Orient Securities Company Limited released a research report stating that the automotive industry faced profit and gross margin pressure in Q1 due to subdued sales, intensified market competition, and external factors such as rising raw material costs and exchange rate fluctuations. However, after excluding the impact of foreign exchange, some companies with strong competitiveness and high operational efficiency still achieved year-on-year improvements in net profit and gross margin. The report expects that a marginal improvement in automotive demand and a diminishing impact from foreign exchange in Q2 will likely drive sequential improvements in industry performance. Investors are advised to continue focusing on select competitive companies in the overseas vehicle sector, gas generator/diesel generator industry chains, liquid cooling industry chains, and humanoid robot supply chains. Key points from Orient Securities Company Limited are as follows:

Industry revenue grew steadily in Q1, while the profit side faced year-on-year pressure. In 2025, the automotive industry (including listed and non-listed companies) achieved operating revenue of 11.18 trillion yuan, up 5.0% year-on-year, with total profits of 461.02 billion yuan, down 0.3% year-on-year. In Q1 2026, industry revenue was 2.41 trillion yuan, a slight increase of 0.4% year-on-year, while total profits were 78.35 billion yuan, a significant decrease of 17.2% year-on-year. With the gradual implementation of the automobile trade-in policy and the concentrated launch of key new models around the Beijing Auto Show in April, consumer hesitation in the domestic market is expected to ease in Q2. This is anticipated to lead to a marginal improvement in automotive consumption demand and, consequently, a marginal recovery in industry profitability.

Industry profits were generally weak in Q1, with significant divergence among companies. Excluding foreign exchange effects, profits of some high-quality companies were better than the industry average. In Q1, the total revenue of the vehicle sector (including SW passenger vehicles and SW commercial vehicles) was 514.808 billion yuan, up 1.4% year-on-year. The auto parts sector revenue was 376.281 billion yuan, up 4.1% year-on-year. Revenue performance among vehicle manufacturers diverged in Q1, while most auto parts companies saw year-on-year revenue growth. The year-on-year decline in net profit attributable to the parent company in the auto parts sector was less severe than in the vehicle sector. Passenger vehicle company profits faced overall year-on-year pressure, while commercial vehicle company profits generally improved. Under the impact of external factors such as exchange rate fluctuations and rising raw material prices, profit growth for most auto parts companies slowed in Q1. Excluding foreign exchange effects, profits for some auto parts companies are expected to show significant year-on-year improvement in Q1, outperforming the industry average.

Inventory levels for vehicle companies increased in Q1, leading to a decline in industry turnover. The rise in vehicle inventory was mainly due to increased stock at some automakers. The inventory-to-current-assets ratio for the auto parts sector was 22.1%, remaining relatively stable both year-on-year and sequentially. By the end of Q1, the average inventory turnover days for passenger vehicle enterprises increased slightly year-on-year. Inventory turnover for truck and bus manufacturers remained generally stable, while performance across auto parts companies diverged.

Cash flow diverged among vehicle companies in Q1, while cash flow for auto parts companies improved. Operating cash flow for vehicle manufacturers improved year-on-year in Q1, and cash flow for auto parts companies showed marked improvement.

Related vehicle targets include BYD Company Limited, Geely Automobile Holdings Limited, SAIC Motor Corporation Limited, Anhui Jianghuai Automobile Group Corp., Ltd., Seres Group Co., Ltd., among others.

Related liquid cooling targets include Envicool Technology Co., Ltd., Yinlun Co., Ltd., Ningbo Tuopu Group Co., Ltd., Feilong Auto Parts Co., Ltd., Sichuan Chuanhuan Technology Co., Ltd., etc.

Related gas generator targets include Yinlun Co., Ltd., Weichai Power Co., Ltd., Zhongyuan Nei Power Co., Ltd.

Related robotics targets include XinQuan Automotive Trim Co., Ltd., Ningbo Tuopu Group Co., Ltd., Yinlun Co., Ltd., Shanghai Daimay Automotive Interior Co., Ltd., Sanhua Intelligent Controls Co., Ltd., Changzhou Xingyu Automotive Lighting Systems Co., Ltd., Zhejiang Rongtai New Material Technology Co., Ltd., Ningbo Xusheng Auto Technology Co., Ltd., Jiangsu Rongtai Industrial Co., Ltd., Zhejiang Siling Intelligent Drive Technology Co., Ltd., Ningbo IKD Co., Ltd., Jiangsu Pacific Precision Forging Co., Ltd., Jiangsu Bojun Technology Co., Ltd., Shanghai Huguang Auto Harness Co., Ltd., among others.

Related intelligent driving targets include Beijing Jingwei Hirain Technologies Co., Inc., Bethel Automotive Safety Systems Co., Ltd., Desay SV Automotive Co., Ltd., etc.

Risk warnings include potential impact from macroeconomic downturn on automotive demand, fluctuations in upstream raw material prices, and pressure from price competition among automakers.