Goldman Sachs: Short-term integration of China's automobile industry is difficult to achieve, and the trend of profit downgrading is accelerating.

Goldman Sachs released a research report stating that among the companies covered by the bank, BYD COMPANY (01211), LEAPMOTOR (09863), and XPENG-W (09868) are all in a more favorable position in terms of accelerating domestic sales growth and expanding overseas business, benefiting from the continuous expansion of new export vehicle models and sales networks. They are all rated as "buy". The bank re-examined the cyclical framework of the Chinese automotive original equipment manufacturer (OEM) industry. The bank believes that industry consolidation requires three conditions to be met simultaneously: (1) OEMs are at cash cost levels; (2) management compromises on profitability and expansion; (3) OEM balance sheets turn to net debt. As of the first quarter of 2026, 10 out of 14 OEMs are still above cash cost levels; management has different views on sales/profit margins/capacity; only one OEM is in net debt. Goldman Sachs believes that industry consolidation will be difficult to achieve in the short term. The bank pointed out that the market consensus forecasts for EBITD of the Chinese OEM industry for the fiscal years 2026 and 2027 have experienced four rounds of downward revisions in the past year, with the downward trend accelerating. The latest downward revision after the first quarter's performance is 4%, equivalent to a total industry downgrade of 1.7 to 1.8 billion RMB. Goldman Sachs lowered its 2026 forecast for the Chinese passenger car industry sales by 5% to reflect weak domestic retail, forecasting a 9% year-on-year drop in domestic retail passenger car sales in 2026, while exports are expected to increase by 30%. The penetration rate of new energy vehicles is expected to reach 60%.