March revenue recovery coincided with rising costs, with Kedali and Fuyao better positioned in the 1Q preview

Overview

This report is UBS's March monthly tracking and 1Q 2026 earnings preview for China's auto supply chain. The report notes that domestic passenger vehicle wholesale volumes recovered significantly month on month in March, NEV penetration continued to rise, and supplier revenue models indicate an overall recovery in revenue growth for auto parts companies; however, oil price increases caused by the Middle East conflict pushed up prices for multiple chemical and metal raw materials, and freight indices also rose month on month, leaving most supply chain companies facing higher cost pressure.

Core views

The core view is that revenue recovery and cost pressure are occurring simultaneously, but differentiation among industry leaders is becoming more apparent. UBS believes that although China's passenger vehicle production fell 10% year on year in 1Q 2026, and some auto parts suppliers may see year-on-year revenue declines, Kedali and Fuyao are still more likely to deliver results that beat market expectations or are better than market concerns. Kedali benefits from strong energy storage battery demand and downstream battery production schedules, while Fuyao benefits from domestic and overseas market share gains, ASP growth, and a higher proportion of high-value-added products. On the cost side, raw material prices mainly started rising from late February, and suppliers usually hold some inventory, so first-quarter margin pressure is expected to be manageable; whether cost inflation can be passed through later will further test the capabilities of industry leaders.

Analysis framework

The report conducts monthly tracking of the auto parts sector by combining China passenger vehicle wholesale, NEV wholesale, overseas light vehicle sales, sales in the five major European markets, key automaker sales, supplier revenue forecast models, prices of key COGS items, freight indices, and company first-quarter revenue and profit expectations. At the stock level, it focuses on comparing revenue growth and gross margin pressure for Kedali, Fuyao, and other auto parts companies.

Methodology notes

• Valuation methodsDCF

  DCF valuation

  The risk disclosure section of the report states that Kedali and Fuyao A/H are both valued using the DCF method, with target prices corresponding to a 12-month investment horizon.

• industry_trackingChina auto parts monthly database

  Auto parts monthly database

  UBS tracks changes in revenue and gross margins of auto supply chain companies through monthly vehicle sales by model, customer contribution, revenue forecasts, and cost pressure indicators.

• rating_frameworkForecast Stock Return versus Market Return Assumption

  UBS 12-month rating definition

  UBS defines FSR as the expected stock price appreciation over the next 12 months plus dividend yield, and Buy means FSR is more than 6% above MRA.

Asset mapping & comparison

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

• Shenzhen Kedali Industry (002850.SZ)

  Key favored name in the first-quarter preview

  Strengths

  First-quarter revenue is expected to grow 30%-40% year on year; driven by strong BESS demand and about 50% year-on-year growth in production schedules from the top three customers; as a leader in its sub-sector, it is more likely to pass through potential cost inflation.

  Weaknesses

  Faces rising raw material prices such as copper and aluminum, the pace of capacity build-out by major customers, fluctuations in customer share, and product quality risks.

  Comparison

  Among the sample suppliers, Kedali's expected first-quarter revenue growth is at a relatively high level, outperforming most auto parts companies dragged down by declining passenger vehicle production.

  Risks

  Slower-than-expected capacity construction and ramp-up, slower-than-expected capacity build-out by major customers, significant loss of share among major customers, product quality issues, weaker-than-expected EV penetration growth, rising raw material prices, macro slowdown, and trade friction.

• Fuyao Glass A/H (600660.SS; 3606.HK)

  Key favored name in the first-quarter preview

  Strengths

  First-quarter revenue is expected to post positive year-on-year growth, and operating profit excluding FX impact is also expected to grow year on year; benefits from domestic and overseas market share gains, ASP growth, and a higher mix of high-value-added products; the year-on-year decline in soda ash prices helps maintain solid margins.

  Weaknesses

  Still affected by slower auto demand, rising labor and raw material costs, and delays or cancellations of customer orders.

  Comparison

  Compared with most supply chain companies under cost pressure, Fuyao has stronger margin resilience due to year-on-year declines in soda ash prices and product mix upgrades.

