HSBC Says China EV Peak Season Momentum Set To Strengthen Despite Flat October; Prefers Battery Upcycle Over OEMs
HSBC's China autos research team issued a bullish outlook on the country's electric vehicle sector on 19 November 2025, arguing that peak-season momentum should regain strength despite tepid October sales, driven by policy-induced frontloading and aggressive OEM incentives ahead of subsidy changes.
The bank raised its 2025 China passenger car demand growth forecast to 6% from 0%, specifically citing the positive impact of government subsidies. However, it expects demand pull-forward will create a hangover in 2026, cutting next year's growth forecast to -3% from -1% previously. More notably, HSBC trimmed its EV penetration estimates across the board – now forecasting 54%, 64%, and 70% for 2025-27 respectively, down from prior expectations, and slashing its 2030 penetration target to 86% from a previously aggressive 99%.
Flattish October Masks Policy-Driven Acceleration
Domestic EV sales posted modest -1%/7% m-o-m/y-o-y growth in October, which HSBC attributes primarily to fewer working days during the extended golden week holiday and tightening trade-in subsidies in key regions like the Jiangsu-Zhejiang-Shanghai area. But the bank expects 4Q25 to deliver materially stronger momentum as customers rush to lock in orders before the purchase-tax exemption is halved in 2026 – even if delivery slips into early next year.
The top 10 EV makers captured 75% market share in the first ten months of 2025 (down slightly from 78% in 2024), while the long tail of 50 brands fight for the remaining quarter. BYD maintained its commanding lead, while Geely Automobile emerged as the top share gainer in the overall passenger car market during this period.
Battery Upcycle Gaining Conviction
Perhaps more significantly, HSBC sees the tide finally turning for the battery sector after two brutal years. Utilization rates are climbing across the battery supply chain, pricing recovery is underway, and leading producers have announced new capacity expansion cycles. Contemporary Amperex Technology, or CATL, which holds a 43% share of China's EV battery market in the first ten months of 2025, stands to benefit particularly from this upcycle given its market dominance and resilience.
Lithium carbonate prices have surged 17% in the past 30 days, while battery pricing has been bottoming since 3Q24. Critically, the separator segment – a key part of the supply chain – remains disciplined about capacity expansion given persistently low profitability, which should support further price recovery into 2026. HSBC believes "the upcycle momentum is still unpacking and likely to sustain into next year."
In the first ten months of 2025, BEV mix in China EV sales increased to over 60%, up from 58% in 2024, while lithium iron phosphate (LFP) batteries captured 81% share versus ternary batteries. China's EV battery installations booked 42% y-o-y and 10% m-o-m growth in October 2025.
Autonomous Driving And Physical AI Gaining Traction
Commercial deployment of autonomous driving and physical AI – particularly robotaxis and robotics – is gaining momentum and approaching an inflection point. HSBC notes that with policy catching up, rising consumer adoption, and key milestones from major players, these developments could provide significant catalysts ahead. The bank highlighted Horizon Robotics as well-positioned to capture autonomous driving growth across OEMs.
Stock Picks: Suppliers Over OEMs
Given weak auto demand and intense competition, HSBC prefers resilient suppliers over OEMs. The bank maintains Buy ratings on CATL A/H shares with target prices of RMB 450 (US$62) and HKD 594, citing growth visibility and resilience – particularly valuable if demand volatility emerges in early 2026. CATL trades at 25.6x 2025e P/E for the A-shares.
Among OEMs, HSBC favors Geely (Buy, target HKD 30 implying 74% upside) for its EV market share gains and strong product pipeline in 4Q25/2026, and BYD A/H (both Buy, targets RMB 131/HKD 144) which is positioned to regain volume and earnings growth driven by potential tech upgrades and robust overseas expansion. BYD currently trades at 22.1x and 20.8x 2025e P/E for A and H shares respectively.
The bank also likes Joyson Electronics for its higher overseas exposure and robotics optionality, with a Buy rating and RMB 38.90 target price implying 44% upside.
Downside risks include weaker-than-expected demand, intensifying competition, margin pressure, and unfavorable overseas policies that could extend expansion timelines and costs – particularly relevant as trade tensions remain elevated.