Global Autos: EU hybrid quota a near-term hurdle for Chinese OEMs; Localization remains the endgame

China and the EU reached a "shared understanding" on hybrid cars on October 9, under which China's exports of hybrids and plug-in hybrids (PHEVs) to the EU would be reduced by more than half over the next four years, while China is expected to facilitate easier export licensing for rare earths and potentially support lower tariffs on selected goods including auto components. The EU reportedly expects hybrid vehicle imports to be capped at c.400k units annually versus expectations of c.800k units in 2026, with the reduction phased in over four years, though details on quota allocation and implementation remain limited. Chinese OEMs' exposure has grown meaningfully, but we see the near-term impact as modestly negative yet manageable, and the longer-term impact as largely neutral, since major Chinese OEMs are already localizing production in Europe. We therefore do not expect the measures to materially derail Chinese OEMs' market share gains beyond an initial adjustment period, similar to