  Risks

  Slower-than-expected sales growth of high-value-added products, customer order cancellations or delays, quality recalls, pricing competition from overseas competitors expanding capacity in China, weaker-than-expected penetration of all-glass roofs and HUD, and escalating trade conflict.

• China auto parts sector

  Industry asset covered by the report

  Strengths

  Passenger vehicle and NEV wholesale volumes recovered significantly month on month in March, EV sales in Europe grew rapidly year on year, and new model launches at the Beijing Auto Show may boost sentiment.

  Weaknesses

  Domestic auto demand remains relatively moderate, passenger vehicle production fell year on year in 1Q 2026, and rising raw material and freight costs are weighing on gross margins.

  Comparison

  Leading suppliers are more likely to withstand industry pressure through market share gains, product upgrades, and cost pass-through capabilities, while smaller or weaker suppliers are more vulnerable to price competition and cost inflation.

  Risks

  Declining auto production suppresses demand for auto parts, automakers pass pricing pressure on to suppliers, intensifying competition, raw material inflation, slower-than-expected industry consolidation, and product recalls.

Key data

• China March passenger vehicle wholesale volumeYoY -1%, MoM +57%The passenger vehicle market recovered significantly month on month in March.
• China March NEV wholesale volumeYoY +1%, MoM +58%NEV wholesale penetration increased 1.3 percentage points year on year to 48%.
• BYD March sales296k units, YoY -20%, MoM +57%One of the key automaker sales figures listed in the report.
• Tesla March sales86k units, YoY +9%, MoM +46%One of the key automaker sales figures listed in the report.
• AITO March sales20k units, YoY +44%, MoM +100%One of the key automaker sales figures listed in the report.
• Li Auto March sales41k units, YoY +12%, MoM +55%One of the key automaker sales figures listed in the report.
• Xiaomi March sales21k units, YoY -27%, MoM +5%One of the key automaker sales figures listed in the report.
• Auto sales in the five major European marketsYoY +10%Including the UK, Germany, France, Spain, and Italy.
• EV sales in the five major European marketsYoY +45%Overseas demand supports sentiment toward the supply chain.
• Plastic pricesYoY +15.6%, MoM +28.0%A key COGS item, affected by rising oil prices.
• Aluminum pricesYoY +17.2%, MoM +4.1%Creates cost pressure for some auto parts suppliers.
• Copper pricesYoY +23.1%, MoM -2.6%Year-on-year increase remained high, but declined month on month in March.
• Soda ash pricesYoY -19.3%, MoM +0.9%Relatively favorable for Fuyao's margins.
• Kedali first-quarter revenue forecastYoY +30%-40%Driven by strong BESS demand and increased production schedules from leading customers.
• China first-quarter passenger vehicle productionYoY -10%The report believes this will cause some auto parts suppliers to post year-on-year revenue declines.

Impact & implications

In terms of investment implications, the sector still faces short-term pressure from rising costs and relatively moderate demand, but individual stock performance will depend more on customer mix, product upgrades, market share gains, and the ability to pass through costs. Kedali's energy storage-related demand and core customer production schedules are the main positive drivers, while Fuyao benefits from market share expansion, high-value-added products, and margin resilience from lower soda ash prices. If the Beijing Auto Show brings intensive new model launches, it may improve market sentiment toward the auto supply chain.

Risks

• Declining auto production weakens demand for auto parts.
• Automakers pass pricing pressure on to auto parts suppliers when sales slow and profits come under pressure.
• Intensifying competition brings further pricing pressure.
• Raw material cost inflation raises auto parts costs.
• Industry consolidation progresses more slowly than expected.
• Product quality issues trigger recalls.
• Escalating trade friction affects tariffs on auto parts imports and exports and cross-border supply chains.

What to watch

• Whether Kedali and Fuyao's actual 1Q 2026 results exceed market expectations or come in better than market concerns.
• Whether BESS demand and production schedules of Kedali's top three customers can maintain strength.
• Changes in Fuyao's high-value-added product mix, ASP, and domestic and overseas market share.
• Subsequent trends in oil, plastics, synthetic rubber, nylon, aluminum, copper, and freight indices.
• The density of new model launches at the Beijing Auto Show and their impact on auto demand and sector sentiment.
• Whether suppliers can pass cost inflation on to downstream customers.