Citi: China's OEMs 1Q26 net profit down 38% QoQ, far exceeding the decline of parts suppliers

Citi Research released the latest global automotive industry report on May 26th, assessing the latest trends of Ford, Kia, Hesai, Minth, and CEAT companies on top of reviewing the performance of China's complete vehicles and parts enterprises in the first quarter.

Xiaomi's automotive sector performed weakly in the first quarter, with the EV division's gross margin falling by 2.6 percentage points quarter-on-quarter, and the operating profit margin declining significantly by 18.6 percentage points quarter-on-quarter. Based on this, Citi estimates that the operational de-leveraging effect has had a much greater impact on Chinese complete vehicle companies than on parts merchants—the former's unweighted average net profit fell by 38% quarter-on-quarter, while the latter only decreased by 12% during the same period. Coupled with EV orders consistently falling below expectations, Citi believes that negative sentiment is likely to continue into the second quarter. This judgment also aligns with the roadshow feedback from Citi's European automotive analyst Harald Hendrikse: investors generally shy away from automotive targets with low growth and low ROIC.

As margins come under pressure, the potential for AI to reduce costs is gaining more attention. Citi's India auto analyst Arvind Sharma pointed out after interacting with CEAT's management at the RPG conference that the in-depth application of AI is expected to bring about a 5-7% cost saving in the procurement process and to compress AI-driven manufacturing cycle times by 20%, offsetting the pressure of rising raw material prices to some extent.

Recently, there are several market catalyst events worth noting: BYD is scheduled to release a new technology announcement on May 28th, with expectations involving a significant breakthrough in cost control; the pricing of NIO's ES9 is about to be announced; Xiaopeng's new Mona model will be released soon after; Minth and Jingsheng Electronics' participation in Tesla Optimus-related businesses is expected to begin mass production in early Q3.

From a global perspective, feedback from Citi's Singapore roadshow shows that the potential Ford-Contemporary Amperex Technology Co., Limited (CATL) cooperation is one of the topics investors are currently most concerned about. If it materializes, it could bring considerable upward elasticity to Ford's long-term profitability. At the same time, Toyota's capacity bottlenecks in the US market have objectively opened up space for Kia's North American expansion—investors' attitude towards Kia is becoming increasingly positive, while maintaining a neutral and cautious stance towards Toyota overall.

Regarding the autonomous driving sector, Citi holds a slightly positive view: Tesla FSD's official entry into the Chinese market, combined with the potential re-issuance of robocar operating licenses and the advancement of Level 3 regulations, are expected to jointly boost market sentiment for WeRide, Pony.ai, Hesai, and Horizon Robotics in Q3.