On March 22, auto stocks performed actively. Chang'an Automobile ( 000625 ), Dongfeng Motor ( 600006 ) and other individual stocks hit their daily limit-up. In addition, First Auto Car ( 000800 ), Jiangling Motors ( 000550 ), Zhongtong Bus ( 000957 ) and other sectors have also seen relatively significant gains. In this regard, industry insiders noted that the automotive sector is currently at the trough of its overall profit cycle. As inventory levels gradually decline and China’s macroeconomy stabilizes, expectations for an industry recovery are taking shape. High-quality stocks within the sector are now presenting an ideal mid-term investment opportunity.

Currently in the inventory reduction phase.

　　From the perspective of industry fundamentals and dynamics, according to data released by the China Association of Automobile Manufacturers, in the first week of March, the average daily retail sales of passenger vehicles in China were 34,000 units, down 25% year-on-year; the average daily wholesale volume was 39,000 units, down 32% year-on-year.

　　“From a data perspective, sales pressure on passenger vehicles in China remained significant at the beginning of March, and no substantial improvement has been seen in domestic demand for passenger vehicles,” said Yang Jinglei, a research analyst at Huaxin Securities.

　　Meanwhile, according to the latest inventory coefficient for auto dealers released by the China Automobile Dealers Association, the inventory coefficient reached 2.1 in February, an increase of 29% year-on-year, reflecting that channel inventory levels remain persistently high and the industry continues to face significant pressure to reduce inventories.

　　“In the first quarter, automakers are going through a painful yet necessary inventory-depletion phase; therefore, end-consumer retail data better reflect actual fluctuations in demand,” said industry research from China Merchants Securities. Typically, during the inventory-liquidation cycle, retail sales lead wholesale sales, which in turn precede production levels. Although retail data for the entire month of January began to show month-on-month recovery, they have yet to reach an inflection point. “April grassroots surveys indicate that companies remain relatively pessimistic about production plans, and the data may not hit an inflection point until May or June at the earliest.”

Structured opportunities are promising.

　　“The worst times are also the best times”—this phrase could aptly describe the current auto sector. Since May 2018, the automotive industry has been mired in a slump, affected by weakening end-demand. That year, China’s auto sales market experienced its first-ever negative growth in 28 years.

　　However, since the beginning of this year, auto stocks have gradually become more active, with leading stocks such as JMC showing significant gains within the trading range. So, beyond the expectation of an industry turnaround, what other investment logics are there in the auto sector?

　　Yang Jinglei stated that, regarding the investment logic for the industry, competition in China’s automotive sector will continue to intensify in the future. Only leading enterprises with comprehensive advantages—such as technology, capital, R&D capabilities, and strong brands—will be able to sustainably benefit from this trend. Structural opportunities will remain a key focus for the long term.

　　In terms of strategy configuration, China Merchants Securities’ industry research indicates that, based on forward-looking data from the first-quarter reports, individual stocks can be screened along the following four main lines: Main Line One: Stocks expected to achieve relatively high growth in the first quarter; Main Line Two: Stocks with excellent fundamentals, significant potential for valuation recovery, and ideal for long-term investors to gradually allocate to as resilient investments; Main Line Three: With infrastructure and real estate investment rebounding, and strong demand for heavy-duty trucks expected in the first half of the year, we recommend focusing on the heavy-duty truck industry chain; Main Line Four: Deeply investing in the smart electric vehicle sector.

　　Yang Jinglei stated that, from a medium- to long-term value perspective, Recommended to pay attention to Automotive manufacturers and component suppliers that enjoy a leading edge in both joint-venture and independent operations. In the new-energy vehicle sector, with the establishment of Tesla’s China factory, the local supply chain will be presented with structural opportunities. For Tesla’s existing suppliers, localization offers the potential for greater order flexibility; for prospective suppliers, it means the possibility of securing entirely new incremental orders. Meanwhile, as automotive intelligence and electrification continue to advance, leading automotive electronics companies—possessing Tier 1 supplier resources and product technology advantages—stand to become the gateway to the commercialization of intelligent driving, reaping substantial benefits from the rapid growth of this emerging market.