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

On October 9, China and the EU announced that they had reached a "shared understanding" on hybrid vehicles. According to EU Trade Commissioner Maros Sefcovic, the agreement will reduce China's exports of hybrids and plug-in hybrids (PHEVs) to the EU by more than half over the next 4 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 next key milestone will be the EU summit on October 15-16. EU reportedly expects hybrid vehicle imports to be capped at c.400k units annually, phased in over four years. In 2026 8M, Chinese OEMs registered c.386k HEV and PHEV units in the EU, representing c.12% of the region's hybrid market. We see the near-term impact as modestly negative but manageable, and broadly neutral over the medium to longer term, as major Chinese OEMs are already localizing production in Europe. We rate BYD and Xiaomi Outperform;