NEV makers’ profitability diverged significantly in 2Q, with more notable improvement at BYD, Leapmotor and NIO

Overview

The report previews the 2Q 2026 results of five Chinese new energy vehicle OEMs. Industry demand, model cycles, average selling prices and cost changes have led to significant divergence in corporate profitability trends: Leapmotor and NIO lead in sales volume growth; BYD relies on a recovery in domestic sales, second-generation blade-battery models and overseas business to improve its product mix; XPeng’s sales volume is broadly flat and it continues to increase investment in general artificial intelligence R&D; Li Auto is jointly affected by weaker demand, pre-facelift destocking, a higher proportion of low-margin models and rising raw material costs.

Core views

First, in terms of sales volume, Leapmotor and NIO are expected to grow 57% and 49% year over year, driven by deliveries of new models; BYD and XPeng are roughly flat, while Li Auto declines 11%. Second, in terms of average selling prices, BYD and NIO are expected to increase 12% and 23%, respectively, while Li Auto declines 8% due to product mix changes. Third, in terms of margins, BYD, Leapmotor and NIO are likely to benefit from sales volume, product mix and expense control, while XPeng and Li Auto face R&D, cost or volume pressures. Fourth, in terms of earnings, BYD, Leapmotor and NIO are expected to achieve profit growth, while XPeng and Li Auto are expected to see significant year-over-year declines. Fifth, in terms of valuation, BYD, Leapmotor and NIO’s 12-month DCF target prices remain unchanged, while XPeng and Li Auto’s target prices are lowered due to downward revisions to volume and earnings forecasts.

Analysis framework

The report uses a volume-price-margin framework, first comparing each company’s sales volume growth, market share, model mix and overseas sales, then forecasting changes in average selling price, gross margin, operating margin and net profit; it subsequently adjusts 2026 to 2028 earnings forecasts based on the latest monthly delivery data and derives 12-month target prices using the DCF method.

Methodology notes

• Operating analysisVolume-price-margin framework

  Explains changes in revenue and profit through sales volume, average selling price and margins.

  Sales volume is driven by industry demand, new model deliveries, channel inventory and overseas expansion; average selling price mainly depends on model mix and regional mix; margins further reflect raw material costs, expense investment and operating leverage.

• Valuation methodsDiscounted cash flow method

  Discounts a company’s future cash flows to estimate equity value and a 12-month target price.

  BYD and Leapmotor use a weighted average cost of capital of 10.8%; NIO and XPeng use 11.8%; Li Auto uses 11.3%. Perpetual growth rates range from 2.0% to 3.5%.

• Peer comparisonHorizontal comparison of new energy vehicle OEMs

  Compares the sales volume, selling prices, market share, gross margins and earnings growth of covered companies under a unified quarterly window.

  This method highlights differences in product cycles and cost structures among companies, but forecasts remain affected by actual deliveries, price competition and changes in raw material prices.

Asset mapping & comparison

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

• BYD (002594.SZ/1211.HK)

  Key covered stock, Buy rating

  Strengths

  Overseas sales volume is growing rapidly year over year, domestic market share has rebounded quarter over quarter, and second-generation blade batteries and flash-charging technology support product upgrades and higher selling prices.

  Weaknesses

  Domestic retail sales volume is still declining year over year, and R&D expenses and raw material pressure may limit the extent of margin improvement.

  Comparison

  Sales volume growth is weaker than Leapmotor and NIO, but scale, overseas business and product portfolio advantages are more prominent.

  Risks

  Intensifying competition in new energy vehicles, overseas expansion slower than expected, and external battery sales below expectations.

• Zhejiang Leapmotor Technology (9863.HK)

  High-growth covered stock, Buy rating

  Strengths

  2Q sales volume grew 57% year over year, overseas sales volume grew 479% year over year, domestic market share increased, and expense control is strong.

  Weaknesses

  A declining share of high-margin non-vehicle revenue may weigh on overall gross margin.

  Comparison

  It has the highest sales volume growth among covered companies and is expected to turn operating margin positive, but vehicle gross margin remains lower than BYD and NIO.

  Risks

  Weaker-than-expected China demand, market share loss due to competition, raw material cost pressure, uncertainty in cooperation with Stellantis, and overseas tariff policies.

• NIO Inc. (NIO/9866.HK)

  Margin improvement stock, Buy rating

  Strengths

  ES8 and ES9 drive increases in sales volume and average selling price, vehicle gross margin is expected to rise 7.2 percentage points year over year, and integration of R&D and marketing resources improves expense efficiency.

  Weaknesses

  Operating margin is still expected to be -1.0%, and the earnings foundation is not yet fully solid.

  Comparison

  The increase in average selling price and the extent of margin improvement are the most prominent among covered companies, and non-GAAP net profit is expected to be close to breakeven.

  Risks

  Sales volume below expectations, price cuts larger than expected, and cost inflation higher than expected.

• XPeng Inc. (XPEV/9868.HK)

  Second-half product cycle stock, Buy rating

  Strengths

  Market share increased both year over year and quarter over quarter, multiple SUVs are still scheduled to launch in the second half, and long-term general artificial intelligence R&D may create technology differentiation.

  Weaknesses

  2Q sales volume was flat year over year, some models may divert orders from each other, and R&D investment and raw material costs weigh on short-term profitability.

