China Auto Sector: Export VAT rebate cut unlikely to reverse the megatrend

UBS China Auto Sector report. On Oct 12, the Ministry of Finance and the State Taxation Administration jointly announced that NEV exports' VAT rebate rate will be reduced from 13% to 9%, effective from April 1, 2027. While investors feared this cut, it was announced more abruptly than expected. We cannot say the rebate cut is positive for the industry, but we nevertheless argue: 1) it has been reflected in recent share price declines across the sector; 2) 4% is moderate compared to additional tariffs by foreign governments in recent years; 3) the structural expansion of distribution channels, brand awareness and local plants could continue to serve as growth drivers for Chinese carmakers' overseas volume growth;