Author: Bao Yilong
Source: Hard AI
The era of solely focusing on automobile sales data is coming to an end; the investment value of the future automotive industry chain will be anchored in companies that possess a &#34;second growth curve.&#34;
On October 12, Morgan Stanley published a research report indicating that high-quality electric vehicles have become the industry standard, and the real innovation opportunities in the automotive industry chain lie in breakthroughs in the AI ecosystem. The report proposed the &#34;3A&#34; opportunities that will determine the future, namely Autonomous Driving, AI embodiment, and AI Data Center (AIDC).
If traditional vehicle sales companies can achieve substantial breakthroughs in the &#34;3A&#34; field, they are expected to unlock an additional market value space of up to USD 2-3 trillion. The report is particularly optimistic about XPeng and lidar supplier Hesai, which have made specific breakthroughs in the AI field.
<h2>Market Environment Improves but Cyclical Pressures Remain</h2>
The report pointed out that due to the &#34;panic buying&#34; before the expiration of stimulus policies and the launch of numerous new models, sales in the fourth quarter of 2025 will be driven, with a quarter-on-quarter growth of 19%.
Therefore, the report raised its forecast for total automobile sales in China in 2025 by 6% to 29.9 million units, a year-on-year increase of 9%. Among them, the forecast for new energy vehicle (NEV) sales was raised by 2% to 15.2 million units, a year-on-year increase of 24%, with a penetration rate expected to reach 51%.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/99e2191f-bd50-44f8-b9b0-1af8170bdeb1.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/99e2191f-bd50-44f8-b9b0-1af8170bdeb1.png"/> (It is expected that the proportion of pure electric vehicles in the total sales of new energy vehicles in China will remain around 63% in 2026)
However, the report maintains its forecast for 2026, expecting automobile sales to decline by 5% year-on-year. The main reasons are twofold:
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First, the sales in 2025 have preempted some demand.
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Second, the purchase tax for new energy vehicles will be raised to 5% in 2026.
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The report noted that the government's subsidy policy remains uncertain for next year. However, new energy vehicle sales are expected to grow by 8% year-on-year, and export sales are also expected to increase by 4% year-on-year.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/25414341-17a2-423b-9072-20952554215c.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/25414341-17a2-423b-9072-20952554215c.png"/> (It is expected that by 2026, the wholesale sales of new energy vehicles in China will increase by 8% year-on-year, reaching 16.5 million units)
Analysts emphasize that concerns about the cessation of stimulus policies may lead investors to overlook the strong performance of the automotive industry in the fourth quarter and instead seek new investment opportunities to hedge against the cyclical risks of the automotive industry in the first half of 2026.
<h2>The Next Stop for Automotive Companies is &#34;3A&#34;</h2>
Morgan Stanley pointed out that as the homogenization of electric vehicles accelerates, high-quality electric vehicles have become the standard, and true innovation and valuation differences will be reflected in the application of AI
Automakers must embark on a &#34;second act&#34; to reshape themselves as broader participants in the AI ecosystem. The report summarizes these opportunities as &#34;3A&#34;:
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Autonomous Driving:
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Generative AI in simulation training, the reduction of technical costs brought by East-West collaboration, and progressive regulatory support are collectively accelerating the adoption of L2+ level intelligent driving and Robotaxi.
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Mainstream applications are expected to begin in developed markets by 2026.
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AI Embodiment:
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The automotive supply chain has a natural advantage in developing humanoid robots. There is significant overlap in computing power, algorithms, and Bill of Materials (BoM) costs between autonomous vehicles and humanoid robots.
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Some Chinese automakers aim to commercialize and mass-produce humanoid robots starting in 2026, which may become the next &#34;must-have&#34; for automakers following electric vehicles and flying cars (eVTOL).
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AI Data Center Ecosystem (AIDC):
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The enormous computing power demand from humanoid robots and autonomous driving will drive the demand for AI data centers.
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Automotive parts manufacturers, especially those with technical expertise in areas such as cooling systems and high-speed connectors, are steadily entering the AIDC ecosystem.
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<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7d2b86bd-a767-467e-9feb-16811d8c2539.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/7d2b86bd-a767-467e-9feb-16811d8c2539.png"/> (The future development direction of automotive OEMs)
