Auto Stocks Remain Weak Amid Multiple Headwinds Despite Solid Fundamentals

On June 9, 2026, at BYD’s annual general meeting, some shareholders became visibly agitated over the company’s persistently weak stock price. Chairman Wang Chuanfu responded by acknowledging that while the company’s underlying potential is widely recognized, its share price has failed to reflect this value. This issue is not unique to BYD—Great Wall Motor, Xiaomi Auto, Seres, and other automakers are also grappling with similarly sluggish stock performance. Data shows that since May 2026, share prices across major automakers have broadly declined. In the first week of June alone, more than half of the 287 listed companies in the automotive sector saw their stock prices fall. Despite generally stable operations and continued sales growth for most automakers, capital markets have persistently revised down their valuations. One key internal factor is the shrinking profit margins across the industry. The automotive manufacturing sector’s profit margin hit a ten-year low in 2025 and declined further in 2026. Intensifying price wars with diminishing returns, rising raw material and production costs, and excess capacity coupled with high inventory levels have formed a “triple burden,” resulting in an industry-wide phenomenon of “higher output without higher efficiency” and “higher revenue without higher profits.” Consequently, capital markets have begun reclassifying auto stocks as “cyclical manufacturing” assets. External conditions have also turned unfavorable. In the first quarter of 2026, retail sales of automobiles declined year-over-year, dragging down overall social consumption figures. Uncertain household income expectations have dampened consumer willingness to make large discretionary purchases like vehicles. Meanwhile, overseas markets—hampered by geopolitical tensions and trade barriers—have been unable to support valuation premiums. Shifting capital flows have served as the immediate trigger. In 2026, A-share market funds have clearly rotated toward AI and semiconductor sectors. Auto stocks, lacking near-term catalysts and benefiting from relatively ample liquidity, have become among the first targets for portfolio reductions. Nevertheless, structural divergence persists within the sector: component suppliers with intelligent technology capabilities or those offering premium mobility services have outperformed traditional OEMs. Despite current valuation pressures, certain high-quality companies still hold long-term value. For instance, while the industry-average profit margin has fallen below 3%, BYD reported a gross margin of nearly 19% in Q1 2026. Its vertically integrated battery and chip supply chain, combined with heavy R&D investment, has built a wide economic moat. Multiple brokerages view BYD’s current P/E ratio as undervalued, suggesting room for upward revision. For now, even fundamentally strong automakers struggle to escape the drag of negative sector-wide sentiment. A return of growth-driven valuation premiums hinges on a clear industry inflection point, and investors will need to await unambiguous signals of recovery.