Global Markets ResearchChina Auto/EV1 December 2025EQUITY:AUTOS AUTO PARTSExpert call:outlook for local demand and exports in 2026EResearch AnalystsChina Autos Auto PartsQuick NoteJoel Ying,CFA·NIHKjoel.ying@nomura.comWe hosted an Intelligent Vehicle Expert Call on 1 Dec with Mr Liu Qing,an expert with+85222522153long-term experience in the China car sales market,and he has served as a generalGlobal EV Batteries Materialsmanager of an auto sales company in Suzhou.We discussed the latest market situationEthan Zhang-NIHKand the outlook for the China autos market looking into 2026F.Below are our keyethan.zhang@nomura.comtakeaways:+852225221571)Market demand on a declining trend since late Oct-25,with the running out of thenational subsidy:2)very likely higher standards for subsidy going into 2026E,in order toachieve healthy growth while demand is likely to be impacted;3)exports to become a keyfocus for China OEMs,in order to offset a potentially muted local market,and;4)large-size battery and intellectualization trend will be important aspects looking into 2026E,considering the anti-involution initiative target for high-quality growth of the EV industry.While all of the above points are in line with our update and view regarding the 2026FChina auto market (see our note )we reiterate our view that the entire China auto marketis likely to face uncertainties looking ahead,and the overseas market might come to therescue.While we maintain our cautious view on the entire China autos sector,we stillbelieve that there will be select outperformers among our covered OEMs,who willimplement the right strategy at the correct timing,bear fruit and win market share.Meanwhile,in the intelligent vehicle supply chain,we expect rapid development ahead,considering the increasingly growing demand in the entire China auto market.Sequentially declining trend of ordersAccording to Mr.Liu,orders started to decline from mid-late Oct.Excluding the short-termrush orders in end-Oct,the market situation further slumped slightly in November,with thenational subsidy quota running out and customers are now in a 'wait-and-watch'mode.Although many OEMs are announcing plans to cover the extra purchase tax for selectmodels if customers'orders cannot be fulfilled within 2025,it appears that customers stillawait the national subsidy;therefore,we see a limited positive impact.With the new-model-launch-phase having already passed for the entire market,generally we see nofurther catalysts in the remaining part of 2025.According to the expert.BYD's weekly orders were less than 70k units last week,Geelywas less than 30k for Galaxy brand,while Leapmotor's weekly orders surpassed 10kunits,mainly driven by the launch of Lafa 5.Excluding the new model,Leapmotor's weeklyorders also appear to be on a sequentially declining trend.For the AlTO,weekly orderslast week were about 8k units,with Li Auto at below 8k units,while Xiaomi was at lessthan 4k units.Only a few brands maintained a relatively stable orders situation,includingXPENG,while NIO's ES8 and L90 may maintain their monthly 7-8k unit sales.Finally,the expert mentioned that the discount ratio for ICE car models is also comingdown in 2H,leading to a new record-high monthly EV penetration rate.We expect 60%+EV penetration in Nov-25.Likely 'tightening policy'in 2026Regarding the policy outlook for the China auto sector,the expert mentioned that hebelieves the trade-in/scrapping policy may continue until end-2027E.Meanwhile,a higherstandard might be introduced for policies looking into 2026E,as the government appearsto be targeting a healthy usage of subsidies looking ahead.According to the expert,nextyear's trade-in subsidy might be set based on a percentage of the ASP for vehicles,andtherefore implying a lower discount for inexpensive models.Also,a 'subsidy lottery'mightProduction Complete:2025-12-01 16:41 UTCbe another way if needed,in order to ensure that the subsidy is not easily misused.WithSee Appendix A-1 for analyst certification,important disclosures and the status of non-US analysts.1 December 2025potential for a tightening policy ahead,market demand might be negative impacted,according to the expert.Therefore,in order to offset such an impact,the expert mentionedthat the government may further support domestic automotive chips and provide subsidyto high-computing-power SoCs.Overall,the expert believes that,in a best-case scenario.local market demand may remain flattish or slightly improve.While the policy timingcannot be easily predicted,the expert believes it could be announced in Jan-26,which issimilar compared with the 2025 situation.Regarding ICE/EV growth,with the EV purchase tax exemption reduced in 2026,Mr.Liubelieves that it may slightly help ICE car models,and upgraded hybrid cars may become achallenger for low-end PHEV models.With the government's anti-involution initiativelaunched in mid-2025,the expert expressed that luxury brands in the local China marketare impacted the most.He mentioned that many BMW 4S shops are closing down andbeginning to embrace NEV players.Shifting focus to exports to be a timely choice for China OEMsThe Ministry of Commerce released its "Country Trade Guide 2025"last week,and theexpert believes that the government appears to be largely encouraging exports lookingahead.And,quite a lot China OEMs have already started building up their footprint in theglobal market.According to the expert,BYD,Chery and Geely all have more than 1kshops in overseas markets,while Great Wall Motor is also approaching 1k.Leapmotorand XPENG might reach 300 shops in the overseas market by end-2025E,and NIO isclosing to 100.On the other hand,OEMs are preparing actively for their new modellaunches in the overseas market.XPENG's three upcoming EREV models to be launchedin 1Q26,will be introduced in overseas markets as well.Leapmotor's Lafa 5 was initiallytailor-made for the EU market,and BYD launched its K-car targeting the Japan market.Meanwhile,Great Wall Motor will also introduce its Ora models in the EU market.Overall.the expert believes that exports growth should more or less help offset potentiallyshrinking demand in the local China market.While price war is no more a valid choice,technology and platform upgrades to bekey competition focus in the futureWith the anti-involution initiative,price wars no longer appear to be a valid strategy in theChina auto market.Looking into 2026E,Mr.Liu believes that equipping large-sizebatteries and probably 5C charging,should be a trend for high-end EV models.Meanwhile,the intellectualization trend will continue,and with leading players'activeinvolvement in such a segment,like Huawei's Limera(LiDAR+Camera capturing 3D pointcloud and image from the same lens,inside the cockpit),intelligent functions or say high-level L2 smart driving capabilities,are likely to become a'must-have'for even low-pricedmodels.e.g.,around the CNY150k level,looking into 2026.2