China auto sales were in the summer lull in July, making the sequential recovery in August the key focus

Overview

This report tracks July sales performance in China's auto and shared mobility industry. It notes that Chinese passenger vehicle retail sales fell approximately 15% year over year in July, while major automakers delivered mixed results during the summer lull: new energy vehicle makers came under sequential pressure, whereas BYD and Geely performed relatively well, supported by overseas sales and favorable low-base effects.

Core views

The core view is that July weakness was broadly anticipated by the market, making the recovery of sales momentum in August more important. BYD benefited from record overseas sales and a narrower year-over-year decline domestically, providing continued support for defending its domestic share in 2H26; XPeng, Li Auto, and NIO will need to rely on new model launches, supply improvements, and overseas sales to restore sequential momentum.

Analysis framework

The report uses a monthly delivery tracking framework to compare major OEMs based on sequential and year-over-year changes, overseas sales mix, new model contributions, and inventory digestion, while assessing the short-term demand environment in conjunction with year-over-year changes in industry passenger vehicle retail sales.

Methodology notes

• Monthly industry trackingSales momentum and year-over-year/sequential analysis

  Use monthly deliveries, sequential and year-over-year changes, and overseas sales changes to measure automakers' short-term operating momentum.

  During a seasonal lull, a sequential decline in a single month does not necessarily indicate a deteriorating trend; the report places greater emphasis on the pace of the August recovery, new model contributions, and the sustainability of overseas sales.

• Equity research rating frameworkMorgan Stanley relative rating system

  Overweight, Equal-weight, Not-Rated, and Underweight are used to assess risk-adjusted returns relative to the industry coverage universe over the next 12-18 months.

  The report discloses an In-Line industry view, indicating that the analyst expects the industry to perform broadly in line with the relevant broad-market benchmark over the next 12-18 months.

Asset mapping & comparison

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

• BYD Company Limited (002594.SZ/1211.HK)

  A core automaker and new energy vehicle leader; the report highlights its July sales and overseas sales.

  Strengths

  Strong year-over-year growth in July, record overseas sales up 124% year over year, and a narrowing domestic year-over-year decline to below 10%.

  Weaknesses

  The domestic market remains in a year-over-year decline and requires continued support from new models and supply improvements to defend market share.

  Comparison

  Compared with new energy vehicle makers, its sequential and year-over-year performance in July was more resilient.

  Risks

  Weak domestic demand, intensifying competition, and new model sales falling short of expectations.

• Geely Automobile Holdings (0175.HK)

  A major covered OEM; July sales and the overseas sales mix are tracked separately.

  Strengths

  July sales rose 4% sequentially and 5% year over year, overseas sales accounted for 43% of total deliveries, and Zeekr sales more than doubled year over year.

  Weaknesses

  Domestic sales continued to decline year over year due to inventory digestion, while Lynk & Co deliveries fell 40% year over year.

  Comparison

  Overseas operations provided strong support, but domestic inventory pressure made performance less optimistic than total volume growth alone would suggest.

  Risks

  Inventory digestion drag, slow recovery in domestic demand, and intensifying brand differentiation.

• XPeng Inc. (9868.HK/XPEV.N)

  A new energy vehicle maker; the report focuses on its July deliveries and the future contribution from MONA L03.

  Strengths

  Still achieved 4% year-over-year growth in July; MONA L03 is expected to contribute to domestic and overseas sales in August, while overseas sales could improve margins.

  Weaknesses

  July sales fell 5% sequentially, and growth slowed after the GX launch.

  Comparison

  Compared with BYD and Geely, it is more dependent in the short term on the ramp-up of a single new model to restore sequential momentum.

  Risks

  New model ramp-up falling short of expectations, insufficient realization of overseas sales, and margin pressure from competition.

• Li Auto Inc. (LI.O/2015.HK)

  A new energy vehicle maker; the report tracks the support provided by L6 and L8 to sales recovery.

  Strengths

  L6 and L8 contributed to sales, supporting a recovery from the pre-launch slowdown.

  Weaknesses

  July sales fell 1% sequentially and 1% year over year, with momentum still weak.

  Comparison

  Its sequential decline was smaller than NIO's, but it lacked clear year-over-year growth.

  Risks

  Insufficient contribution from the model cycle, slow demand recovery, and competitive pressure.

• NIO Inc. (9866.HK/NIO.N)

  A new energy vehicle maker; the report tracks changes in NIO brand and ONVO deliveries.

  Strengths

  July sales rose 71% year over year, showing significant year-over-year growth despite the low base.

  Weaknesses

  July sales fell 11% sequentially; ONVO deliveries fell 14% sequentially, while the NIO brand declined 9% sequentially after the ES9 launch.

  Comparison

  Year-over-year growth was stronger than XPeng's and Li Auto's, but the sequential decline was larger.

  Risks

  Insufficient follow-through momentum after new model launches, volatility in sub-brand deliveries, and slow sales recovery.

Key data

• China passenger vehicle retail salesApproximately -15% year over year in JulyThe report believes July's weak performance was already fully anticipated by the market.
• BYD419,000 units sold in July, up 4% sequentially and 22% year over yearThe highest year-over-year growth rate since May last year; overseas sales were 180,000 units, up 124% year over year.
• Geely250,000 units sold in July, up 4% sequentially and 5% year over yearOverseas sales were 107,000 units, accounting for 43% of total deliveries; domestic operations remained affected by inventory digestion.
• XPeng38,027 units sold in July, down 5% sequentially and up 4% year over yearGrowth slowed after the GX launch; MONA L03 is expected to contribute to domestic and overseas sales in August.
• Li Auto30,468 units sold in July, down 1% sequentially and 1% year over yearL6 and L8 contributed to sales, mitigating the pre-launch slowdown.
• NIO35,934 units sold in July, down 11% sequentially and up 71% year over yearONVO deliveries fell 14% sequentially, while the NIO brand declined 9% sequentially after the ES9 launch.
• Industry viewIn-LineMorgan Stanley maintains a neutral relative view on the China Autos & Shared Mobility industry.

Impact & implications

The short-term investment implication is neutral but carries expectations for recovery: July's weak sales mainly reflected seasonality and weaker industry retail demand. If new models ramp up, supply improves, and overseas sales remain strong in August, sequential sales momentum at major new energy vehicle makers could improve; conversely, weak domestic demand and ongoing inventory digestion could continue to weigh on valuation sentiment.

Risks

• Continued weakness in Chinese passenger vehicle retail demand, with the approximately 15% year-over-year decline in July potentially continuing.
• The pace of August sales recovery after the summer lull falling short of expectations.
• New model launches, supply improvements, or production ramp-ups falling short of expectations.
• Continued domestic inventory digestion weighing on sales and pricing.
• If rapid overseas sales growth proves unsustainable, it could weaken the incremental improvement thesis for BYD, Geely, and XPeng.
• Morgan Stanley discloses potential conflicts of interest with several covered companies, including investment banking business, holdings, and market-making activities; investors should apply independent judgment.

What to watch

• Whether major OEM sales recover sequentially in August.
• The actual contribution of MONA L03 to XPeng's domestic and overseas sales.
• The sustainability of subsequent orders and deliveries for Li Auto's L6 and L8.
• The role of new models such as BYD Sealion 08, Qin MAX, and Great Han in defending domestic share in 2H26.
• The progress of Geely's domestic inventory digestion and the trend of differentiation between the Zeekr and Lynk & Co brands.
• Whether overseas sales growth continues to support total deliveries and margins.