HuaYuan Securities: The narrowing price gap between pure electric and hybrid vehicles does not necessarily lead to pressure on hybrid sales

According to the Zhitong Finance APP, Huayuan Securities released a research report stating that despite the decline in new energy vehicle purchase tax subsidies and the increase in technical requirements from 2026 to 2027, it is expected that new energy vehicle sales will still achieve growth with the introduction of high-quality supply. The report maintains a "positive" rating on the automotive sector and suggests focusing on: 1) high-end car manufacturers that are less affected by the decline in new energy vehicle purchase tax subsidies, such as JAC (6000418.SH); 2) car manufacturers with strong new car cycles that are expected to better offset the impact of subsidy declines, such as Geely Auto (00175) and Leapmotor (09863); 3) car manufacturers that are expected to create additional demand through technological innovations such as autonomous driving, such as Li Auto-W (02015) and XPeng-W (09868).

The main points of Huayuan Securities are as follows:

From 2026 to 2027, the pure electric range requirement for plug-in hybrid and extended-range passenger vehicles enjoying purchase tax exemptions will increase by over 100%. It is estimated that about 40% of plug-in hybrid and extended-range passenger vehicles will no longer qualify for subsidies, especially affecting compact and mid-size plug-in hybrid models priced between 70,000 to 200,000 yuan. On October 9, 2025, the Ministry of Industry and Information Technology and other three departments issued the "Announcement on the Technical Requirements for New Energy Vehicle Products Eligible for Vehicle Purchase Tax Exemption from 2026 to 2027," stating that the pure electric driving range of plug-in (including extended-range) hybrid passenger vehicles must meet a conditional equivalent all-electric range of no less than 100 kilometers, a significant increase from the previous requirement of no less than 43 kilometers. In the first half of 2025, the insurance volume of plug-in hybrid and extended-range passenger vehicles was approximately 2.03 million units. We screened the top 95% market share of plug-in hybrid and extended-range passenger vehicles and found that the insurance volume for WLTC ranges of 43-100 km (including 43, excluding 100) and above 100 km (including 100) accounted for approximately 41% and 59%, respectively. This means that statically, about 40% of plug-in hybrid and extended-range passenger vehicles will not be eligible for purchase tax exemptions from 2026 to 2027, especially affecting compact and mid-size plug-in hybrid models priced between 70,000 to 200,000 yuan (represented by economical plug-in hybrid models such as BYD) (Note: This is only a static estimate; in reality, manufacturers generally launch updated models each year, and the range of models may increase, so the actual proportion of affected models is expected to be lower than our estimate).

Under the expectation of price increases for plug-in/extended-range vehicles due to range improvements, the product and brand strength, as well as cost control capabilities of manufacturers, may be crucial competitive factors. Taking BYD as an example, in the second half of 2025, new long-range versions of models such as Qin PLUS DM-i and Seal 05 DM-i will be launched (meeting the technical requirements for purchase tax in 2026-2027). The overall strategy is to enhance the range of the new models while also increasing prices compared to the older low-range versions (the reference prices for these models are generally several thousand to over 10,000 yuan higher than those of the previously sold low-range versions). In the absence of large-scale price reductions at the terminal, although the prices of BYD's new long-range versions are higher than those of the previously sold low-range versions, if the competitiveness of these models is higher than that of competitors, the impact on their sales may be limited. Based on the new models that have been launched, we infer that the subsequent competition between the company and its peers may fall into the following two scenarios: 1. BYD continues to pursue a cost-performance strategy, such as with the Qin PLUS DM-i and Seal 05 DM-i It is expected to still have cost-effectiveness compared to competitors, but the company's cost-effectiveness advantage may be weakened. Ultimately, whether it can succeed will test the company's brand power (which determines who consumers are more willing to buy when the price difference and configuration differences of models are reduced) and cost control ability (which determines whether it can maintain a competitive price in the face of rising battery costs). 2. BYD adopts a high-value strategy, such as the Sea Lion 06 DM-i, which, although priced higher than most competitors, also has higher configurations. In this scenario, the final competition is about product strength (for example, whether the product is competitive compared to competitors, whether it has chosen configurations that consumers perceive as significant, etc.) and brand power (which partly determines whether consumers are willing to pay a premium for more configurations).

Under the improvement of technical indicators, the expectation of narrowing the price difference between pure electric and plug-in hybrid/range-extended models may not necessarily lead to a significant pressure on the sales of plug-in hybrid/range-extended models. The increase in the pure electric range requirement for plug-in hybrid/range-extended models that enjoy purchase tax exemptions may lead to a narrowing of the price difference between plug-in hybrids/range-extended and pure electric models. For example, the new Qin PLUS DM-i (entry-level) pure electric version is 10,000 to 20,000 yuan more expensive than the plug-in hybrid version, which is a reduction from the previous 30,000 to 40,000 yuan. However, the narrowing of the price difference between pure electric and plug-in hybrid/range-extended models does not necessarily lead to a significant decline in the sales of plug-in hybrid/range-extended models, as range anxiety may be an important influencing factor for consumers purchasing plug-in hybrids/range-extended models. Additionally, model positioning and the range of the pure electric version will also affect consumers' choice of power type. For example, although the Max+ four-wheel drive version and Ultra version of the Aito M8 six-seat version have the same guidance price for pure electric/range-extended models, the wholesale sales proportion of the range-extended version in September was still as high as 82%. This may be related to the positioning of the Aito M8 as a large family SUV, leading to higher consumer demand for range. The new Zhijie R7 has the same guidance price for pure electric/range-extended models, but due to its positioning as a young sports model and the new EV version's CLTC pure electric range reaching a high level (667-802 km), the wholesale sales proportion of the range-extended version in September was only 36%.

Risk Warning: The risk of biased analysis due to changes in the strategies of the main manufacturers, the risk of price wars due to intensified market competition, and the risk of the automotive industry's prosperity being below expectations