Weichai Power: AI data center power business drives valuation rerating

Overview

This report is Goldman Sachs’ conference takeaways on Weichai Power published after the Asia Communacopia + Technology conference. Management focused on discussing data center power engines, capacity expansion, overseas channels, price competitiveness, and SOFC commercialization progress. The report’s core conclusion is that Weichai Power’s data center power business is shifting from linear growth to faster growth, and RICE and SOFC may provide further upside.

Core views

Goldman Sachs believes Weichai Power’s investment thesis has shifted from the traditional heavy-truck cycle to AI data center power. The company has built a product portfolio covering large-bore engines for diesel generator sets, gas generator sets, and fuel cells. The report expects AIDC power business net profit contribution to rise from about 12% in 2025E to 43% in 2030E, and contribute more than 60% of incremental EPS growth by 2030E, thereby supporting valuation rerating.

Analysis framework

Based on feedback from the management meeting, the report analyzes shipments, capacity, product launch cadence, channels, pricing, competitive barriers, and SOFC orders, and adopts a sum-of-the-parts valuation method to assess the value of traditional businesses, diesel backup power, RICE prime power, and SOFC businesses.

Methodology notes

• Valuation methodSOTP sum-of-the-parts valuation

  Valued separately by business maturity

  Traditional businesses use mid-cycle P/E, while the AIDC power portfolio applies different target years and P/E multiples to large-bore diesel engines, RICE, and SOFC respectively, and discounts them back to mid-2027 using a 9% cost of equity.

• Investment frameworkGS Factor Profile

  Comparison of growth, returns, valuation, and composite factors

  Goldman Sachs’ factor profile is used to compare a stock’s growth, financial returns, valuation multiples, and overall performance against the market and industry peers.

• Conference takeaways analysisManagement guidance and product milestone tracking

  Validate the growth path through shipments, capacity, orders, and pricing

  The report uses management-provided milestones for data center engines, RICE, SOFC, and overseas capacity as key evidence for judging business upside potential.

Asset mapping & comparison

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

• Weichai Power A-shares (000338.SZ)

  Covered company; Buy rating

  Strengths

  Comprehensive data center power product portfolio, with diesel, gas, and SOFC positioning; strong vertical integration capabilities; AIDC profit contribution is expected to rise rapidly.

  Weaknesses

  Still has exposure to traditional heavy trucks, road freight, infrastructure, and real estate cycles.

  Comparison

  A-share target price of Rmb48.00/share versus current price of Rmb33.30; valuation references H-share equity value and assumes a 6% discount.

  Risks

  Weak macro demand, underperformance in heavy-truck engine market share, slower-than-expected development of the power business.

• Weichai Power H-shares (2338.HK)

  Covered company; Buy rating; valuation anchor

  Strengths

  The H-shares are the report’s main valuation anchor, with the target price supported by the rerating of the AIDC power business.

  Weaknesses

  Affected by the global economy, exchange rates, Hong Kong equity risk appetite, and the cycle of traditional businesses.

  Comparison

  12-month H-share target price of HK$56.0/share versus current price of HK$40.12.

  Risks

  Weak global economic growth, slower-than-expected product commercialization, slower-than-expected progress in overseas localization.

• Ceres Power

  SOFC technology partner

  Strengths

  Collaborates with Weichai Power on SOFC commercialization; the report states the licensing agreement has no geographic restrictions.

  Weaknesses

  SOFC is still in the commercialization ramp-up stage, and capacity and order realization need to be tracked.

  Comparison

  Compared with the traditional engine business, SOFC has a higher valuation multiple and stronger growth elasticity.

  Risks

  Customer adoption, mass-production progress, cost curve, and technology commercialization falling short of expectations.

Key data

• Report date2026-05-19The report front page discloses the time as 19 May 2026 5:53PM HKT.
• Large-bore diesel engine shipmentsAbout 1.4k units in 2025; about 3.5k units in 2026; about 5-6k units in 2027Used for AI data center backup power.
• Global diesel engine market share targetAbout 30%Management reiterated the global market share target for large-bore diesel engines used in data centers.
• RICE shipment targetAbout 200 units in 2026; 800-1,000 units in 2027Gas reciprocating internal combustion engines are mainly used for prime power.
• RICE product milestones2.5MW product expected to launch in late June/early July 2026; 5.5MW product expected to launch by the end of 2026 and commercialize in mid-2027The 2.5MW product has already obtained certification and is expected to begin commercial sales in 4Q.
• Total engine capacityCurrently about 5k units; about 8-10k units by the end of 2027Most of the incremental capacity is expected to be allocated to gas products.
• Overseas capacityAbout 500-1,000 units in France; North American plant expected to start mass production by the end of 2027Used to meet tariff risk management and localization requirements.
• Pricing and competition2.5MW gas engine unit price Rmb10mn+; diesel engines priced at about a 20% discount to global peersOverseas ASP has increased by at least 20% year-on-year year-to-date.
• SOFC capacity pathAbout 30MW in 2026; planned about 200MW in 2027, expandable to 500MW; 1GW target by 2030Current discussed orders are about 200-300MW, showing strong customer interest.
• Target priceHK$56.0/share for H-shares; Rmb48.00/share for A-sharesA-share valuation references H-share equity value and assumes a 6% discount.

Impact & implications

If data center power demand, RICE commercialization, and SOFC orders materialize, Weichai Power’s profit structure and valuation anchor could change significantly. The traditional heavy-truck cycle will still affect short-term sentiment, but the high growth of the AIDC power business is likely to become the core driver of future rerating. North American localization and overseas channel expansion may also reduce tariff and supply-chain risks.

Risks

• Road freight, infrastructure, real estate, and other macro activities are weaker than expected.
• Global economic growth is weaker than expected.
• Powertrain penetration toward higher electrification and declining LNG penetration put pressure on traditional engine demand.
• Heavy-truck engine market share performance is weaker than expected.
• Data center power business development is slower than expected, including diesel, RICE, and SOFC orders, capacity, or commercialization progress falling short of expectations.
• Progress in North American localization, supply chain, and tariff response is below expectations.

What to watch

• Whether actual shipments of large-bore diesel engines in 2026 and 2027 reach the targets of about 3.5k units and 5-6k units.
• Launch, certification, commercial sales, and delivery against the 2027 target of 800-1,000 units for the 2.5MW and 5.5MW RICE products.
• The pace at which SOFC orders convert from discussions into formal orders, and the possibility of capacity expansion from 200MW to 500MW in 2027.
• Whether the North American plant starts mass production as scheduled by the end of 2027, and the choice of supply-chain localization model.
• Whether overseas ASP can maintain at least a 20% year-on-year increase, and whether domestic diesel engine price competition continues to intensify.
• Whether the AIDC power business profit contribution rises as expected from 12% in 2025E to 43% in 2030E.