China Galaxy Securities Co., Ltd. has released a research report stating that the introduction of Tesla's Full Self-Driving (FSD) system into China will increase consumer willingness to pay for advanced intelligent driving features. This shift is expected to propel the industry from a focus on supply-side proliferation towards an upgrade in user experience and a demand-driven, paid model, serving as a significant catalyst for the industry's intelligent evolution. The firm maintains a positive outlook on the smart driving sector, noting that the implementation of FSD is likely to drive valuation recovery and performance realization for core intelligent components such as wire-controlled chassis, sensors, and domain controllers.
Key points from China Galaxy Securities' analysis are as follows: The China Association of Automobile Manufacturers (CAAM) released production and sales data for April. In terms of total volume, sales declined both year-on-year and month-on-month. This is primarily attributed to price structure adjustments by some automakers, tightening of financial schemes, and a resurgence in cost pressures from upstream materials like lithium carbonate and memory chips. These factors have increased the purchasing threshold for consumers and operational pressure for manufacturers, temporarily suppressing end-market transactions. Structurally, domestic demand remains weak, while exports continue to show strong momentum against a backdrop of rising oil prices and the global push for electrification.
Looking ahead, on one hand, given the weakening domestic demand in Q1 and the sustained pressure on April sales, year-on-year domestic demand in Q2 is likely to remain under pressure. However, with the concentrated deliveries of new models post-auto shows and the continuous rollout and local enhancement of the "old-for-new" trade-in policy details under the national framework, a sequential month-on-month improvement in domestic demand appears more certain. On the other hand, overseas demand for new energy vehicles remains robust. In a high oil price environment, the proportion of new energy vehicle exports is increasing, and order demand persists, suggesting exports are expected to maintain a high level of operation.
In April, automobile production reached 2.575 million units, down 1.7% year-on-year and 11.7% month-on-month. Sales were 2.526 million units, down 2.5% year-on-year and 12.9% month-on-month. Domestic sales accounted for 1.625 million units, a significant decrease of 21.6% year-on-year and 19.7% month-on-month. The year-on-year and month-on-month decline in the domestic market is attributed to a high base effect from last year's policy subsidies, making the weak year-on-year performance align with expectations, while the month-on-month drop follows the seasonal pattern of reduced effective sales days due to the Qingming Festival and spring holidays. Export sales reached 901,000 units, surging 74.4% year-on-year and increasing 3% month-on-month, continuing a strong growth trend amid high overseas demand.
The China Automobile Dealers Association forecasts that the retail market for passenger cars in May will reach approximately 1.52 million units, a 9.9% increase from April. New energy vehicle retail sales are expected to be around 950,000 units, up 12% month-on-month, with a penetration rate of about 62.5%. From May 1st to 10th, national passenger car retail sales were 407,000 units, down 21% year-on-year but up 36% compared to the same period last month.
Tesla's FSD (Supervised) version has been officially included in China's open list, accelerating the pace of intelligent driving industrialization. On May 21, 2026, Tesla announced the inclusion of China in the global open list for its FSD (Supervised) version. The version being introduced is based on the UN R-171 regulation and is classified as an L2+ advanced driver-assistance system, not fully autonomous driving, with driving responsibility remaining with the driver. The functionality is currently under domestic regulatory review and has not yet been rolled out to general users. Tesla's CFO indicated in April that FSD is expected to receive approval in China in the third quarter of this year.
Reviewing the bi-weekly market performance by sub-sector: Auto Parts, Commercial Vehicles, Motorcycles & Others, Sales & Services, and Passenger Vehicles saw changes of +0.67%, -0.05%, -2.22%, -5.89%, and -8.10%, respectively. In terms of valuation, the Price-to-Earnings (P/E) ratios for Sales & Services, Auto Parts, Motorcycles & Others, Passenger Vehicles, and Commercial Vehicles are 31.58x, 30.98x, 26.93x, 23.24x, and 20.95x, respectively. The Price-to-Book (P/B) ratios for Motorcycles & Others, Auto Parts, Commercial Vehicles, Passenger Vehicles, and Sales & Services are 3.41x, 3.18x, 2.42x, 1.74x, and 1.39x, respectively.
Risk warnings include: the risk of automobile sales falling short of expectations; the risk of policy effects being weaker than anticipated; the risk of intensifying industry competition; and the risk of humanoid robot mass production falling below expectations.
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