China Galaxy Securities released a research report stating that the passenger vehicle market showed significant divergence in trends during December. The implementation of the 2026 vehicle scrappage policy, featuring proportional subsidies that particularly benefit the 150,000-200,000 RMB price segment, is expected to stimulate the mid-to-high-end market. Although the subsidy intensity follows a gradient phase-down, its earlier launch compared to last year, coupled with a substantial backlog of year-end orders still awaiting delivery at some companies, is generally conducive to stabilizing consumer expectations; the bank anticipates a smooth transition for January sales. The report recommends leading passenger car manufacturers currently in strong new product cycles, as well as companies in the intelligent vehicle supply chain and the humanoid robot industry chain. The main viewpoints of China Galaxy Securities are as follows.
In December, with the year-end expiration of the purchase tax exemption policy for new energy vehicles (NEVs), the auto market was expected to enter a year-end rush-buying phase. However, the exhaustion of budget funds for scrappage policies in most provinces and cities created a hedging effect against purchase incentives, further compounded by adjustments to the vehicle scrappage policies themselves, resulting in clearly divergent market trends. According to data from the China Passenger Car Association (CPCA), retail sales of passenger vehicles nationwide in December reached 2.261 million units, a year-on-year decrease of 14.0% but a month-on-month increase of 1.6%. Wholesale sales by manufacturers reached 2.789 million units, down 9.0% year-on-year and down 7.0% month-on-month. Regarding inventory, December wholesale sales minus export volume were 2.201 million units, 60,000 units lower than retail sales, indicating an overall inventory reduction of 60,000 units for passenger vehicle manufacturers as cautious markets prompted proactive destocking by dealers and automakers. The wave against internal competition is driving price wars towards stabilization; NEV promotions in December remained around 10%, without showing a clear trend of trading price for volume.
In the NEV sector, retail sales of new energy passenger vehicles in December reached 1.337 million units, up 2.6% year-on-year. NEV wholesale sales reached 1.563 million units, up 3.3% year-on-year. The NEV retail penetration rate in December was 59.1%, an increase of 9.6 percentage points year-on-year, while the wholesale penetration rate was 56.0%, up 6.6 percentage points year-on-year. For exports, passenger vehicle exports (including complete vehicles and CKD kits) in December reached 588,000 units, surging 46.2% year-on-year. Exports of new energy passenger vehicles reached 273,000 units, skyrocketing 119.8% year-on-year, with an export penetration rate of 46.4%, up 15.4 percentage points year-on-year.
The 2026 vehicle scrappage policy has been implemented, with proportional subsidies favoring the 150,000-200,000 RMB price segment, which is expected to stimulate the mid-to-high-end market. On December 30, 2025, the National Development and Reform Commission and the Ministry of Finance issued a notice regarding the "Policy on Implementing Large-Scale Equipment Updates and Consumer Goods Scrappage for Replacement in 2026." Compared to the 2025 policy, the subsidy method for 2026 shifts from a fixed amount to a proportional subsidy based on the total post-tax price of the new vehicle, while the maximum subsidy amounts remain unchanged from 2025. Under the new policy, subsidies for scrapping or transferring an old vehicle and purchasing a new energy passenger car listed in the "Catalogue of NEV Models Exempt from Vehicle Purchase Tax" or a fuel-powered passenger car with an engine displacement of 2.0 liters or below are set at 12% of the vehicle price (capped at 20,000 RMB) and 8% (capped at 15,000 RMB), respectively. For purchasing a fuel-powered passenger car with a displacement of 2.0 liters or below, the subsidies are 10% (capped at 15,000 RMB) and 6% (capped at 13,000 RMB), respectively. From a price structure perspective, the vehicle prices required to reach the subsidy caps for scrappage replacement and trade-in replacement are approximately 166,700 RMB for NEVs / 150,000 RMB for fuel vehicles and 187,500 RMB for NEVs / 216,700 RMB for fuel vehicles, respectively. Overall, the proportional subsidy mechanism will relatively weaken the marginal incentive for lower-priced segments, comparatively benefiting the 150,000-200,000 RMB segment and favoring an improvement in the sales structure of new vehicles. In terms of funding scale, the first batch of 62.5 billion RMB in ultra-long-term special treasury bonds to support consumer goods scrappage for replacement has been allocated in advance. Compared to the approximately 300 billion RMB for the full year of 2025, the total scale for 2026 is expected to contract somewhat. The bank believes that the new 2026 auto scrappage subsidy policy aligns with the orientation of avoiding price wars and internal competition, and is expected to promote the mid-to-high-end market.
Looking ahead to January 2026, intensified consumer wait-and-see attitudes towards car purchases at the end of 2025 have accumulated some momentum for the early 2026 auto market. Although the 2026 scrappage policy features a gradient phase-down in subsidy intensity, its earlier start compared to last year, combined with the significant volume of year-end orders still pending delivery at some companies, overall helps stabilize consumer expectations; a smooth transition for January sales is anticipated.
Reviewing the bi-weekly market performance, across sub-sectors, the gains/losses for Auto Parts, Commercial Vehicles, Passenger Vehicles, Motorcycles & Others, and Sales & Services were +7.24%, +2.80%, +2.08%, +1.15%, and +0.94%, respectively. In terms of valuation, the price-to-earnings (P/E) ratios for Sales & Services, Auto Parts, Motorcycles & Others, Passenger Vehicles, and Commercial Vehicles were 36.18x, 33.83x, 26.73x, 22.74x, and 16.73x, respectively. The price-to-book (P/B) ratios for Motorcycles & Others, Auto Parts, Passenger Vehicles, Commercial Vehicles, and Sales & Services were 3.77x, 3.51x, 2.10x, 1.89x, and 1.54x, respectively.
Risk warnings include: 1. Risk of auto sales falling short of expectations; 2. Risk of policy effects being weaker than anticipated; 3. Risk of intensifying industry competition; 4. Risk of humanoid robot mass production falling short of expectations.
