Morgan Stanley released a report indicating that electric vehicle (EV) manufacturers may continue to face challenges over the next decade, requiring self-reinvention to capitalize on opportunities brought by artificial intelligence (AI). The bank also adjusted target prices for several auto stocks, including raising Great Wall Motor's (02333) target price by 23% to HK$15, while slashing Li Auto's (02015) target price by approximately 20%.

According to the report, recent quarterly earnings from Chinese automakers suggest that EV companies could encounter prolonged difficulties in the coming years. To succeed in this second phase, automakers must innovate to leverage AI-driven opportunities and expand globally. The report noted that the early withdrawal of local subsidies may suppress car demand, leading to cautious outlooks among automakers for the current quarter. About half of the covered auto stocks are expected to see market declines.

Morgan Stanley forecasts China's wholesale auto sales to reach 29.9 million units in 2024, up 9% year-on-year, before dropping 6% to 28.5 million units in 2025. Excluding exports, domestic sales are projected to decline by 7% next year.

The bank revised target prices for several automakers, including raising Great Wall Motor's target from HK$12.2 to HK$15 with an "Equal-weight" rating, and increasing Geely Auto's (00175) target from HK$24 to HK$25 with an "Overweight" rating. Li Auto retained an "Overweight" rating, but its target price was cut from HK$124 to HK$100.

The report highlighted that during the industry's transformation, Morgan Stanley favors companies making tangible progress in non-automotive sectors such as AI, robotics, and humanoid technology, including XPeng (09868), Hesai, and AgileTech (00425).