Chinese automaker reports set to shine before challenges mount

Chinese automakers are expected to report strong earnings for the third quarter due to a surge in hybrid-vehicle exports, which is expected to offset sluggish domestic demand. Byd, Geely Automobile Holdings, and Zhejiang Leapmotor Technology are among the companies anticipated to post record earnings, with BYD's net income estimated to have jumped the most in six quarters.

However, their outlooks are clouded by export hurdles, including an EU import cap of 350,000 hybrid vehicles per year from China, effective December 1, and a reduction in China's value-added tax export rebate from 13% to 9% starting April 1. Analysts are closely monitoring the companies' views on the upcoming months, as they navigate higher costs from lower tax rebates on NEV (new energy vehicle) exports and rising trade barriers.

The EU's annual quota could potentially exclude 60% of the Chinese automakers' hybrid volume in Europe, with BYD, SAIC Motor, and Chery Automobile being the most vulnerable. Despite the challenges, Chinese EV stocks are expected to show resilience as companies demonstrate margin resilience and localize their manufacturing to support long-term growth and reduce exposure to tariffs and export quotas.