Gasgoo Munich- In the second quarter of 2026, mutual funds' allocation to the automotive sector slipped to a five-year low. The market has largely digested the negatives: sluggish domestic demand, intensifying competition, and squeezed profitability.With the bad news largely out of the way, industry fundamentals are starting to diverge.Institutional Holdings Bottom OutA recent report from Orient Securities shows that in the second quarter of 2026, active funds allocated just 1.9% of their heavy portfolios to the auto industry—a 2.2 percentage-point drop from the previous quarter and a five-year low. That figure sits 1.7 percentage points below the long-term average of 3.6% seen since 2015.By market capitalization, the auto sector accounts for 3.3% of the total A-share market, resulting in an underweight allocation of 1.3 percentage points. Specifically, fund holdings in both passenger vehicles and auto parts have fallen to bottom ranges. The market’s previous pessimism has been fully released, and valuation bubbles have essentially cleared.Image Source: Eastmoney.comRecent performance in the secondary market confirms this shift. As of July 31, the auto index stood at 9,269.98 points, gaining 0.78% in a single session. After a period of volatility, the trend is clearly moving upward. Individual stocks, however, are moving in different directions: SAIC Motor rose 1.5%, JAC Motors jumped more than 7%, while Seres and Changan Automobile posted modest gains.Driving these gains are marginal improvements in fundamentals. Data from the China Association of Automobile Manufacturers (CAAM) shows domestic passenger vehicle sales reached 8.287 million units in the first half of the year—a 24.3% year-on-year decline. The drop was driven by policy front-loading, weakening consumption, and volatile oil prices. Yet exports have been robust, surging 72% to 4.4324 million units over the same period.The landscape is shifting in the second half. The effects of policy front-loading are fading, new models are hitting the market, and the base comparison is lowering—all factors that should narrow the decline in domestic sales. Meanwhile, with overseas production layouts and export systems maturing, the high-growth trend in exports is set to continue.With institutional holdings hitting bottom and fundamentals turning a corner, exporters of complete vehicles, high-quality parts suppliers, and oversold targets now offer clear investment value.Three Tracks, Different StrategiesThe days of broad-based gains are over. The vehicle, parts, and upstream battery sectors are now on distinctly different trajectories, with core competitiveness and growth paths diverging sharply.The vehicle sector has split into two camps. Traditional automakers like BYD and Geely are leveraging their scale, mature supply chains, and diversified overseas layouts to ride out the cycle. Buoyed by resilient exports, they have stabilized their fundamentals and are trading in a low-valuation repair zone—making them stable allocation targets.Seres and JAC Motors operate differently. Their growth hinges on technology and channel support from Huawei. Through the "Huawei Selection" model, they have achieved brand elevation and profit reversals, becoming high-beta core plays in the vehicle sector. Seres has secured a foothold in the premium 300,000-yuan new-energy segment with its AITO series, maintaining steady product reputation and sales.Image Source: Eastmoney.com DataJAC Motors has entered a deep long-term partnership with Huawei. The automaker handles manufacturing and supply chain control, while Huawei provides full-stack autonomous driving, HarmonyOS cockpit technology, and a nationwide sales network. Their jointly developed Zunjie series has seen orders and deliveries exceed expectations, successfully breaking into the high-end market. As premium models gain volume, JAC is poised to turn a profit in 2026, with profitability and brand premium steadily recovering.The auto parts sector acts as the industry’s stabilizer, boasting the strongest profit resilience. Industry leaders like Huayu Automotive and Fuyao Glass rely on deep technical moats and global supply systems to continuously optimize their product mix. This effectively hedges against the price war pressure in the vehicle sector, delivering steady revenue and profit. Their stable operations and ability to pay dividends make them compelling long-term holds.In contrast to vehicle makers and parts suppliers, the upstream power battery sector has entered a transition cycle of shifting gears.Lithium-battery giants like CATL continue to grow in scale, but the incremental bonus is fading as new-energy penetration surpasses 50%. Compounded by concentrated capacity releases, raw material volatility, and the delivery of previously locked-price orders, companies face squeezed gross margins, rising inventories, and slowing cash flow growth. The industry is officially pivoting from breakneck expansion to a focus on quality and efficiency.Overall, the auto sector has entered a clear window for valuation repair, though the action is primarily structural. In the second half, the vehicle play hinges on recovering domestic demand and export dividends; parts suppliers will rely on steady profits for gradual repair; and upstream battery players will focus on capacity optimization and profit stabilization. A layered investment approach is now the core theme for the sector.Yet some veteran investors remain skeptical. To them, the stock market trades on expectations—and with growth in the auto industry, particularly the electric vehicle market, slowing down, a repeat of the 2021 glory days looks unlikely.
+42 others
