Analysis Report

Based on the latest collected information, I will provide a comprehensive analysis of the impact of delayed release of automotive demand following the withdrawal of policy subsidies on the 2026 automotive industry recovery, as well as the performance impact on dealer groups and automakers.

Based on the latest market data [1], the

has had a significant impact on the automotive market:

• Automobile sales in November 2025 fell 8.5% year-on-year
  , marking the largest decline in 10 months
• Automobile retail sales fell for the first time in three years
  , dropping 8.1% year-on-year to 2.23 million units in November
• Dealer inventories surged
  , with the dealer inventory alert index rising significantly in November
• The impact of subsidy withdrawal is widespread
  : Many local governments have suspended trade-in subsidies [1]

Policy adjustments in 2026 will be further tightened:

• The state has set new restrictions on trade-in subsidies
  , which may affect budget brands such as BYD [1]
• Subsidy amounts reduced
  : The mechanism electricity prices for projects in many regions are discounted by more than 20% compared to the bidding ceiling and benchmark coal-fired power prices
• Subsidy scope narrowed
  : Projects in high-quality regions are scarce, but the released capacity is limited [1]

Despite the subsidy withdrawal, the delayed release of demand is supported by the following:

• Spring Festival car-buying peak
  : Pre-holiday car-buying demand driven by the 2026 Spring Festival [1]
• Sharp price cuts by automakers
  : BMW, Cadillac, Kia, Mazda, and others have cut prices, with some luxury models seeing straight cuts of up to RMB 300,000 [1]
• Replacement with benefit subsidies
  : New energy brands have shifted to forms such as financial packages and optional equipment subsidies, with comprehensive benefits reaching up to RMB 48,000 [1]

• The Ministry of Finance has clearly stated that
  funds will continue to be allocated in 2026 to support trade-ins of consumer goods
  [1]
• The policy can help stabilize corporate revenue expectations and reduce the market’s risk premium on the domestic demand sector

• Bloomberg Intelligence
  : Revenue in the world’s largest automotive market is expected to decline by 3%-5% for the first time since 2022 [1]
• CMBI Analysts
  : Automobile sales in 2026 are expected to remain basically flat, competition will intensify, with a “potentially record number of new models” [1]
• Cui Dongshu, Secretary-General of the China Passenger Car Association (CPCA)
  : Predicts that new energy passenger vehicles will achieve a “high-quality opening” in 2026, showing a
  pattern of low early and high late performance
  [1]

• BMW
  : Adjusted the suggested retail prices of 31 main models, with 24 models seeing cuts of over 10% and 5 models seeing cuts of over 20%
  • The iX1 eDrive25L was reduced from RMB 299,900 to RMB 228,000, a straight cut of RMB 70,000
  • The i7 M70L was reduced from RMB 1,899,000 to RMB 1,598,000, a sharp cut of RMB 300,000 [1]

• Cadillac
  : Launched “limited-time surprise prices” for multiple models
  • The starting price of the CT5 was reduced to RMB 199,900, a straight cut of RMB 90,000
  • The limited-time starting price of the XT5 is RMB 229,900, a straight cut of RMB 150,000 compared to the original guide price of RMB 379,900 [1]

• Kia and Mazda
  : Adopted a “fixed price” strategy, with cuts ranging from RMB 20,000 to RMB 40,000 [1]

• BYD, NIO, Leapmotor, Xiaomi, and others mainly offer benefits in the form of financial packages and optional equipment subsidies
• Cash price cuts are mostly in the range of RMB 10,000 to RMB 20,000, indicating a cooling of “involution” in the new energy sector [1]

“The price war in the automotive market is likely to continue in 2026, intensifying profit pressure on automakers” [1]

• Luxury brands and traditional automakers are the main forces behind price cuts
  , clearing inventories through substantial straight price cuts
• New energy vehicles have shifted to benefit subsidies
  , reflecting market differentiation after the adjustment of national subsidies [1]

• Xiaomi’s market capitalization surpassed BYD
  , reflecting the capital market’s differentiated pricing logic between “manufacturing-oriented” and “technology-oriented” players [1]
• BYD leads in sales but has been surpassed in market capitalization
  : Cumulative sales in 2025 reached 4.602 million units, with 2.2567 million pure electric vehicles, surpassing Tesla to top the global rankings [1]
• The implementation of L3-level autonomous driving technology
  will be a key competitive variable in 2026 [1]

