NEV Penetration Rose to 65%, Domestic Decline Narrowed and Export Growth Remained Strong

Overview

The report tracks China's passenger car and NEV markets through monthly charts. In July 2026, domestic passenger car retail sales fell 20% year-on-year and 9% month-on-month, indicating that overall demand remained weak; NEV retail sales declined only 3% year-on-year, and penetration rose to a record high of 65%. Exports continued to be the main growth engine, with passenger car exports up 85% year-on-year and NEV exports up 163% year-on-year. At the company level, BYD's domestic sales decline narrowed and overseas sales grew rapidly, while Leapmotor benefited from new models, facelifted models and overseas partnerships. The report maintains Buy ratings on both companies.

Core views

Industry structural divergence is deepening further: NEVs continue to replace ICE vehicles, their retail performance is significantly better than ICE vehicles, and penetration reached a new high driven by new models. Domestic aggregate demand has not yet recovered, but lower inventory months, falling lithium carbonate prices and narrowing NEV dealer discounts provide some support for industry-chain profitability and pricing order. Exports maintained high growth and became an important source of sales expansion for domestic brands. BYD is seeing both domestic sales recovery and overseas volume growth, while Leapmotor has stronger short-term sales growth and potential for upward revisions to overseas targets.

Analysis framework

The report adopts a monthly industry and company tracking framework, comparing production, wholesale, retail, exports and penetration rates for passenger cars, NEVs and ICE vehicles, and assesses trends using year-on-year and month-on-month changes; it also tracks inventory, manufacturer suggested retail prices, dealer terminal discounts, trade-in applications, new model launches, European sales and upstream battery material prices, and evaluates stock performance based on company deliveries, model cycles and overseas business targets.

Methodology notes

• Industry Volume and Price TrackingPassenger Car Monthly Indicator Framework

  Year-on-year and month-on-month analysis of production, wholesale, retail and exports

  By comparing sales across passenger cars, NEVs and ICE vehicles in each segment on a year-on-year and month-on-month basis, the framework identifies trends in total demand, channels and exports.

• Structural AnalysisNEV Penetration Analysis

  NEVs as a percentage of passenger car production, wholesale and retail

  Penetration and its year-on-year and month-on-month changes are used to measure the pace at which NEVs are replacing ICE vehicles.

• Industry Chain TrackingInventory and Price Monitoring

  Inventory months, manufacturer suggested retail prices, dealer discounts and battery material prices

  Inventory and upstream/downstream price changes are combined to assess industry supply and demand, terminal competitive intensity and potential profitability changes.

• Company ResearchSales and Model Cycle Analysis

  Company deliveries, domestic and overseas sales, new models and overseas targets

  Monthly deliveries, new model launch cadence and overseas sales targets are used to evaluate the growth momentum of BYD and Leapmotor.

Asset mapping & comparison

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

• BYD (002594.SZ/1211.HK)

  Directly benefits from domestic sales recovery, new model launches and overseas expansion

  Strengths

  July overseas sales grew 124% year-on-year, and the year-on-year decline in domestic sales narrowed significantly; fast-charging models and new models such as Qin Max and Sealion 08 are expected to continue supporting sales.

  Weaknesses

  Domestic sales still declined 11% year-on-year, reflecting that domestic demand and competitive pressure have not fully abated.

  Comparison

  Overseas sales growth was significantly higher than domestic growth, making exports a stronger source of growth.

  Risks

  Continued weakness in domestic demand, new model performance below expectations, intensified price competition and slower overseas market expansion.

• Leapmotor (9863.HK)

  Benefits from new model cycle, volume ramp-up of facelifted models and overseas sales growth

  Strengths

  July deliveries grew 102% year-on-year; models including A10, D19 and C10/C11/C16/B01/B10 provide support, and the launch of A05 is expected to extend sales momentum.

  Weaknesses

  Rapid growth depends on continued volume ramp-up of new models and smooth execution of overseas partnerships.

  Comparison

  Short-term delivery growth is higher than the overall NEV market, and Goldman Sachs' overseas sales forecast is 60% above the midpoint of the company's target.

  Risks

  Model ramp-up below expectations, weak execution of overseas targets, intensified competition and profitability improvement lagging sales growth.

