CMSC International: The need to overdraft pessimistic expectations has already been reflected this year, and the car stocks have entered the best two-year period for layout.

CMSC International released a research report stating that domestic demand for automobiles will see a moderate improvement in the second half of the year, and by 2027, the industry will transition from weak domestic demand and strong overseas expansion to stable domestic demand and strong overseas expansion. The pessimistic expectations of overspending on domestic demand this year have already been reflected, and the industry is currently experiencing the best layout in two years. The report focuses on domestic demand and overseas leading companies, with GEELY AUTO (00175) as the top pick, BYD Company (01211) as recommended, and XPENG-W (09868) as one to watch. The report indicates that the policy-driven increase in domestic demand in 2025 was primarily seen in the first half of the year, with a significant narrowing of the year-on-year decline expected in the second half to around 10%. The industry is expected to bottom out in domestic demand and witness a moderate recovery driven by policies. In recent weeks, the industry has seen the introduction of four key policies aimed at regulating industry order and promoting structural upgrades, with policy acting as a support. The bank believes that the industry will be relatively optimistic by 2027, making the current period a good time for buying during the industry's two-year low point. In terms of domestic demand, the overspending effect has dissipated, and the industry's growth rate is showing a stable and upward trend. With leading companies such as BYD Company Limited and Geely focusing on overseas markets, next year is expected to see continued high growth with accelerated localization of production and expanded product lines. The market has already factored in the pessimistic expectations of overspending on domestic demand in the first half of the year. Looking at a two-year cycle, the industry is currently at its lowest point, making it the best time for medium to long-term positioning. In the automotive sector, the bank recommends GEELY AUTO, noting the company's recent collaboration on production capacity with Volvo and Ford factories in Europe, marking a key step towards local production in Europe. Over 100,000 vehicles were exported in June, with new energy and high-end models driving growth; BYD Company Limited is also recommended, with its ultra-fast charging strategy solidifying its domestic market base and capacity expansion at overseas factories starting in the second quarter. With exports accounting for over 40%, the company has strong plug-in hybrid vehicles and room for growth in overseas and high-end markets; Long-term attention should be paid to Xiaopeng Group, with three new models expected to boost sales in the second half of the year, and potential for AI valuation elasticity from Robotaxi and Siasun Robot & Automation direction. In the automotive parts sector, focus should be on MINTH GROUP (00425), Fuyao Glass Industry Group (03606), and Weichai Power (02338) with high overseas revenue, clear ASP improvement, or AIDC new business expansion.