Chinese automakers may be approaching the bottom of the current demand slowdown after a challenging second quarter, according to Morgan Stanley.
However, the investment bank believes a meaningful recovery in China’s auto market is unlikely to begin before late summer.
China Auto Demand Shows Signs of Stabilizing
Morgan Stanley analysts said recent industry discussions and dealership checks suggest that vehicle sales have started to stabilize.
Nevertheless, consumer demand remains weak. The sector also lacks major earnings catalysts that could improve investor confidence in the near term.
The analysts argued that market sentiment toward Chinese auto stocks is currently more negative than the underlying business conditions justify.
Investor attention has also shifted toward artificial intelligence-related companies, reducing interest in automotive stocks.
June Vehicle Sales May Be Stronger Than Expected
Morgan Stanley expects June auto sales to perform better than headline figures may initially suggest.
Extended mid-year promotions have helped support demand. Government subsidies, lower fuel prices and license-plate incentives in selected cities have also encouraged vehicle purchases.
The bank estimates that passenger vehicle wholesale volumes reached between 6.7 million and 6.9 million units during the second quarter.
That would represent an annual decline of between 3% and 5%. However, it would still mark an improvement from the 8% year-on-year fall recorded during the first quarter.
China Auto Recovery Could Begin in Late Summer
Morgan Stanley expects July to remain seasonally weak for Chinese automakers.
A stronger recovery could emerge during August and September. New vehicle launches, supportive government measures and seasonal demand could combine to improve sales.
Therefore, the late-summer period may provide the clearest opportunity for a turnaround in China’s auto industry.
BYD and Geely Positioned for a Rebound
Morgan Stanley highlighted BYD and Geely Automobile as two Chinese automakers that could benefit from an industry recovery.
Both companies appear well positioned because of their broad product ranges and strong presence in China’s rapidly expanding electric vehicle market.
The bank described Xpeng as a more event-driven investment. Its performance could depend heavily on product launches, company announcements and other specific developments.
Mass-Market Vehicles Could Regain Momentum
The mass-market vehicle segment, particularly models priced at around 150,000 yuan, could experience stronger demand during the second half of the year.
This price category is equal to approximately $20,900.
New products and continued electric vehicle adoption could support sales in this segment. Government incentives may also make these vehicles more attractive to price-conscious consumers.
Luxury Automakers Face Growing Competition
Morgan Stanley warned that premium and luxury vehicle manufacturers continue to face significant structural challenges in China.
Competition is increasing as domestic companies introduce more advanced electric vehicles at competitive prices.
To remain attractive, premium brands may need stronger electric vehicle platforms and more sophisticated driver-assistance technology.
They may also need to offer residual value guarantees, which can reduce concerns about how quickly electric vehicles lose value after purchase.
Without these improvements, luxury automakers could struggle to defend their market share against rapidly developing Chinese competitors.
