According to a UBS research report, the Chinese auto sector had previously seen a significant pullback, partly due to market worries that Brussels could impose additional tariffs on plug-in hybrid vehicles, and partly reflecting concerns that Beijing might lower the value-added tax export rebate rate. With the VAT policy adjustment now announced, and with China-EU trade negotiations possibly reaching some kind of agreement by Thursday, the bank believes the uncertainties will soon be eliminated. The bank is bullish on BYD Company Limited (01211) and CATL (03750), with target prices of HK$135 and HK$820 respectively.

The Ministry of Finance and the State Taxation Administration announced on Monday that, starting April 1, 2027, the VAT export rebate rate for new energy vehicles will be cut from 13% to 9%. UBS said that although the export rebate rate cut cannot be regarded as a positive for the industry, it still believes the related impact has already been reflected in the recent decline in auto sector share prices, and that the 4 percentage point reduction is relatively mild compared with tariffs added by overseas governments in recent years.

The bank pointed out that sales channels, brand awareness and factory expansion can still continue to drive growth in Chinese automakers' overseas sales, while the potential to launch technologies already used in China, such as fast charging and highway assisted driving, in overseas markets is also one of the growth drivers.

UBS believes that as overseas sales in the industry continue to grow, automakers' overseas profit margins will show resilience in the coming quarters, and at least industry leaders are expected to usher in a valuation re-rating after the related concerns of the past month.

On individual stocks, the bank believes BYD Company Limited (01211) has the best overseas layout, with its Hungary plant expected to begin production within the EU from the end of 2026, and a target price of HK$135. CATL (03750) is expected to benefit from rising demand for pure electric vehicles in the EU and other global markets, with a target price of HK$820.