EVs Continue to Outperform ICE Vehicles, but Overall China Passenger Vehicle Demand Remains Weak
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EVs Continue to Outperform ICE Vehicles, but Overall China Passenger Vehicle Demand Remains Weak
Nomura believes there was no clear improvement in China's local passenger vehicle demand in May and expects a 20%+ YoY decline to persist; however, EV penetration is likely to remain above 60% consecutively, and overseas contribution and market share gains will be key differentiators among automakers.
- China's local passenger vehicle market is expected to decline 20%+ YoY in May, and overall wholesale shipments remain lackluster.
- Supported by product and technology upgrades, EV makers continue to significantly outperform ICE automakers, with EV penetration in China expected to exceed 60% again.
- BYD sold 377k passenger vehicles in May, +20.0% MoM; overseas sales reached 160.6k, +80% YoY, an important source of improvement.
- NIO and Leapmotor delivered strong performance, with NIO's May deliveries at 37.7k, +62.3% YoY, and Leapmotor's wholesale volume at 81.6k, +81.0% YoY, reaching a record high.
- Against the backdrop of a lack of incremental support policies, Nomura has turned more cautious on the local demand outlook for the remainder of 2026.
Report interpretation
Overview
This report is Nomura's quick commentary on May wholesale sales in China's auto/EV sector. The report notes that local demand did not show meaningful improvement after the Beijing Auto Show, and China's local passenger vehicle market is still expected to post a 20%+ YoY decline in May; however, EV players continue to outperform ICE automakers through more aggressive product and technology upgrades, with EV penetration expected to exceed 60% again.
Core views
The core judgment is that overall auto demand remains weak, and the absence of incremental policy support makes the local demand outlook for the remainder of 2026 more cautious; at the same time, industry differentiation is increasing, and automakers with strong overseas contribution, clear local shipment growth, or market share gains are more likely to outperform peers. BYD's overseas sales, delivery growth at NIO and Leapmotor, demand for XPENG's GX, and Li Auto's upcoming technology events and new L8 launch are the main company-level variables highlighted in the report.
Analysis framework
The report mainly cross-validates local demand, EV penetration, brand sales differentiation, and stock-specific catalysts by combining May wholesale sales disclosed by Chinese OEMs, preliminary CPCA data for the first 24 days, Nomura's industry order checks, company delivery guidance, and target price valuation disclosures.
Methodology notes
Use monthly brand wholesale/delivery data to assess industry conditions and market share changes.
The report compares YoY and MoM sales changes for automakers in May and, together with preliminary CPCA data, concludes that local passenger vehicle demand remains weak while EV penetration stays high.
Assess short-term delivery trends through order momentum and market feedback.
The report repeatedly cites industry checks to assess demand for models such as the NIO ES9 and XPENG GX, as well as visibility on shipment improvement in the coming months.
Sum-of-the-parts valuation.
BYD's HKD127 target price is based on the SOTP method, with the auto and related products segment valued at 25x FY26F P/E and BYD Electronics at 17x FY26E P/E.
Discounted cash flow valuation.
The disclosed target prices for Li Auto, NIO, and XPENG use the DCF method, with assumptions including WACC, market risk premium, terminal growth rate, and 12-month forward valuation.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- China EV SectorIndustry Theme
- Strengths
- EV penetration is expected to continue exceeding 60%, and product and technology upgrades support relative outperformance versus ICE vehicles.
- Weaknesses
- Local passenger vehicle demand remains weak, with a 20%+ YoY decline expected in May.
- Comparison
- EV players overall outperform ICE automakers, but performance divergence within EVs is pronounced.
- Risks
- A lack of incremental support policies, intensifying price competition, and weak macro demand may pressure sales and margins.
- BYD (1211 HK)Key Covered Company
- Strengths
- May passenger vehicle sales of 377k, +20.0% MoM; overseas sales of 160.6k, +80% YoY; positive feedback on ultra-fast-charging models and increased attention on its 4nm intelligent driving chip.
- Weaknesses
- Implied local wholesale volume of 216.3k was still down 25% YoY, suggesting local demand has not fully recovered.
- Comparison
- Overseas growth provides stronger support for BYD relative to the local market.
- Risks
- Intensifying competition affecting margins or share, overseas expansion slower than expected, and technology platform upgrades driving less demand than expected.
- NIO (NIO US)Key Covered Company
- Strengths
- May deliveries of 37.7k, +62.3% YoY and +28.4% MoM; the NIO brand has consistently remained above 20k, with Onvo and Firefly providing incremental volume.
- Weaknesses
- Future improvement depends on ES9 order momentum and sustained ramp-up of new models.
- Comparison
- Momentum is relatively strong among new forces, and the report expects MoM delivery improvement in the coming months.
- Risks
- Insufficient production ramp, new models failing to gain further share, and cost improvement below expectations.
- XPENG (XPEV US)Key Covered Company
- Strengths
- GX demand momentum is viewed as relatively solid, the report expects delivery improvement over the next few months, and believes 2Q26E guidance of 100-106k can be achieved.
- Weaknesses
- May deliveries of 32.2k were still down 4.1% YoY.
- Comparison
- +3.7% MoM, still showing signs of improvement relative to a weak overall demand environment.
- Risks
- New model growth in 2026 falling short of expectations, further intensification of competition in China's auto market, and slower-than-expected progress in robotaxi and humanoid robots.
