China's factory automation upcycle continues, with localization and leading players' share gains as the main themes

Overview

The report systematically reviews demand, localization rates, and the competitive landscape of China's factory automation and robotics market in 1H26. The industry upcycle is still continuing, with growth improving in AC servos, CNC, and industrial robots; demand from batteries, semiconductors, and electronics manufacturing is strong, while photovoltaics remain relatively lagging, although demand for PLCs and AC servos has resumed growth. On the competitive front, domestic brands continue to expand share, but medium-to-large PLCs, CNC, advanced sensors, and heavy-duty six-axis robots still face clear technological or market barriers.

Core views

On the demand side, battery investment is jointly driven by new energy vehicles and energy storage, electronics manufacturing has maintained double-digit growth since 4Q25, and semiconductors account for less than 10% of demand for major automation products but have already risen to a high growth level. On the supply side, Inovance's share gains in AC servos and PLCs have reaccelerated, while Keyence maintains its advanced sensor share through an innovative product portfolio. FANUC's CNC and robot share is temporarily affected by PCB and chip shortages, KUKA is driving a recovery in heavy-duty six-axis robot share through deep localization, and Estun's share uptrend has temporarily peaked.

Analysis framework

The report uses MIR Databank's preliminary quarterly data to conduct cross-analysis across four dimensions: product growth, end-market demand, localization rates, and manufacturer shares, and further combines covered companies' competitive positions, cyclical exposure, target prices, and valuation methodologies to form investment conclusions. Industrial robots are measured by shipment volume, while AC servos, PLCs, inverters, and CNC are measured by sales value.

Methodology notes

• Industry demand analysisEnd-market breakdown

  Break down automation demand by end-markets such as batteries, photovoltaics, semiconductors, electronics, and automobiles.

  This method is used to identify the main drivers of the current recovery and assess growth sensitivity to new energy vehicles, energy storage, or other capital expenditure cycles.

• Competitive landscape analysisMarket share and localization rate

  Compare the localization levels of different automation products and changes in major manufacturers' shares.

  Localization rates are low for medium-to-large PLCs, CNC, advanced sensors, and heavy-duty six-axis robots, while emerging categories such as collaborative robots are mainly led by Chinese companies.

• Relative valuationEV/EBITDA

  Derive enterprise value and target price using one-year forward EBITDA and a target multiple.

  The target multiple references historical cycles and is adjusted based on long-term growth, competitive landscape, and cyclical phase.

• Absolute valuationDCF

  Evaluate a company's long-term intrinsic value using discounted cash flow.

  DCF is used only as a long-term value reference; point-in-time target prices at different stages of the cycle may deviate from DCF-implied value.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shenzhen Inovance Technology Co Ltd（300124.CH）

  A core beneficiary of automation localization and market share gains in China.

  Strengths

  Leads the AC servo market, with share reaching 37% in 2Q26; share growth in small and medium-to-large PLCs has reaccelerated, with breakthroughs in the automotive industry.

  Weaknesses

  Categories beyond servos and inverters still need to continue proving their share-gain capabilities, and the business is affected by China's industrial capital expenditure and new energy vehicle demand.

  Comparison

  Compared with most domestic manufacturers, it has broader product coverage and clearer share gains; it still lags overseas manufacturers in some high-end PLC fields.

  Risks

  China automation demand weaker than expected, slower share gains in categories other than servos and inverters, and new energy vehicle demand falling short of expectations.

• Keyence Corp（6861.JP）

  A global leader in advanced industrial sensors and a resilient China-market play.

  Strengths

  Maintains market share in available-data advanced sensor categories through an innovative product portfolio, showing outstanding resilience against local competition.

  Weaknesses

  Valuation is sensitive to changes in manufacturing sentiment and capacity utilization, while also facing yen appreciation risk.

  Comparison

  The report views it as the overseas automation company most resilient to local competition in the China market.

  Risks

  Global capacity utilization weaker than expected, delayed or weaker recovery in automation demand, and yen appreciation.

• FANUC Corp（6954.JP）

  A cyclical recovery play in CNC and industrial robots.

  Strengths

  Has a technological and brand foundation in CNC and six-axis robots, with its China robot business generally tracking market growth.

  Weaknesses

  PCB and chip shortages have extended CNC delivery cycles from several weeks to several months and have affected CNC and robot share in the short term.

  Comparison

  Compared with competitors such as KUKA, its current share performance is disrupted by supply constraints; KUKA's share is recovering after deep localization in China.

  Risks

  Global automation demand weaker than expected, share losses caused by competition, and yen appreciation.

• Estun Automation Co Ltd（002747.CH）

  A beneficiary of industrial robot localization in China.

  Strengths

  Benefits from rising penetration of local robots; faster-than-expected improvements in margins and market share would serve as upside catalysts.

  Weaknesses

  The uptrend in heavy-duty six-axis robot share has temporarily peaked, and the target price is below the closing price listed in the report; realization of Cloos integration and synergies remains uncertain.

