J.P. Morgan China Auto Industry: A Slow Start to the Year; Entry Point May Emerge from March
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The Chinese automotive industry is experiencing a sluggish start in 2026, despite the government extending its vehicle trade-in subsidy program late in the previous year. J.P. Morgan's field research indicates that showroom traffic and order flows have not rebounded, primarily because the renewed subsidies feature reduced amounts and were already widely anticipated by the market. Several brands, including BYD, Zeekr, and Toyota, are offering supplementary cash discounts to stimulate buyer interest.
Reflecting this weak demand, J.P. Morgan has downgraded its 2026 passenger vehicle retail growth forecast to a 2% contraction, while lowering the wholesale growth estimate to 2%, buoyed only by strong export growth of 15%. First-quarter passenger vehicle demand is expected to fall significantly below seasonal trends due to front-loaded demand, diminished subsidies, and buyers waiting for new models or potential post-conference policy updates. The J.P. Morgan China Auto Sentiment Index has similarly softened from historical highs.
However, the research anticipates that quarter-over-quarter demand will rebound in the second quarter, potentially creating an attractive entry point around March. Catalysts include the Beijing Auto Show and potential consumer confidence improvements following the Two Sessions. J.P. Morgan favors specific automakers expected to bottom out by the second quarter, maintaining Overweight ratings on BYD, Geely, and Leapmotor. XPeng is highlighted for its artificial intelligence narrative, while NIO offers potential earnings surprises. Li Auto retains a Neutral rating.