- Li Auto (LI US)Key Covered Company
- Strengths
- May deliveries of 33.4k keep 2Q26E guidance of 95k-100k on track; the June intelligent vehicle technology event and new L8 launch could be catalysts.
- Weaknesses
- May deliveries were -18.4% YoY and -2.2% MoM; the report believes more effort is still needed to improve orders for the L9 Ultra.
- Comparison
- Compared with the strong growth of NIO and Leapmotor, Li Auto's current delivery momentum is weaker.
- Risks
- Intensifying competition in China's EV market, weaker-than-expected momentum for the new L-series models, and supply chain disruptions; upside risks come from stronger BEV and new L-series sales, better margin recovery, and faster overseas expansion.
- LeapmotorIndustry Sample
- Strengths
- May wholesale volume of 81.6k, +81.0% YoY and +14.3% MoM, hitting a record high.
- Weaknesses
- The report does not disclose more detailed profitability, order, or valuation information.
- Comparison
- The report describes it as the best performer among new forces.
- Risks
- Industry competition and weak local demand may affect the sustainability of subsequent growth.
- Geely/Zeekr/GalaxyIndustry Sample
- Strengths
- Zeekr shipped 34.4k in May, +81.8% YoY and +8.1% MoM, continuing strong growth.
- Weaknesses
- Geely's total NEV sales were 133.4k, -3.4% YoY and -1.6% MoM; Galaxy was 81.7k, -19.8% YoY.
- Comparison
- Clear divergence among internal brands, with Zeekr stronger than Galaxy.
- Risks
- Uneven performance across the NEV brand portfolio; if local demand continues to weaken, it may drag on overall NEV growth.
Key data
- China Local Passenger Vehicle MarketExpected to decline 20%+ YoY in MayBased on preliminary CPCA data for the first 24 days and Nomura's industry research.
- China EV PenetrationExpected to be 60%+ in MayEV players continue to significantly outperform ICE automakers.
- BYD Passenger Vehicle Sales377k, roughly flat YoY, +20.0% MoMOverseas sales were 160.6k, +80% YoY; implied local wholesale volume was 216.3k, -25% YoY, improving from -39% in April.
- Geely New Energy Vehicle Sales133.4k, -3.4% YoY, -1.6% MoMZeekr at 34.4k, +81.8% YoY; Galaxy at 81.7k, -19.8% YoY.
- Leapmotor Wholesale Sales81.6k, +81.0% YoY, +14.3% MoMReached a record high and was described in the report as the best performer among new forces.
- NIO Deliveries37.7k, +62.3% YoY, +28.4% MoMNIO brand monthly deliveries exceeded 20k; Onvo 12k; Firefly 5.7k; 2Q26F guidance of 110-115k is expected to be achievable.
- XPENG Deliveries32.2k, -4.1% YoY, +3.7% MoMGX demand momentum is strong, and the report believes 2Q26E guidance of 100-106k is highly likely to be achieved.
- Li Auto Deliveries33.4k, -18.4% YoY, -2.2% MoMThe report believes its 2Q26E delivery guidance of 95k-100k remains on track; the launch of the new L8 could become a subsequent catalyst.
- Xiaomi and HIMA DeliveriesXiaomi 30k+; HIMA 46.1kHIMA was +3.8% YoY and +40.8% MoM.
- Target Price DisclosureBYD HKD127; Li Auto USD20; NIO USD8.60; XPENG USD23BYD uses SOTP valuation; Li Auto, NIO, and XPENG are disclosed on a DCF valuation basis.
Impact & implications
From an investment perspective, the report does not deny that overall auto demand in China remains under pressure, but it places greater emphasis on structural differentiation between EVs and ICE vehicles, as well as among EV makers themselves. In the near term, what matters more than a recovery in total industry volume is overseas sales contribution, order improvement driven by technology upgrades such as intelligence and ultra-fast charging, and the ability to deliver on quarterly delivery guidance.
Risks
- The lack of incremental support policies could keep China's local passenger vehicle demand weak.
- Further intensification of competition in China's EV market could compress automakers' margins or market share.
- Overseas business expansion slower than expected could weaken the growth support for companies such as BYD.
- Technology platform upgrades, ultra-fast charging, or intelligent driving features may drive less demand than expected.
- Orders for new models and delivery ramp-up may fall short of expectations, affecting the achievement of quarterly delivery guidance.
- Supply chain disruptions may affect EV and intelligent vehicle deliveries.
- Macro market trends and company-specific risks related to target prices may hinder the realization of target prices.
What to watch
- Whether monthly CPCA retail/wholesale data and China's EV penetration continue to stay above 60%+.
- Whether new support policies for auto consumption or new energy vehicles are introduced.
- BYD's overseas sales, narrowing declines in local wholesale volume, feedback on ultra-fast-charging models, and progress on its 4nm intelligent driving chip.
- NIO ES9 order momentum and delivery against 2Q26F guidance of 110-115k.
- The sustainability of XPENG GX demand and achievement of 2Q26E delivery guidance of 100-106k.
- Li Auto's June intelligent vehicle technology event, new L8 launch, and improvement in L9 Ultra orders.
- Whether monthly sales divergence among brands such as Zeekr, Galaxy, and Leapmotor continues.