Shenwan Hongyuan's latest industry analysis indicates that while second-quarter vehicle sales dipped slightly, robust export performance and a shift toward higher-margin premium models helped cushion the revenue impact. However, net profits across the sector felt the sting of foreign exchange losses.

Data from the quarter shows total vehicle sales of 7.966 million units, a 2.6% year-on-year decline, yet passenger vehicle exports surged 79.2% to 2.51 million units. This export momentum propelled overall industry revenue up 4.8% year-on-year, while net profit fell 13.5% due to currency-related headwinds, according to the research note.

The brokerage's investment framework is built around three core pillars: AI spillover effects, overseas expansion, and high-safety attributes. In the vehicle segment, the focus is on manufacturers with profitable international operations, alongside bus leaders that offer stable competitive advantages and attractive dividend yields. For component suppliers, attention turns to companies transitioning robotics and AI liquid cooling from thematic concepts to tangible industrial trends, as well as key intelligent driving tier-1 suppliers and core supply chain players, plus smaller-cap names with potential for outsized growth.

Second-Quarter Sales Dip, Revenue Edges Up, Profits Under Pressure

Quarterly sales reached 7.966 million vehicles, down 2.6% year-on-year, with passenger vehicles at 6.784 million units (down 4.6%) and commercial vehicles at 1.182 million units (up 10.4%). Weakened demand from earlier purchase pull-forwards and a high comparison base drove the overall decline, but strong export activity—particularly the 79.2% surge in passenger vehicle exports—lifted industry revenue by 4.8%. Net profit, however, contracted 13.5% as foreign exchange losses and other factors weighed on the bottom line.

Passenger Vehicle Sector: Volume Constraints Offset by Export and Premium Mix, Earnings Diverge

The passenger vehicle segment generated 808.2 billion yuan in revenue for the quarter, a 1.3% year-on-year and 20.5% quarter-on-quarter increase. Net profit attributable to shareholders came in at 10.3 billion yuan, down 40.2% year-on-year but up 1.8% sequentially. Gross margin improved to 15.57% (up 0.82 percentage points year-on-year), reflecting a greater proportion of high-margin models in the sales mix, while net margin slipped to 1.28% (down 0.89 percentage points) due to weakened economies of scale and higher finance expense ratios.

Performance diverged notably among automakers: Leapmotor and NIO posted earnings improvements, while Geely Automobile Holdings Ltd (SWHY) benefited from both export growth and premiumization. Conversely, SAIC Motor Corp Ltd saw significant declines amid raw material costs and currency impacts.

Component Sector: Steady Revenue Growth, FX Distorts Profits, Leaders Consolidate

Component suppliers reported revenue of 424 billion yuan, up 8.1% year-on-year and 9.9% quarter-on-quarter, with net profit of 23.3 billion yuan (down 2.0% year-on-year, up 11.7% sequentially). Gross margin held at 18.46% (down 0.3 percentage points), while net margin reached 5.49% (down 0.57 percentage points). Annual price reduction pressures were evident, yet leading companies demonstrated greater resilience through global expansion, diversified customer bases, and new business ventures in robotics, liquid cooling, and other emerging areas. Currency translation losses were the primary drag on second-quarter profitability, though the brokerage expects these pressures to ease gradually.

New Energy Vehicle Segment: Sales Maintain Strong Momentum, Earnings Split

New energy vehicle sales hit 4.48 million units, up 16.1% year-on-year, with penetration reaching 56.3%. Segment revenue grew to 338.7 billion yuan (up 2.1% year-on-year and 34.2% quarter-on-quarter), while net profit of 1.54 billion yuan declined 38.7% year-on-year but rebounded 255.1% sequentially. BYD Co Ltd saw sequential profit recovery despite model transition costs and currency effects, Leapmotor turned profitable, NIO posted strong revenue growth on new model launches, and Li Auto Inc faced margin pressure from its product cycle. The broader trend of narrowing losses among new energy vehicle startups continued.

Commercial Vehicle Segment: Buses Steady, Trucks Revenue Surges

Bus sales reached 168,000 units in the quarter, up 19.7% year-on-year, supported by export demand and trade-in policy incentives. The segment generated 19.69 billion yuan in revenue (up 4.7% year-on-year and 37.2% quarter-on-quarter), with net profit of 1.45 billion yuan (up 11.1% year-on-year and 70.6% sequentially). Truck sales, meanwhile, benefited from policy continuity and robust exports, reaching 1.014 million units (up 9.0% year-on-year). Truck segment revenue surged 22.5% year-on-year to 87.45 billion yuan, with net profit of 1.49 billion yuan climbing 97.4% year-on-year and 26.0% quarter-on-quarter, signaling a sustained recovery in demand.

Investment Strategy: AI, Globalization, and High-Safety Themes Dominate

Within the vehicle segment, the brokerage highlights manufacturers with profitable overseas operations such as BYD and Geely Automobile Holdings Ltd, as well as Yutong Bus Co Ltd for its stable moat and attractive dividend profile. For component suppliers, it recommends players poised to convert robotics and AI liquid cooling themes into industrial-scale growth, including Yinlun Co Ltd, Xinquan Automotive Trim Co Ltd, Shuanghuan Driveline Co Ltd, and Minth Group Ltd, all of which offer earnings support and potential for valuation re-rating. In smart driving, the brokerage favors core tier-1 supplier Desay SV Automotive and key supply chain partner Horizon Robotics. For smaller-cap upside, it points to Fuda Alloy Materials Co Ltd, Longsheng Technology Co Ltd, Hengbo Holdings Co Ltd, and Ningbo Jifeng Auto Parts Co Ltd.

Key risks to the outlook include raw material price volatility, geopolitical uncertainties, and a slower-than-expected industry recovery.