  Comparison

  Target price upside is relatively large, but recent profit trends are clearly weaker than BYD, Leapmotor and NIO.

  Risks

  Sales volume below expectations, worsening price competition, weak market demand, and cannibalization among new models.

• Li Auto Inc. (LI/2015.HK)

  Earnings pressure stock, Neutral rating

  Strengths

  Facelifted models have higher pricing; if sales volume recovers, expense control improves, or progress in embodied intelligence accelerates, there could be upside.

  Weaknesses

  Declining sales volume, destocking, a higher share of low-margin i6 and cost inflation have led to significant declines in vehicle gross margin and operating margin.

  Comparison

  It has the largest profit decline among covered companies and the lowest implied upside to target price.

  Risks

  Industry demand below expectations, intensified competition, rising raw material costs, and extended-range model sales weaker than expected.

Key data

• 2Q sales volume year-over-year growthBYD -3%; Leapmotor +57%; NIO +49%; XPeng 0%; Li Auto -11%Leapmotor and NIO are driven by new models and delivery growth, while BYD’s year-over-year decline narrowed significantly from 1Q.
• Average selling price year-over-year changeBYD +12%; Leapmotor +1%; NIO +23%; XPeng +3%; Li Auto -8%BYD is driven by second-generation blade-battery models and overseas sales, while NIO is driven by a higher share of high-priced ES8 and ES9 models.
• Expected net profit year-over-year changeBYD +34%; Leapmotor +41%; NIO +102%; XPeng -137%; Li Auto -213%Under the report’s definition, Leapmotor, NIO, XPeng and Li Auto use non-IFRS or non-GAAP net profit.
• BYD expected 2Q gross margin18.1%, up 1.9 percentage points year over yearSales volume recovery and product mix improvement are expected to offset the impact of declining domestic demand.
• Leapmotor expected 2Q vehicle gross margin9.8%, up 0.2 percentage points year over yearSales volume growth supports gross margin, while overall gross margin is still affected by the declining share of high-margin non-vehicle revenue.
• NIO expected 2Q vehicle gross margin17.5%, up 7.2 percentage points year over yearA higher share of ES8 and ES9 improves the product mix, but rising raw material costs have begun to be reflected.
• XPeng expected 2Q vehicle gross margin12.1%, down 2.2 percentage points year over yearHigh-margin service revenue provides some support, but raw material costs and continued R&D investment weigh on profitability.
• Li Auto expected 2Q vehicle gross margin10.0%, down 9.4 percentage points year over yearLower average selling prices, a higher share of low-margin i6 and rising costs are the main pressures.
• Overseas sales performanceBYD overseas retail sales volume approximately +82% year over year; Leapmotor overseas sales volume +479% year over year to 53,000 unitsOverseas expansion is an important driver of sales volume and product mix improvement for both companies.
• 12-month target pricesBYD Rmb137/HK$134; Leapmotor HK$50; NIO US$7/HK$55; XPeng US$20/HK$77; Li Auto US$15.7/HK$61XPeng and Li Auto’s target prices are lowered, while the other three companies remain unchanged.

Impact & implications

Short-term earnings catalysts are more likely to be concentrated in Leapmotor and NIO, which have high sales volume growth, improved product mix and better expense control, as well as BYD, whose domestic sales are gradually recovering and overseas business is strong. Although XPeng maintains a Buy rating and has a new model cycle in the second half, its near-term earnings forecasts are affected by deliveries below expectations and R&D investment; Li Auto has limited upside to its target price and needs sales volume recovery, product mix improvement and cost relief to reverse earnings pressure. At the industry level, market share continues to concentrate among companies with new products, technology upgrades and overseas channel capabilities, but price competition and raw material inflation may limit margin expansion.

Risks

• Recovery in China new energy vehicle demand is weaker than expected, causing sales volume, capacity utilization and operating leverage to fall short of forecasts.
• Intensifying industry price competition may offset improvements in average selling prices and gross margins brought by product upgrades.
• Raw material costs continue to rise, which may particularly weigh on the vehicle gross margins of NIO, XPeng and Li Auto.
• New model launches or deliveries fall short of expectations, or order diversion occurs between models under the same brand.
• Overseas expansion is affected by tariffs, regulation, channel buildout and partner execution.
• High-intensity R&D investment cannot be converted into sales volume or commercialization gains in a timely manner.
• DCF target prices are relatively sensitive to weighted average cost of capital, perpetual growth rates and long-term profitability assumptions.

What to watch

• Earnings releases and management guidance around August 18 for Leapmotor, August 19 for XPeng, August 28 for BYD and Li Auto, and September 2 for NIO.
• BYD’s second-generation blade battery capacity ramp-up, launches of flash-charging models, and whether domestic sales can return to year-over-year growth in 2H 2026.
• Whether Leapmotor’s A10, D19 and overseas channels can sustain high growth, and whether vehicle gross margin can continue to improve.
• NIO’s ES8 and ES9 sales mix, vehicle gross margin, and the effectiveness of multi-brand R&D and marketing resource integration.
• XPeng’s new SUV launches in the second half, order diversion among Mona models, and changes in general artificial intelligence R&D expenses.
• Li Auto’s facelifted model sales, channel inventory destocking, i6 product share, and demand for extended-range models.
• Battery and other raw material prices, industry promotional intensity, and changes in market share among major automakers.