Guosen: The overall growth dividend of the automotive industry is fading, AI iteration is driving industry upgrades and creating new investment opportunities.

Guosen released a research report stating that while the automobile industry is undergoing a transformational opportunity brought about by the rapid iteration of AI large models, it is also facing pressure as the total volume dividend gradually diminishes. The association logic between industry prosperity and sector valuation has become more complex as a result. Seize the opportunity of industrial upgrading and look forward to the investment opportunities brought about by the progress of AI in industrial upgrading. Optimistic about the trend of the automotive industry upgrading from traditional manufacturing to embodied intelligent industry under the iteration of artificial intelligence technology. Guosen's main points are as follows: What is the relationship between the prosperity of the automotive industry (total volume growth rate) and the valuation of the automotive sector? Currently, the automotive industry is not only facing the pressure of the gradual disappearance of the total volume dividend but also embracing the transformative opportunity of the rapid iteration of AI large models. The association logic between industry prosperity and sector valuation has become more complex. Therefore, the bank adopts a combination of qualitative and quantitative analysis to systematically explore the relationship between industry prosperity and sector valuation in the automotive industry, providing investment strategies and analysis framework for the automotive industry in the era of low growth. Can sector valuation be related to industry prosperity? It is related and valuation precedes prosperity. Reviewing the 20-year history of the automotive industry, in years of high prosperity (high sales growth), the performance of the automotive sector market has definitely improved (but not every time the boost of the automotive sector market performance comes from high prosperity). Long-termly, there is a positive correlation between sector valuation and prosperity, and the fitted analysis shows that the monthly valuation of the automotive sector is about one month ahead of the monthly sales growth rate, implying future sales growth expectations. Is high valuation necessarily driven by high prosperity? Not necessarily, prosperity is a sufficient non-necessary condition for valuation. After 2019, the positive correlation between the automotive market and prosperity has weakened, showing two major effects: 1) Decoupling effect: prosperity is a sufficient but not necessary condition for valuation, the traditional logic of "sales growth driving valuation" is weakening, and the two are clearly decoupled; 2) Asymmetry effect: going deeper, the impact of prosperity on valuation has an asymmetry effect, high prosperity can drive industry valuation upwards, but low prosperity does not necessarily lead to a decline in valuation, high industry valuation does not necessarily need high prosperity as a basic driver. Why is there a decoupling of prosperity and sector valuation? Trinitarian cycle determinism The automotive industry has three major attributes: a large consumer goods industry (demand-side factors) + a technology-intensive industry (supply-side factors) + a strategic industry (policy-side factors), corresponding to the macroeconomic cycle (10 years+), industry technological cycle (5 years+), and policy cycle (1-3 years), collectively affecting the fundamental aspects (total volume, structure) of the automotive industry and sector valuation. The decoupling of sector valuation and prosperity in the automotive sector is not a coincidental short-term phenomenon but the result of the transition of the dominant cycle in the Chinese automotive industry to a mature stage. The dominant cycles switch from macroeconomic cycles + policy cycles to industry technological cycles, making structural opportunities (SUVs, new energy, intelligence, etc.) become new driving forces for valuation, ultimately weakening the correlation between prosperity and valuation. How to look at total volume and market after 2025? Normalize low-growth volume, focusing on new industrial cycle opportunities brought by AI technology In terms of total volume, the total volume of the Chinese automotive industry has entered a stage of normalized low growth, and it is expected that the overall sales volume of automobiles will remain stable in the future, with the growth rate of new energy passenger car sales expected to slow down. Structural market opportunities come from going global/intelligent vehicles/Siasun Robot&Automation, with increased differentiation in individual stock valuations after 2026. Risk warning: Industry progress and technological development fall short of expectations.