CITIC SEC has released a research report stating that the auto industry's trade-in policy is highly likely to continue in 2026, but Q1 may still face a period of demand overdraft. Investors are advised to focus on globally competitive Chinese enterprises and embrace new industry trends. Key investment opportunities in H1 2026 include: 1) Leading passenger and commercial vehicle manufacturers with strong overseas profitability; 2) Top autonomous driving firms, upstream supply chains, and L4 companies benefiting from accelerated adoption; 3) Humanoid robotics trends, which will drive both earnings and valuations, particularly upstream component suppliers for companies like Tesla.
**Passenger Vehicles**: The trade-in policy is expected to extend into 2026, but Q1 may mark the industry's weakest period due to policy-driven demand overdraft lasting 3–4 months. China's 2025 passenger vehicle wholesale sales reached 24.17 million units (+12.8% YoY), with NEVs accounting for 12.18 million (+32% YoY, 50.4% penetration). The growth was fueled by trade-in subsidies and export growth. Full-year 2025 subsidies are projected at 16.5 billion yuan, boosting sales by 3.66 million units. In 2026, NEV purchase tax incentives will phase out, and while trade-in policies may persist, adjustments could temper demand. CITIC forecasts 2026 total auto sales at 35.25 million (+1.5% YoY), with passenger vehicles (including exports) at 30.2 million (-1.5% YoY) and NEVs at 18.11 million (+14.9% YoY). Overseas sales may grow 14.4% to 7.94 million units. Despite Q1 pressure, recovery is expected from Q2 onward, presenting a strategic window for long-term investments in globally competitive automakers.
**Autonomous Driving**: Data-driven models are advancing rapidly, with L2 penetration accelerating and L4 commercialization beginning. In 2025, highway and urban NOA adoption reached 16% and 14%, respectively (3.63 million and 3.33 million units). By 2026, these figures may rise to 21% and 22%. Key trends include: 1) Surging model parameters; 2) Emerging world models and reinforcement learning; 3) Nvidia Orin-X performance bottlenecks spurring local chip R&D; 4) L2 firms exploring L4 commercialization; 5) A "one leader, four challengers" competitive landscape. Regulatory updates (e.g., 2027 L2 safety standards) and L4 deployments (Robotaxi, Robovan, mining) warrant investor attention.
**Humanoid Robotics**: Tesla's "Master Plan Part 4" highlights AI-powered physical automation, with Optimus robots projected to comprise 80% of Tesla's future value. The V3.0 model is slated for Q1 2026 release, with mass production by year-end. China's policy support aims for >90% smart agent adoption by 2030. Domestic firms are launching new products and preparing IPOs, mirroring the NEV supply chain's rise. China's manufacturing edge positions it as a key player in cost-efficient robotics production.
**Commercial Vehicles**: Overseas demand remains robust, while domestic replacement cycles loom. 2025 Jan–Oct sales hit 3.47 million units (+9% YoY), with heavy trucks (+24%) and buses (+5%) leading. The 2025 trade-in policy boosted heavy truck sales by 126k units (17% of domestic demand). Despite policy uncertainty, 2026 may see further subsidies, with 600k+ outdated trucks still in use. Exports grew strongly (heavy trucks: +12%; buses: +29% YoY), as Chinese firms outperformed global peers.
**Two-Wheelers**: Domestic upgrades and overseas expansion drive profits. New standards are consolidating the market, favoring smart, premium products. Post-2025 inventory adjustments signal recovery, with electrification potential at 10–25%. Motorcycle exports surged 59.1% in 2025, while overseas EV cost advantages bolster growth.
**Risks**: Trade conflicts, supply chain disruptions, weak macro demand, policy shortfalls, chip shortages, raw material inflation, autonomous driving accidents, data privacy issues, and waning confidence in NEV/smart tech prospects.
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