• Dealer inventories surged in November 2025
  , due to slowed new car demand caused by exhausted subsidies [1]
• The dealer inventory alert index remains at a high level, leading to increased capital occupation costs

• Price wars compress profit margins
  : Substantial price cuts have led to a sharp contraction in dealer gross profits
• Sluggish sales coupled with price declines
  : Dual pressure has led to the deterioration of dealer profitability
• Inventory impairment risk
  : There is a risk of impairment in a high-inventory environment

Indicator Category	Key Indicators	Impact Direction	Risk Level
Sales Indicators	Year-on-year sales growth rate	↓	High
Inventory Indicators	Inventory coefficient/inventory turnover days	↑	High
Profitability Indicators	Gross profit margin, net profit margin	↓	High
Capital Indicators	Operating cash flow, asset-liability ratio	↓	Medium
Efficiency Indicators	Average sales per store, output value per capita	↓	Medium

• A “strong start” may occur in January
  : Spring Festival car-buying demand + delayed released demand [1]
• Pressure will persist in Q2-Q3
  : The impact of subsidy withdrawal will be fully evident, and price wars will continue
• Stabilization is expected in Q4
  : Base effect + year-end sales push

• Leading dealer groups
  (such as Zhongsheng Group, Yongda Automobile) have stronger risk resistance capabilities due to brand advantages and scale effects
• Groups with a high proportion of luxury brands
  : Although price cuts are substantial, luxury brands have relatively strong premium capabilities
• Groups that early laid out new energy business
  : Benefit from the increasing penetration rate of new energy vehicles

• Small and medium-sized dealers
  : Weak financial strength and poor risk resistance, facing the risk of being eliminated
• Dealers with high inventory pressure
  : May be forced to clear inventories at low prices, further worsening profitability
• Dealers highly dependent on a single brand
  : More affected by fluctuations in brand sales

• Overall growth slows down
  : Sales in 2026 are expected to remain basically flat or slightly decline
• Internal differentiation intensifies
  :
  • New energy leaders (BYD, Xiaomi)
    : Expected to increase market share by virtue of technological and brand advantages
  • Fast-transforming traditional automakers (Geely)
    : Geely’s sales in 2025 reached 3.024 million units, a year-on-year increase of 39%, delivering an outstanding performance [1]
  • Weak brands
    : Market share will further shrink

• Gross profit margin under pressure
  : Price wars have led to a decline in gross profit margins
• Diminishing scale effects
  : Slowed sales growth has increased the pressure of fixed cost amortization
• Continuous R&D investment
  : R&D investment in intelligence and electrification cannot be reduced

• Improved operating cash flow
  : Inventory control and strengthened accounts receivable management
• Capital expenditure pressure
  : Expansion of new energy production capacity and technological R&D investment

• Advantages
  : Leading global sales scale (4.602 million units), obvious vertical integration advantages
• Challenges
  : The withdrawal of subsidies has a greater impact on budget models, and price wars compress profit margins
• 2026 Strategy
  : Overseas market expansion, high-endization, intelligence [1]

• 2025 Performance
  : Annual deliveries exceeded 410,000 units, with December monthly deliveries surpassing 50,000 units, a year-on-year increase of 110%
• First quarterly profit achieved in Q3
  : Profit reached RMB 700 million [1]
• 2026 Outlook
  :
  • S&P predicts that shipment growth will slow to 500,000 units in 2026
  • Faces profit pressure from fierce competition [1]
  • Delayed production of the second electric vehicle factory may affect capacity expansion [1]

• 2025 Performance
  : Sales reached 3.024 million units, a year-on-year increase of 39% [1]
• Profitability
  : Price-to-earnings ratio of 10.87, dividend yield of 1.88%
• 2026 Strategy
  : Brand upgrading, new energy transformation, overseas expansion

Assessment Dimension	Key Indicators	2026 Trend	Weight
Sales Growth	Year-on-year sales growth rate, market share	Intensified differentiation	30%
Profitability	Gross profit margin, net profit margin, profit per vehicle	Overall decline	30%
Financial Health	Asset-liability ratio, operating cash flow	Polarization	20%
Competitiveness	New energy penetration rate, R&D investment	Continuous improvement	20%

1. Limited support on the demand side
   : Although a “strong start” may occur in January, the annual demand support is limited
2. Intensified competition on the supply side
   : Price wars continue, and profitability is under pressure
3. Diminishing marginal effect on the policy side
   : Subsidy withdrawal leads to weakened policy support

