology upgrades and battery installation growth still provide structural support.

Core views

The key view is that the domestic market is under short-term pressure, and the industry’s growth logic is shifting from volume expansion to quality and experience upgrades. Nomura cut FY26-27F passenger vehicle wholesale and retail forecasts while lifting export forecasts, arguing that overseas expansion has become an important growth engine for Chinese automakers. EVs in China continue to outperform ICE vehicles, supported by larger batteries, fast charging, intelligent driving and better cockpit experiences. BYD is designated the top OEM pick thanks to overseas expansion and its new model pipeline, while CATL and BYD continue to dominate domestic battery installations.

Analysis framework

The report uses monthly industry sales, retail, wholesale, inventory, exports, automaker share, battery production/shipment/installations and lithium price data to make top-down forecast revisions, and combines policy changes, subsidy structure, anti-involution trends, oil prices, overseas demand and technology upgrades to judge the industry cycle and beneficiaries.

Methodology notes

• Industry forecastSales and penetration forecast revisions

  Adjust FY26-27F passenger vehicle and EV sales forecasts based on 4M26 domestic demand, exports and policy changes.

  Nomura separates weak domestic demand from strong export growth by cutting China passenger vehicle wholesale, retail and local EV sales forecasts, while raising export volume forecasts and re-estimating EV penetration.

• Valuation methodSOTP valuation

  Sum-of-the-parts valuation

  In the BYD section, the HKD127.00 target price is based on SOTP valuation: the auto and related products business uses the FY26F P/E multiple, while BYD Electronics uses the FY26E P/E multiple.

• Industry cycle viewQuality growth transition framework

  Shift from price competition to product and experience upgrades

  The report argues that subsidies and anti-involution policies reduce the appeal of low-priced models, and that automaker competition is shifting toward range, efficiency, fast charging, intelligent driving and in-cabin experience.

Asset mapping & comparison

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

• BYD (1211 HK)

  Top OEM pick and one of the leaders in battery installations

  Strengths

  Strong overseas expansion, a rich new model pipeline, ultra-fast charging capability and Blade Battery 2.0 could drive sales improvement in 2H26.

  Weaknesses

  April retail sales were 182.0k units, down 32.3% y-y; EV retail share was 21.4%, down 8.3 percentage points y-y; 4M26 share loss was also significant.

  Comparison

  The report still views BYD as the EV leader, but policy changes have put more pressure on share, especially for low-priced models, compared with peers.

  Risks

  Intensifying competition, overseas expansion slower than expected, and technology upgrades contributing less demand support than expected.

• CATL (300750 CH)

  Core leader in the battery supply chain

  Strengths

  Together with BYD, it dominates domestic EV battery installations and benefits from resilient installation volumes and commercial EV battery demand.

  Weaknesses

  Battery shipments declined m-m, and the production/shipment ratio rose to 112%, indicating inventory accumulation pressure.

  Comparison

  It remains a leader in the domestic battery installation landscape, with a relatively stable industry structure.

  Risks

  Raw material price increases stronger than expected, slower-than-expected shipments to global OEMs, and heightened competition in China and overseas.

• Geely

  A major Chinese passenger vehicle and EV OEM

  Strengths

  April EV retail sales were 95.6k units, and it moved to first place in the overall passenger vehicle market ranking in 4M26.

  Weaknesses

  April EV retail sales fell 19.6% y-y, market share declined 1.9 percentage points y-y, and total 4M26 shipments were still down 17.7% y-y.

  Comparison

  It benefited from BYD’s share loss in the overall passenger vehicle ranking, but its EV share was also under pressure.

  Risks

  Continued weak domestic demand and changes in the low- to mid-priced EV competitive landscape.

• Leapmotor

  An EV new force player

  Strengths

  April retail sales reached 57.2k units, up 101.9% y-y and 71.0% m-m, with EV share rising to 6.7%.

  Weaknesses

  Scale remains below leading automakers, and the sustainability of growth still needs to be monitored.

  Comparison

  Its April momentum was stronger than most traditional and mass-market EV players.

  Risks

  New model cycles, channel expansion and intensifying competition could affect share sustainability.

• Xiaomi

  A new entrant in the EV brand landscape

  Strengths

  April retail sales were 36.7k units, up 28.4% y-y and 71.2% m-m, showing strong new-product momentum.

  Weaknesses

  Sales base and product lineup are still in the expansion phase.

  Comparison

  Its month-on-month performance in April outperformed most mature automakers.

  Risks

  Capacity ramp-up, delivery stability and the cadence of new models.

