CITIC Construction Investment: Taking advantage of opportunities at the bottom of the automotive cycle, physical AI is poised for an inflection point

The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that the automotive sector is currently in the bottom of the market. The bottom characteristics are showing, and valuations are at a historically low level. Market differences may be due to whether export sentiment can continue. April-May '27 is expected to be a market verification period. Investment segmentation includes two categories: pro-cyclical and AI growth. The former core is the sustainability of the domestic demand economy; policy is an important variable; the latter infrastructure side involves AIDC power generation and liquid cooling, and the application side includes physical AI smart driving and robotics, which is expected to achieve breakthroughs in technology and commercialization in 27 years.

CITIC Construction Investment's main views are as follows:

Market research and judgment: Improved policy expectations determine the inflection point of the market

Since '26, the automobile sector has fallen by nearly 30%, and domestic demand continues to be weak. After the implementation of policies such as Sino-European trade negotiations and export tax rebates in October, the market has begun to fluctuate at the bottom, and may currently be in a transition phase from the bottom of the policy to the bottom of the market. In the past, when the investment environment in the automobile industry was good, the investment environment was often weak, investor sentiment was pessimistic, and sector valuations were low. At the same time, policies began to shift to support, such as June '22 and the end of August '24; currently, the bottom of the sector shows characteristics, and valuations are at a historically low level, but policies have not improved marginally, so it is recommended to stay on track.

Passenger cars: The domestic demand cycle is bottoming out, and going overseas is the core of whether fundamentals can exceed expectations

The bank expects passenger car retail sales to fall by about 22% year on year to 18.6 million units, exports to increase by about 70% year on year to 9.81 million units, and the export share of total wholesale sales will rise sharply to about 1/3, contributing to the vast majority of OEMs' profits. Looking at the medium to long term, NEV overseas is still one of the strongest structural αs in the industry, but it will shift from “simple export expansion” to “policy game and localization implementation”. The NEV VAT export rebate rate will be lowered by 4 pct to 9% in April '27. It is expected to increase 18% year over year to 1.59 million vehicles.

Commercial vehicles: excellent performance, undervalued dividend allocation, export and AIDC power generation contribution elasticity

Heavy trucks and buses are in a stable position, and exports continue to contribute to steady growth. The Q3 industry is heavily suppressed by off-season and export policies. The bank expects steady double-digit profit growth over 27 years combined with low valuations and high dividends to be cost-effective. It recommends Yutong Bus and Sinotruk. Furthermore, benefiting from strong demand for AIDC power generation in North America, Weichai Electric Power's energy business is expected to contribute to performance and valuation flexibility.

Physical AI: Tesla leads industrial transformation, breakthroughs in smart driving and robotics applications

Looking at industry trends, there is broad scope for AI growth, and auto parts companies are speeding up the penetration of the industrial chain. Among them, the data center infrastructure side is expected to contribute to performance flexibility in 27 years, such as Weichai entering heat management companies such as AIDC Power Generation and Sanhua and Dun'an; intelligent driving and robots in the two major application fields of physical AI are expected to generate commercial inflection points after technological breakthroughs. Tesla Robotaxi is moving towards unmanned deployment, and the humanoid robot Optimus is also beginning to iterate on mass production. The year '27 is expected to usher in intensive catalysis, including mass production and release of Optimus V3, large-scale deployment of Cybercab unmanned scale, and implementation of the domestic L3 national standard in July. The industry is gaining momentum.

Investment advice: Stay on track at the bottom of the cycle, physical AI is poised to grow at an inflection point

Domestic demand for automobiles is at the bottom of the cycle. Concerned about the sustainability of the export boom, we are optimistic about breakthroughs in physical AI (smart driving and robotics) technology and commercialization in 27 years, as well as the AIDC power generation and liquid cooling industry chain.