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<h2>AI-Driven Trillion-Dollar Market Value Increment, Valuation System Faces Restructuring</h2>
The report predicts that by 2030, smart electric vehicles will add $2-3 trillion in market value for automakers, equivalent to 10 times the total addressable market (TAM) for global intelligent driving in 2030.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4aed34b0-319c-45a1-9205-dc99050fcfa3.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/4aed34b0-319c-45a1-9205-dc99050fcfa3.png"/> (Smart electric vehicles will bring trillions of dollars in market value growth, equivalent to 10 times the total size of the intelligent driving market in 2030)
While vehicle sales may still be the primary source of revenue, non-vehicle businesses, including Robotaxi, flying cars, humanoid robots, and potential recurring revenue from licensing and services, will provide new profit opportunities for automakers.
As the industry enters a new round of technological transformation, stock valuations will increasingly reassess company value using the &#34;Sum of the Parts&#34; (SOTP) method, attracting investors from technology, media, and telecommunications (TMT) sectors. Startups and tech companies with first-mover advantages are expected to achieve valuation multiples far exceeding those of traditional automakers.
In addition, the report points out that since the end of 2024, the yield on 10-year government bonds has fallen below 2%, while this yield was about 4% in 2017. Therefore, Morgan Stanley's strategy team has lowered the risk-free rate used for valuing the Chinese automotive industry from 4% to 3%.
Based on these factors, analysts expect that in the next 6 to 12 months, in addition to upward adjustments in earnings expectations, the valuations of Chinese automotive manufacturers and parts companies will also receive favorable support.
<h2>Selected Cross-Industry and Recovery Targets</h2>
Based on the &#34;3A&#34; framework, the report provides a clear order of investment preferences:
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<li>Preferred cross-industry AI companies. Strongly optimistic about companies that achieve concrete breakthroughs in non-automotive fields (especially AI and humanoid robots). Specifically naming XPeng and Hesai.</li>
<li>Positive outlook on leading new car manufacturers. The report remains optimistic about new forces such as XPeng, Li Auto, and NIO, believing that their faster model iterations, leading intelligent driving technologies, and potential &#34;3A&#34; opportunities will support long-term growth.</li>
</ul>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/14cf7ea2-e529-4660-a4fe-8ee209cf42de.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/14cf7ea2-e529-4660-a4fe-8ee209cf42de.png"/> (Morgan Stanley's rating ranking for electric vehicles, left high, right low)
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<li>Focus on state-owned enterprises with delayed recovery. For investors focused on the automotive sector itself, state-owned car companies like SAIC Motor and Dongfeng Motor, which have delayed recoveries, are favored due to their better safety margins in 2026.</li>
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<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/59324711-5d90-44a6-93bc-ca5db88ac08b.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/59324711-5d90-44a6-93bc-ca5db88ac08b.png"/> (Morgan Stanley's rating ranking for state-owned OEM companies, left high, right low)
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The report notes that while the popularization of new technologies takes time, the impact will soon be reflected in investor perceptions, strategic actions (mergers, strategic partnerships, etc.), and most importantly, stock valuations.
Additionally, Morgan Stanley emphasizes that not all companies will successfully transform, as this requires repositioning capacity, reusing technology, organizational redevelopment, and reinvestment in distribution and sustainability. There are not many companies willing to take risks in seeking winning solutions amid AI disruption. Investors should also be wary of the potential for weak demand in early 2026 and how price wars may undermine the quality of year-end sales rebounds

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Morgan Stanley believes that the era of solely focusing on automobile sales data is coming to an end. In the future, the investment value of the automotive industry chain will be anchored in companies that possess a "second growth curve." If traditional vehicle sales companies can achieve substantial breakthroughs in the "3A" field, they are expected to leverage an additional market value space of up to USD 2-3 trillion

- Morgan Stanley's report highlights a shift in the automotive industry, emphasizing the importance of companies with a "second growth curve" focused on AI innovations.  
- The report identifies three key opportunities—Autonomous Driving, AI Embodiment, and AI Data Centers—that could unlock a market value of $2-3 trillion for traditional vehicle sales companies.  
- While 2025 is projected to see a 9% increase in total vehicle sales in China, concerns about future demand and rising taxes on new energy vehicles may impact the market in 2026.

The future of the automotive industry chain lies in "3A": autonomous driving, humanoid robots, and AI data centers