• Tesla

  A participant in the China EV market

  Strengths

  It still has strong brand and product influence.

  Weaknesses

  April China retail sales were 26.0k units, down 9.7% y-y and 53.7% m-m.

  Comparison

  April performance was weaker than some Chinese new forces and brands that are actively upgrading models.

  Risks

  Intensifying local competition, product cycle pressures and pricing strategy pressure.

• Lithium carbonate

  A key battery materials price variable

  Strengths

  Supported in the short term by m-m growth in battery production and supply disruptions, with prices rising from CNY160k/t at end-March to CNY177k/t at end-April.

  Weaknesses

  ESS demand is cost-sensitive, and gradually rising lithium supply in 2H26F limits further upside.

  Comparison

  After touching close to CNY200k/t in May, prices fell back to around CNY190k/t.

  Risks

  Supply disruptions stronger than expected, weaker-than-expected demand, or inventory changes causing price volatility.

Key data

• April China passenger vehicle wholesale sales2.1mn units; -4.2% y-y; -11.7% m-mData from CAAM shows sequential weakness continued in April.
• April China passenger vehicle retail sales1.4mn units; -21.4% y-y; -16.0% m-mExcluding micro vans, data from CPCA indicates domestic demand continued to post double-digit y-y declines.
• April China passenger EV retail sales850k units; -6.0% y-y; +0.2% m-mEV growth was weaker than its historical trend but still outperformed ICE vehicles.
• April EV penetration60.6%Monthly penetration exceeded 60% for the first time, partly because ICE sales fell 37.7% y-y.
• FY26F China passenger vehicle wholesale forecast28.8mn units; -4.2% y-yNomura cut FY26-27F passenger vehicle wholesale forecasts by 8% each.
• FY26F/FY27F China auto export forecast7.4mn / 8.1mn unitsForecasts were raised 19%-24% as Chinese EV makers gain momentum in overseas markets.
• FY26F/FY27F passenger EV wholesale forecast16.9mn / 19.2mn unitsForecasts were cut by 5%/3%, but penetration forecasts were raised to 58.6%/64.1%.
• FY26F China passenger vehicle retail forecast22.1mn units; -6.7% y-yDomestic retail forecasts were cut 10%-11% because of weak demand.
• FY26F China local EV retail forecast12.8mn units; flattish y-yLocal EV retail forecasts were cut 11%-12%, but penetration is still expected to rise to 57.4%.
• April battery production and shipmentsproduction 184GWh; shipment 164GWhProduction grew 55.6% y-y and 3.5% m-m; shipments fell 6.2% m-m but rose 39% y-y, taking the production/shipment ratio to 112%.
• April EV battery installations62.4GWh; +15% y-y; +10% m-mResilience in installations was supported by higher commercial EV penetration and larger battery capacities per vehicle.
• Lithium carbonate priceCNY177k/t end-Apr; about CNY200k/t in MayThe report sees a tight near-term supply-demand balance, but limited upside above CNY200k/t.

Impact & implications

For investors, near-term risks include weak domestic demand, high inventories, margin pressure after price competition and policy headwinds. In the medium term, investors should focus on OEMs with strong technology reserves, fast-charging and battery upgrade capabilities, and strong overseas expansion execution, as well as battery leaders with advantages in installation share and customer mix. Industry opportunities are shifting from pure volume growth toward exports, product upgrades and structural share gains.

Risks

• Domestic passenger vehicle and EV demand recovery slower than expected.
• Inventory coefficients staying above warning levels and pressuring dealer and OEM profitability.
• Anti-involution measures and changes in subsidy structures further pressuring sales and share of low-priced models.
• Overseas expansion slower than expected, or major export markets facing policy, tariff, competition and channel risks.
• Raw material price increases stronger than expected, compressing battery and OEM margins.
• Technology upgrades, new models and fast-charging capabilities contributing less demand support than expected.

What to watch

• Whether 2H26 domestic passenger vehicle retail sales recover sequentially as expected.
• The rollout pace and stimulus effect of a new round of national consumer subsidies and local subsidies.
• Order and delivery performance after the launch of BYD Blade Battery 2.0, ultra-fast-charging models and new vehicles.
• Export growth and market share changes for Chinese automakers in the EU, South America and South East Asia.
• Whether dealer inventory coefficients and inventory warning indices fall back below warning levels.
• Whether EV battery installations, the production/shipment ratio and inventory continue to diverge.
• Whether lithium carbonate prices can stay below CNY200k/t.