  Comparison

  Compared with KUKA, Estun currently has weaker momentum in heavy-duty six-axis robot share; its rating is also lower than the report's key recommendations of Inovance, FANUC, and Keyence.

  Risks

  Weakening China automation demand, delayed margin improvement, share gains falling short of expectations, and Cloos integration and synergies failing to meet expectations.

• Harmonic Drive Systems Inc（6324.JP）

  A play on demand for core robot components and harmonic reducers.

  Strengths

  Has more than 50% global share in strain wave gears, offering high elasticity to a recovery in robot demand.

  Weaknesses

  Its high market share makes it more sensitive to changes in the competitive landscape, and it faces significant cyclical and exchange-rate risks.

  Comparison

  Compared with other covered companies, changes in the competitive landscape are more critical to its investment thesis.

  Risks

  Global robot demand weaker than expected, share losses caused by competition, and yen appreciation.

• Hangzhou Hikvision Digital Technology Co Ltd（002415.CH）

  One of the companies covered in the report, with the target price implying certain upside.

  Strengths

  Target price of CNY 45.00, above the 2026-08-07 closing price of CNY 37.24.

  Weaknesses

  Its core China business has high exposure to domestic infrastructure investment and government policy, while its overseas business is also affected by political sensitivity.

  Comparison

  Compared with pure-play automation companies, its investment thesis is more driven by government spending, security demand, and geopolitical factors.

  Risks

  Weak macroeconomy, government spending below expectations, intensified sanctions, and overseas demand suppressed by political factors.

Key data

• AC servo sales growth25% year-on-year growth in 2Q2617% year-on-year growth in 1Q26, with growth further accelerating.
• CNC sales growth25% year-on-year growth in 2Q2622% year-on-year growth in 1Q26.
• Industrial robot shipment growth13% year-on-year growth in 2Q2612% year-on-year growth in 1Q26; measured by shipment volume excluding collaborative robots.
• Electronics industry demand shareIndustrial robots about 25%, AC servos about 15%, small PLCs about 13%Maintained double-digit growth since 4Q25, with momentum strengthening over the past two quarters.
• Semiconductor industry demand shareLess than 10% for all major automation productsThe share remains low, but demand growth has risen to a relatively high level.
• Medium-to-large PLC localization rate17% in 2Q26Still one of the least localized automation segments.
• CNC localization rate18% in 2Q26The localization rate has not increased in tandem with other major products.
• Inovance AC servo share37% in 2Q26Its leading position further consolidated.
• Inovance share change year-on-yearAC servos +3.0 percentage points; medium-to-large PLCs +2.7 percentage points; small PLCs +4.2 percentage pointsCompared with 2Q25, growth in medium-to-large PLCs mainly came from breakthroughs in the automotive industry.

Impact & implications

Accelerating automation demand and domestic substitution jointly benefit Chinese leaders with complete product platforms and local customer bases, among which Inovance has the greatest share-gain elasticity in servos and PLCs. Overseas leaders are not universally under pressure: Keyence remains resilient thanks to its innovation capability in advanced sensors, while FANUC's short-term share volatility is more due to component supply constraints. Investors should distinguish cyclical recovery, structural localization, and temporary supply issues, and avoid treating all share changes as shifts in long-term competitiveness.

Risks

• MIR Databank data are preliminary releases, and final data may be revised.
• Industrial capital expenditure cycles in China and globally may be weaker than expected, potentially slowing the recovery in automation demand.
• Trade frictions, sanctions, and geopolitics may affect supply chains, overseas demand, and valuations.
• Shortages of key components such as PCBs and chips may continue to constrain deliveries and distort short-term market shares.
• Photovoltaic industry demand remains relatively lagging, and the sustainability of recovery remains to be observed.
• Domestic companies still have technological or share gaps in medium-to-large PLCs, CNC, advanced sensors, and heavy-duty six-axis robots.
• Yen appreciation may weigh on the earnings and valuations of Japanese companies such as FANUC, Keyence, and HDSI.
• If market share gains, margin improvements, or M&A synergies fall short of expectations, the investment thesis for relevant companies will be weakened.

What to watch

• Whether growth in AC servos, CNC, and industrial robots can continue to improve in 2H26.
• Whether energy storage investment within battery automation demand can continue to offset cyclical fluctuations in new energy vehicles.
• Whether photovoltaic PLCs and AC servos can form a sustained recovery after resuming growth.
• Whether high growth in the semiconductor and electronics industries can continue and expand their demand contribution.
• Whether Inovance's share breakthroughs in medium-to-large PLCs and the automotive industry can be sustained.
• FANUC's PCB and chip supply constraints, order delivery cycles, and recovery of China market share.
• Share changes for KUKA and Estun in heavy-duty six-axis robots.
• The pace of improvement in localization rates for advanced sensors, medium-to-large PLCs, CNC, and heavy-duty six-axis robots.