UBS has released a research report stating that the Chinese auto sector has experienced a significant pullback and the bank believes the uncertainty will soon be resolved. The bank is bullish on BYD Company Limited (01211) and CATL (03750), with price targets of HK$135 and HK$820 respectively.

The Ministry of Finance and the State Taxation Administration announced on Monday that starting from April 1, 2027, the export tax rebate rate for new energy vehicle value-added tax will be reduced from 13% to 9%. UBS stated that although the export tax rebate reduction cannot be regarded as a positive for the industry, it still believes the related impact has already been reflected in the recent decline in auto sector share prices, and the 4 percentage point reduction is relatively mild compared to the tariffs imposed by overseas governments in recent years.

The bank pointed out that sales channels, brand awareness, and factory expansion can continue to drive growth in overseas sales for Chinese automakers, and technologies already applied in China such as fast charging and highway advanced driver assistance systems also present growth potential when launched in overseas markets. UBS believes that as the industry's overseas sales continue to grow, automakers' overseas profit margins will demonstrate resilience in the coming quarters, and at least industry leaders are expected to welcome a value reassessment from the related concerns over the past month.

On individual stocks, the bank believes BYD Company Limited has the best overseas layout, with its Hungary factory expected to begin production within the EU from the end of 2026, with a price target of HK$135. CATL is expected to benefit from rising demand for pure electric vehicles in the EU and other global markets, with a price target of HK$820.