"Big Banks" UBS: The weakening speed of demand in the mainland car market exceeds expectations, and more risk signals are expected next year

UBS recently released a report stating that several car manufacturers in mainland China announced their sales for November this year, which mostly remained flat or declined month-on-month. Theoretically, November is a peak season for the industry and should be driven by the pre-purchase effect ahead of the potential policy "rollback" in 2026, but the market is showing more signs of weakness, intensifying concerns about the demand outlook for the mainland car market in 2026.

The report indicated that XPeng (09868.HK) and NIO (09866.HK) saw their sales decline by 13% and 9% month-on-month, respectively, dropping from over 40,000 units in October to about 36,000 units each in November, echoing the weaker-than-expected fourth-quarter sales guidance released two weeks ago. Great Wall Motors (02333.HK) reported sales of 133,000 units, a month-on-month decline of 7%, with domestic sales down 12% month-on-month. Geely (00175.HK) and Leapmotor (09863.HK) remained flat month-on-month.

UBS noted that BYD (01211.HK) experienced a month-on-month sales increase of 9% in November, but this included an increase of 48,000 units from overseas, while domestic sales declined month-on-month compared to October. Overall signs indicate that domestic demand is weakening month-on-month. Considering that there are still some policy front-loading effects until the end of 2025, sales in the off-season at the beginning of 2026 may be even more sluggish.

Regarding Xiaomi (01810.HK) car inventory, Xiaomi announced on December 1 that any orders placed before December 26 are expected to be delivered by the end of the year. Xiaomi attributed the inventory and immediately available vehicles to order cancellations by buyers, display vehicles, and lightly flawed vehicles with zero mileage. Xiaomi's delivery volume in October exceeded 48,000 units, and the report believes that Xiaomi's order backlog is accelerating towards resolution by the end of the year, raising investor concerns about whether the constraints have shifted from the supply side to the demand side. This contrasts with the delivery cycle of 28 to 38 weeks for the YU7 model on the Xiaomi electric vehicle app, which may exacerbate market concerns about the demand side.

UBS is increasingly cautious about the short-term outlook for the industry due to the faster-than-expected weakening of market demand and the increasing risk signals for 2026. In the long term, the firm remains optimistic about the advantages of Chinese car manufacturers in technological innovation, cost competitiveness, and global expansion, but short-term domestic demand is indeed concerning