Goldman Sachs has released a research report analyzing the Chinese automotive original equipment manufacturer (OEM) sector. The firm identifies BYD COMPANY (HKG: 01211), LEAPMOTOR (HKG: 09863), and XPENG-W (HKG: 09868) as being in a more favorable position due to accelerating domestic sales growth and expansion of their overseas businesses. This advantage stems from their ongoing pipeline of new export models and expanding sales networks. All three stocks are rated "Buy."
Reassessing the Industry Cycle
The report re-examines the cyclical framework for China's automotive OEM industry. Goldman Sachs posits that industry consolidation requires three conditions to be met simultaneously: (1) OEMs operating at cash cost levels; (2) management compromising on profitability and expansion plans; and (3) OEM balance sheets shifting to a net debt position.
As of the first quarter of 2026, the analysis indicates that 10 out of 14 OEMs remain above cash cost levels. Furthermore, management views on sales volumes, margins, and capacity expansion show significant divergence. Only one OEM is currently in a net debt position. Consequently, Goldman Sachs concludes that industry consolidation is unlikely to materialize in the near term.
Accelerating Downtrend in Earnings Forecasts
The report highlights that market consensus forecasts for the industry's 2026 and 2027 fiscal year EBITDA have undergone four rounds of downward revisions over the past year. This downgrade trend is accelerating, with the most recent revision occurring after first-quarter results, amounting to a 4% cut. This equates to an aggregate reduction of approximately RMB 17 to 18 billion for the industry.
Revised Sector Outlook
In light of weak domestic retail performance, Goldman Sachs has lowered its 2026 China passenger vehicle sales forecast by 5%. The firm now anticipates a 9% year-on-year decline in domestic retail passenger vehicle sales for 2026. Conversely, exports are projected to rise by 30% year-on-year. The penetration rate of new energy vehicles is expected to reach 60%.