• Prioritize leading players
  : Focus on leading dealer groups such as Zhongsheng Group and Yongda Automobile
• Focus on new energy layout
  : Dealer groups with a high proportion of new energy business
• Avoid high-risk players
  : Small and medium-sized dealers with high inventory pressure and tight capital chains

• Inventory coefficient (warning line: 1.5)
• Operating cash flow
• Profitability per store

• Prioritize leading players
  : New energy leaders with technological and scale advantages such as BYD and Xiaomi
• Focus on successfully transforming traditional automakers
  : Fast-transforming traditional automakers such as Geely Automobile
• Avoid weak brands
  : Brands with continuously shrinking market share and deteriorating profitability

• New energy penetration rate
• Progress in overseas market expansion
• Technological breakthroughs in intelligence (L3-level autonomous driving) [1]

1. Price wars exceed expectations
   : Profitability of automakers and dealers deteriorates beyond expectations
2. Demand recovery falls short of expectations
   : Increasing economic downward pressure leads to weak consumer willingness
3. Policy change risk
   : Subsidy policies are further tightened
4. Overseas market risks
   : Trade frictions, geopolitical risks
5. Technology route risk
   : Breakthroughs in new technologies such as solid-state batteries and hydrogen fuel

1. The delayed release of demand following the withdrawal of policy subsidies provides limited support for the 2026 automotive industry recovery

• A “strong start” in January is expected, but the full year faces pressure
• Price wars will continue, and industry profitability is under pressure
• Market differentiation intensifies, and leading players increase their market share

2. For dealer groups: Short-term pain, long-term restructuring

• Dual pressure from inventory and profitability
• Increased concentration of leading players, elimination of weak ones
• Focus on inventory coefficient and cash flow indicators

3. For automakers: Sales differentiation, profitability under pressure

• New energy leaders are expected to increase market share by virtue of technological and brand advantages
• The transformation speed of traditional automakers determines their future competitive position
• Overseas market expansion has become a new growth driver

• Overall industry
  : Neutral-Cautious
• Dealer groups
  : Prioritize leading players, avoid high-risk ones
• Automakers
  : Prioritize new energy leaders and successfully transforming traditional automakers
• Key time points
  : Focus on policy expectations and sales data at the end of Q2 and the beginning of Q3

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[1] Online Search Materials:

• China dealership inventories spike as new-car demand slows on depleted subsidies - Automotive News (https://www.autonews.com/china/an-china-dealership-inventories-surge-in-november-2025-1211/)
• China’s car sales extend decline in November in biggest drop in 10 months - Reuters (https://www.reuters.com/business/autos-transportation/chinas-car-sales-extend-decline-november-biggest-drop-10-months-2025-12-08/)
• China’s retail sales growth sharply misses estimates in November - CNBC (https://www.cnbc.com/2025/12/15/chinas-november-retail-sales-industrial-production-fixed-asset-investment.html)
• Some automakers prepare for tough 2026 as China sets new limits on trade-in subsidies - Automotive News (https://www.autonews.com/china/an-china-2026-trade-in-subsidies-0104/)
• Global Automaker Market Capitalization Ranking Overhaul: Xiaomi Surpasses BYD to Rank Top 3 - Yahoo Finance Hong Kong (https://hk.finance.yahoo.com/news/)
• 1.37 Million! Sharp Price Cuts in China’s Automotive Market at the Start of the Year Attract Attention - Yahoo Finance Hong Kong (https://hk.finance.yahoo.com/news/)
• China Limits Trade-In Subsidy for 2026 in Hit to Some Carmakers - Bloomberg (https://www.bloomberg.com/news/articles/2025-12-31/china-limits-trade-in-subsidy-for-2026-in-hit-to-some-carmakers)
• China’s Carmakers Must Avoid Home Mistakes Overseas - Bloomberg (https://www.bloomberg.com/opinion/articles/2025-12-17/china-s-carmakers-must-avoid-home-mistakes-overseas)
• S&P Upgrades Xiaomi’s Rating Outlook to Positive - Yahoo Finance Hong Kong (https://hk.finance.yahoo.com/news/)
• 【Fund Manager’s Perspective】What Are the Opportunities and Risks in 2026? - Yahoo Finance Hong Kong (https://hk.finance.yahoo.com/news/)

Note: The above analysis is based on market information and data available as of January 6, 2026. Investment decisions should be combined with the latest market conditions and one’s own risk tolerance.