Huatai Securities: Geopolitical disruptions may temporarily suppress auto exports; recommend focusing on two major investment directions

Huatai Securities Research Report states that overseas markets have become the core path for Chinese automakers’ growth and advancement. In the short term, geopolitical tensions such as conflicts involving the US, Israel, and Iran may suppress overall sales performance. We estimate that approximately 300,000 vehicles exported to the Middle East in 2026 will be affected. Coupled with oil price fluctuations, domestic demand for fuel vehicles may face downside risks. However, driven by energy efficiency advantages, the growth in new energy vehicles is expected to partially offset this impact. Historical analysis also shows that Chinese automakers are likely to leverage forward-looking global market strategies to seize opportunities and reshape regional market shares once tensions subside. We recommend focusing on two major investment directions: 1) vehicle manufacturers with full industry chain advantages and strong cost reduction capabilities; 2) Chinese new energy vehicle exporters actively expanding globally and expected to benefit from high growth in the European new energy market.

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Huatai | Automotive: How Will Geopolitical Tensions in the Middle East Affect Chinese Automakers?

Overseas markets have become the core path for Chinese automakers’ growth and advancement. In the short term, geopolitical tensions such as conflicts involving the US, Israel, and Iran may suppress overall sales performance. We estimate that approximately 300,000 vehicles exported to the Middle East in 2026 will be affected. Coupled with oil price fluctuations, domestic demand for fuel vehicles may face downside risks. However, driven by energy efficiency advantages, the growth in new energy vehicles is expected to partially offset this impact. Historical analysis also shows that Chinese automakers are likely to leverage forward-looking global market strategies to seize opportunities and reshape regional market shares once tensions subside. We recommend focusing on two major investment directions: 1) vehicle manufacturers with full industry chain advantages and strong cost reduction capabilities; 2) Chinese new energy vehicle exporters actively expanding globally and expected to benefit from high growth in the European new energy market.

Key Points

• Stable core export volume in the Middle East, with direct geopolitical impact on about 300,000 units

• From the export structure, China’s vehicle exports to the Middle East are projected to reach 1.4 million units in 2025, with the UAE contributing 570,000 units and Saudi Arabia 300,000 units, accounting for over 60% of the total. The direct impact from the Strait of Hormuz situation is limited (roll-on/roll-off ships can dock on the UAE’s east coast and transport inland), and Iran and Israel’s direct export share is minimal. Considering spillover effects such as transit and re-exports, the actual affected volume is estimated at about 300,000 units. Based on this, we revise down the 2026 passenger car export forecast to 6.5 million units, representing a 10% year-on-year increase from 2025.

• Rising crude oil prices may temporarily pressure domestic fuel vehicle demand

• Regarding fuel vehicles, we use historical oil price patterns to estimate that at $80 and $100 per barrel, the retail price of 92-octane gasoline would be approximately 7.1 and 7.6 RMB per liter, respectively. Analyzing data from 2013-2018, we find that a 1 RMB/L change in gasoline price impacts fuel vehicle sales by approximately 75,000 to 85,000 units. Therefore, if oil prices stabilize at $80 or $100 per barrel between March and September 2026, marginal increases in oil prices could lead to an annual decline of 170,000 to 680,000 units in fuel vehicle sales in China.

• The energy efficiency advantage of new energy vehicles (NEVs) may catalyze substitution effects, as total cost of ownership (TCO) differences drive demand

• Our historical analysis indicates that a 1% decrease in NEV prices correlates with a 1% to 1.3% increase in sales, especially sensitive in lower price segments. Assuming price elasticities of 1.3 for sub-100,000 RMB, 1.2 for 100,000-200,000 RMB, and 1 for above 200,000 RMB, scenario testing shows: ① Oil prices rising from $70 to $80 per barrel increase TCO costs by 0.5% to 1.1%, leading to a 0.5% to 1.3% increase in NEV sales; ② Oil prices reaching $100 per barrel result in an equivalent price reduction of 1.7% to 3.7%, boosting NEV sales by 1.7% to 4.5%. High oil prices are expected to shift demand from traditional to new energy vehicles, with potential purchase increases of 100,000 to 360,000 units.

• Geopolitical tensions may suppress demand; passenger vehicle sales in 2026 are projected to be between 28.28 million and 28.90 million units

• Based on the above, we revise the 2026 automotive sales targets: ① Export: reduce the total export forecast by 300,000 units to 6.5 million units. ② Domestic retail: under three oil price scenarios ($70, $80, $100 per barrel), we expect fuel vehicle demand to be squeezed by higher operating costs, with sales in 2026 of approximately 8.54 million, 8.37 million, and 7.86 million units, respectively—down 21%, 22%, and 27% from 2025. Meanwhile, NEV demand could transfer 0, 100,000, and 360,000 units, respectively. The combined domestic retail sales targets for 2026 are approximately 22.10 million, 22.03 million, and 21.78 million units, representing declines of 6%, 7%, and 8% year-on-year.

Risk factors include trade-related risks, global supply chain volatility, and the possibility that assumptions may underperform or historical patterns may fail.

(Source: Yicai)