Broader Consumer Goods Trade-In Scheme

The consumer goods trade-in scheme has led to over 10 million applications. It is expected to boost vehicle demand by around 3 million units this year. Thanks to the subsidies, new energy vehicles (NEVs) are projected to make up more than 60% of these sales. However, if auto trade-in subsidies are paused, even in certain regions, it could create challenges for a booming sector. Chinese NEV stocks such as BYD and Li Auto have already risen by over 15% since their Q2 2025 earnings reports, which highlighted strong domestic demand. This news contradicts the positive outlook that has supported these stock increases. We should consider taking short positions on Chinese NEV manufacturers that rely heavily on the domestic market. Buying put options for companies like NIO and XPeng may be a wise way to protect against a possible decline in their Q3 sales forecasts. The uncertainty about which regions are impacted will likely increase implied volatility, making options appealing. This situation also affects battery producers like CATL and suppliers of raw materials. Lithium carbonate prices, which had stabilized around ¥115,000 a tonne in July 2025 after a turbulent year, might come under pressure again if NEV demand forecasts are adjusted downward. A similar pattern occurred in the late 2010s when subsidy changes caused a sharp but temporary drop in battery metal prices.

Western Automakers With Chinese Market Exposure

We should also keep a close eye on Western automakers that depend heavily on the Chinese market, especially Tesla and Volkswagen. Reports suggest that over 30% of Tesla’s global sales last quarter came from China. Any significant slowdown in demand there would directly affect Tesla’s growth. Nonetheless, the ongoing scrap renewal incentives can help cushion the impact. This indicates a shift in policy toward phasing out older, more polluting vehicles, rather than a complete withdrawal of support for the auto market. A smart strategy might be to look for overreactions and find good entry points if the market sells off widely across the sector. Create your live VT Markets account and start trading now.

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