According to a research report from Gf Securities Co.,Ltd., replacement demand is expected to become a new driver for the growth of passenger vehicle sales volume in the coming period. Replacement demand equals scrappage replacement volume plus used vehicle replacement volume. Considering factors such as the stabilization of terminal prices, a marginal decline in oil prices, and the utilization of old-for-new subsidy quotas, a recovery in domestic passenger vehicle demand in the second half of 2026 is anticipated. From a medium-to-long-term perspective, replacement demand could support a steady-state domestic demand center for passenger vehicles at 21 million units, and 2026 may have already seen the bottom for domestic passenger vehicle demand.
Medium-to-Long-Term Outlook: Replacement Demand as a Pillar
From a medium-to-long-term viewpoint, replacement demand can support a steady-state domestic demand center for new passenger vehicles at 21 million units. Replacement demand is defined as scrappage replacement volume plus used vehicle replacement volume. (1) Scrappage Replacement Volume: The growth in the passenger vehicle parc aged over 10 years supports an increase in scrappage replacement. It is estimated that the passenger vehicle parc aged over 10 years from 2026 to 2030 will be 113 million, 122 million, 128 million, 133 million, and 138 million units, respectively. Assuming a scrappage rate of 11%, considering the diminishing marginal effects of stimulus and potential overconsumption, the estimated year-on-year increases in scrappage replacement volume from 2026 to 2030 are +560,000, +980,000, +710,000, +590,000, and +500,000 units, respectively. (2) Used Vehicle Replacement Volume: The growth in the average age of the passenger vehicle parc, coupled with an accelerating replacement ratio as vehicle age increases, jointly supports incremental replacement demand. According to the China Automotive Technology and Research Center, the average age of the passenger vehicle parc was 7.5 years by the end of 2025. As the average age increases, consumer willingness to replace vehicles continues to rise. In 2024, among replacement buyers, the proportions of old vehicles aged 8 years and above, 5-8 years, 3-5 years, and 2-3 years were 46.2%, 24.6%, 11.9%, and 5.6%, respectively. Considering the growth in average parc age, it is assumed that used vehicle replacement volume grows by 3% annually from 2026 to 2030. (3) First-Time Purchase Demand: Referencing historical data and considering factors such as ride-hailing development and macroeconomic conditions, it is assumed that the annual number of new drivers from 2026 to 2030 will decrease by 12%, 5%, 5%, 5%, and 5%, respectively. Assuming a first-time purchase conversion rate of 70%, this corresponds to decreases in first-time purchase demand of 2.28 million, 840,000, 790,000, 750,000, and 660,000 units from 2026 to 2030, respectively. Consequently, the proportion of replacement demand in total passenger vehicle demand from 2026 to 2030 is projected to be 65%, 66%, 68%, 69%, and 71%, respectively.
Short-Term Recovery Prospects
From a short-term perspective, considering factors such as the stabilization of terminal prices, a marginal decline in oil prices, and the utilization of old-for-new subsidy quotas, a recovery in domestic passenger vehicle demand in the second half of 2026 is anticipated. Historical analysis suggests that rising oil prices are expected to reduce the year-on-year growth rate of passenger vehicle terminal sales in 2026 by approximately 7%. According to compulsory traffic insurance data, from January to May 2026, sales of EVs, PHEVs, HEVs, and fuel vehicles were 2.36 million, 1.16 million, 350,000, and 3.04 million units, respectively, representing year-on-year changes of -9.1%, -27.3%, -0.1%, and -22.9%. Looking ahead, price serves as a leading indicator for demand. The bottoming and stabilization of prices will further help convert consumer wait-and-see demand into actual purchases. In 2026, under the dual constraints of "anti-involution" and rising raw material costs, automakers' competitive strategies have largely shifted towards "adding features and raising prices" or "official price increases." According to the National Bureau of Statistics and compulsory traffic insurance data, the average selling price (ASP) for passenger vehicles from January to May 2026 increased by 7.8% year-on-year. In terms of discount rates, the terminal discount rates for domestic fuel vehicles and new energy vehicles in June 2026 were 23.3% and 9.1%, respectively, flat year-on-year and down 0.1 percentage point, and up 0.8 and down 0.5 percentage points month-on-month, respectively.
Investment Recommendations
From a medium-to-long-term perspective, replacement demand can support a steady-state domestic demand center for passenger vehicles at 21 million units, and 2026 may have already seen the bottom for domestic passenger vehicle demand. Considering the diversified needs of investors, efforts are made to provide a "shelf-style" reference suggestion corresponding to different sources of returns. Within the passenger vehicle chain, right-side (referring to "operational fundamentals") targets include: Geely Automobile Holdings Ltd, BYD Company Limited (joint coverage with the new energy team), Chery Automobile Co., Ltd., Seres Group Co., Ltd., XPeng Inc., and Leapmotor. Left-side targets include: Li Auto Inc. and Changan Automobile Co., Ltd.. Targets at or nearing an inflection point include: Great Wall Motor Company Limited (A/H shares) and SAIC Motor Corporation Limited. It is also suggested to monitor: Jianghuai Automobile Group Corp., Ltd..
Within the upstream and downstream chains of passenger vehicles, right-side targets include: Minth Group Ltd, Yinlun Co., Ltd., Zhongchuang Zhiling (A/H shares), Bethel Automotive Safety Systems Co., Ltd., Ningbo Tuopu Group Co., Ltd., Ningbo Die Casting Technology Co., Ltd., Fuyao Glass Industry Group Co., Ltd. (A/H shares), Keboda Technology Co., Ltd., China Automotive Engineering Research Institute Co., Ltd., Jiangsu Xinquan Automotive Trim Co., Ltd., Chengdu Haoneng Technology Co., Ltd., Huayu Automotive Systems Company Limited, etc. Left-side targets include: Yongda Automobiles Services Holdings Limited and New Coordinate Technology Co., Ltd.. Targets at or nearing an inflection point include: Nexteer Automotive Group Limited and Jifeng Auto Parts Co., Ltd., etc.
Caveats and Risks
Risks include: a decline in industry sentiment; intensification of industry competition; and potential deviations between medium-to-long-term calculations and actual conditions.
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