Morgan Stanley: New national subsidies for electric vehicles will be introduced in the new year, eliminating uncertainties in the battery industry

Morgan Stanley's research report indicates that the "national subsidy" policy in mainland China will be introduced in 2026. Although the new policy will link the subsidy amount to the car price, differing from the fixed subsidy in 2025, the subsidy cap and the models covered will largely remain unchanged. Recently, the market was concerned about the sustainability of the subsidies, fearing a significant decline in electric passenger vehicle sales in the first quarter of 2026, but this uncertainty has now been eliminated.

The firm believes that the continuation of subsidies for electric passenger vehicles will ensure high single-digit growth for the electric vehicle battery industry in 2026, and strong performance in electric trucks and energy storage systems will further enhance industry profitability. If strong demand leads to a continued rise in battery material prices, the firm believes that CATL (03750.HK) will pass on cost pressures through pricing strategies. The firm currently sets a target price of RMB 490 for CATL A shares (300750.SZ) with an "overweight" rating, listing it as the industry favorite