China Auto Industry: 3Q26 misses expose structural pressure; cutting SOE estimates further

3Q26 results of GAC, SAIC, Changan and BAIC missed market expectations, reinforcing our cautious view on traditional auto SOEs. Three common pain points stand out: own-brand operations remained loss-making or low-margin amid pricing pressure and elevated investment; JV earnings kept declining as foreign brands lost market share in China; and FX losses, impairments and provisions added further downside to reported earnings. Three of the four SOEs reported losses or minimal profitability in 3Q. We cut 2026/27 estimates and revise our price targets, maintaining UW on Changan and SAIC, Neutral on BAIC and OW on GAC-A/H, where the OW reflects longer-term optionality from the proposed FAW-Toyota transaction rather than confidence in a near-term earnings recovery. Liquidity weakened despite stable current ratios: GAC, SAIC and Changan shifted from net cash at 1H26 to net debt by 3Q26, 9M26 free cash flow stayed weak, and working-capital cycles deteriorated at GAC and SAIC. For 2027 we expect