• China NEV industry

  Rising penetration and export expansion provide medium- to long-term support

  Strengths

  Retail penetration reached 65%, and exports grew 163% year-on-year, significantly outperforming ICE vehicles.

  Weaknesses

  Domestic NEV retail sales still declined 3% year-on-year, and overall passenger car demand has not yet stabilized.

  Comparison

  NEV retail sales declined 3% year-on-year, markedly better than the 40% year-on-year decline in ICE vehicles.

  Risks

  Persistently weak demand, changes in subsidies and trade-in policies, price competition and overseas trade restrictions.

• Power battery industry chain

  Raw material price changes affect battery and vehicle costs

  Strengths

  Lithium carbonate prices fell 8% month-on-month, helping ease downstream cost pressure.

  Weaknesses

  Lithium iron phosphate and ternary material prices were flat month-on-month, so price improvement does not cover all segments.

  Comparison

  The decline in upstream lithium carbonate prices was larger than changes in cathode material prices.

  Risks

  Rebound in raw material prices, capacity supply-demand mismatch and transmission of vehicle price competition upstream.

Key data

• July 2026 passenger car retail sales1.461 million units, YoY -20%, MoM -9%Overall domestic market demand remains weak.
• July 2026 NEV retail sales953,000 units, YoY -3%, MoM -5%The year-on-year decline narrowed from 9% in June 2026.
• NEV retail penetration65%Up 11 percentage points year-on-year and 2 percentage points month-on-month, a record high.
• NEV wholesale1.448 million units, YoY +22%, MoM -1%Wholesale penetration was 64%, up both year-on-year and month-on-month.
• Passenger car exports922,000 units, YoY +85%Further accelerated from 80% year-on-year growth in June 2026.
• NEV exports492,000 units, YoY +163%, MoM +5%Significantly faster than the 38% year-on-year growth in ICE vehicle exports.
• BYD July overseas sales181,000 units, YoY +124%, MoM +3%Year-on-year growth further accelerated from 95% in June 2026.
• BYD July domestic sales231,000 units, YoY -11%, MoM +5%The year-on-year decline narrowed significantly from 23% in June 2026.
• Leapmotor July deliveries101,000 units, YoY +102%, MoM +8.5%New models and multiple facelifted models jointly drove delivery growth.
• Leapmotor overseas sales forecastGoldman Sachs expects 200,000 units in 202660% above the midpoint of the company's overseas target of 125,000 units.
• Upstream battery pricesLithium carbonate MoM -8%, lithium iron phosphate and ternary material prices flat MoMRaw material cost pressure has eased somewhat.

Impact & implications

The replacement of ICE vehicles by NEVs is still accelerating. Although domestic sales have not yet returned to growth, rising penetration and export expansion help domestic brands maintain scale growth. ICE vehicle retail sales have contracted sharply, putting greater pressure on manufacturers with a higher proportion of traditional business. Lower inventory and narrower NEV terminal discounts may improve pricing order, while the decline in lithium carbonate prices helps ease battery and vehicle costs. In terms of individual stocks, BYD is supported by high overseas growth and a domestic recovery trend; Leapmotor has relatively high sales growth elasticity thanks to its intensive model cycle and overseas partnerships.

Risks

• China's overall passenger car demand remains weaker than expected.
• NEV price competition intensifies again, with terminal discounts widening.
• New model launches, capacity ramp-up or delivery performance fall short of expectations.
• Overseas trade barriers, regulatory changes or channel expansion fall short of expectations.
• Changes in trade-in and subsidy policies affect terminal demand.
• Rebound in battery raw material prices compresses industry-chain profits.
• BYD's domestic sales recovery is slower than expected.
• Leapmotor's overseas sales and execution of global partnerships fall short of expectations.

What to watch

• Whether monthly domestic passenger car and NEV retail sales can return to year-on-year growth.
• Whether NEV retail penetration can stabilize around 65% or continue to rise.
• NEV export growth and sales performance in overseas markets such as Europe.
• Orders and deliveries for BYD's fast-charging models, Qin Max, Sealion 08 and other new models.
• Sales ramp-up of Leapmotor A05, A10, D19 and facelifted models.
• Changes in NEV dealer discounts, manufacturer suggested retail prices and industry inventory months.
• Price trends for lithium carbonate, lithium iron phosphate and ternary materials.
• Trade-in applications and progress in the use of national subsidies.