July update on China Battery Materials, Korea Defense and Korea Autos: CATL shows strong momentum, LIG D&A moved to Positive Catalyst Watch, Kia growth is robust

Overview

This report is a multi-theme update from JPMorgan’s APAC industrial and automotive team, covering China battery and materials, Korea defense, Korea auto monthly sales, as well as robotics, industrial equipment, and global auto/defense news flow. It argues that July China battery production recovery, 2Q26 earnings catalysts in Korea defense, Kia's sales resilience, and HMC/Kia hybrid and FX tailwinds are the key current investment themes.

Core views

Core views include: first, after China battery output was revised down in June due to falling raw-material prices and cautious procurement, July orders are recovering and CATL remains clearly ahead of peers; second, Korea defense stocks are positioned well heading into 2Q26 results, with market focus shifting from headline orders to delivery pace, margins, mix, and order conversion; third, LIG D&A, Hanwha Aerospace, and Hyundai Rotem are most likely to receive earnings upgrades, while KAI could underperform due to LAH delivery delays and won cost pressure; fourth, within Korea autos, Kia sales growth is robust and HMC is strong in the U.S. but weaker in Korea and Europe, and investors are increasingly focusing on the earnings risk from HMC 2Q sales missing expectations.

Analysis framework

The report combines industry monthly tracking, earnings-forward company outlooks, catalyst mapping for orders and deliveries, synthesis of investor feedback, and monitoring of key news flow. For the battery segment, it tracks output, energy storage demand, raw-material prices and U.S. energy storage exposure; for defense, it evaluates export deliveries, FX, order backlog, and capacity bottlenecks; for autos, it compares HMC and Kia by region-by-region sales, HEV/EV mix, incentive levels, and FX impact.

Methodology notes

• Industry monthly tracking产量与订单恢复跟踪

  Assess battery-chain cyclical strength through monthly output, order recovery, and raw-material price changes.

  The report notes that China battery production in July is expected to rise 6% m/m, and identifies stable raw-material prices and downstream demand recovery as key follow-up monitoring points.

• Earnings catalyst analysis2Q26 earnings catalyst watch

  Identify in advance companies that may beat expectations, get order-driven catalysts, or issue guidance revisions before earnings.

  LIG D&A is placed on Positive Catalyst Watch because operating profit is expected to beat market consensus by about 30%, supported by strong export deliveries and potential overseas orders.

• Investor feedbackInvestor feedback read-through

  Summarize buy-side focus points, expectation gaps, and crowding to help assess stock catalysts and risks.

  The report records investor attention on CATL's U.S. storage exposure, Korea defense export orders, HMC earnings risk, and suppliers in the robotics components chain.

Asset mapping & comparison

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

• CATL

  China's top battery pick

  Strengths

  Output growth is strong, with notably stronger July momentum than peers; U.S. energy-storage exposure is less than 5% of 2026 portfolio, so potential U.S. inverter restrictions have limited impact.

  Weaknesses

  Investors expect 2Q26 profitability to be broadly in line with consensus, with limited upside surprise; the market is waiting for clearer 2027 capacity visibility.

  Comparison

  Compared with peers, CATL is more clearly differentiated in production momentum and energy-storage opportunities.

  Risks

  Downstream demand weakness, raw-material price volatility, overseas policy constraints, and unclear 2027 capacity expectations.

• CALB

  Second-tier battery growth leader

  Strengths

  The report says it has leading growth among second-tier battery producers and is rated OW.

  Weaknesses

  Still smaller and less influential than CATL in scale and market standing.

  Comparison

  Shows comparatively stronger growth performance among second-tier battery producers.

  Risks

  Industry pricing pressure, weaker-than-expected demand, and intensified competition.

• LIG D&A (079550 KS)

  Korea defense stock under Positive Catalyst Watch

  Strengths

  Expected 2Q26 operating profit is about 30% above consensus, supported by strong export sales, faster M-SAM II delivery, and FX tailwinds.

  Weaknesses

  Needs confirmation of order conversion, delivery pace, and earnings quality.

  Comparison

  Compared with Hanwha Aerospace and Hyundai Rotem, the report sees LIG D&A as having the clearest earnings beat and catalyst mix.

  Risks

  Order catalysts such as Canadian CPSP, U.S. howitzer bidding, and NATO cooperation signals may fail to materialize as expected; delivery bottlenecks or slower localization progress may occur.

• Hanwha Aerospace (012450 KS)

  Korea defense earnings-upside candidate

  Strengths

  Poland deliveries and favorable FX are expected to support an inflection in land systems margins.

  Weaknesses

  Conviction and discussion on a strong 2Q26 upside is weaker than for LIG D&A.

  Comparison

  Still one of global investors' preferred Korea defense names, but short-term earnings catalysts are not as clear as LIG D&A.

  Risks

  Potential divergence around Poland shipment pace, order conversion, and the timing of delivery confirmation.

• Hyundai Rotem (064350 KS)

  Korea defense and rail equipment beneficiary

  Strengths

  Continued K2 export progress, FX tailwinds, and confirmation of high-margin EC1s may support earnings.

  Weaknesses

  Sustainable stock performance depends on updated orders.

  Comparison

  Along with LIG D&A and Hanwha Aerospace, it is among Korea defense stocks most likely to receive earnings upgrades.

  Risks

  Limited order disclosure, slowing export progress, and delayed confirmation of high-margin projects.

• KAI (047810 KS)

  Relatively weaker Korea defense name

  Strengths

  Still belongs to Korea's defense chain.

  Weaknesses

  The report expects 2Q26 performance to miss expectations due to LAH delivery delays and won cost pressure.

  Comparison

  In the short term, it has a higher earnings risk than LIG D&A, Hanwha Aerospace, and Hyundai Rotem.

  Risks

  Risk of 2026 sales guidance cuts, continuation of LAH issues, and cost pressure.

• HMC/Kia

  Overweight Korea auto pair

  Strengths

  Kia's global June sales rose 11% y/y and HMC's U.S. sales rose 11% y/y; hybrid demand, won weakness, ADAS progress, and robot optionality provide support.

  Weaknesses

  HMC is weaker in Korea and Europe, and investors are focused on potential earnings misses if HMC's Q2 global deliveries fall below expectations.

  Comparison

  Kia currently has stronger sales resilience than HMC; Kia and Mobis are viewed as closer to market consensus.

  Risks

  Cost inflation, weaker-than-expected volumes, launch cadence of new models, Middle East recovery uncertainty, and incentive changes.

• Leader Harmonious Drive Systems (688017 CH)

  Joint venture-linked humanoid robot joint-drive component beneficiary

  Strengths

  In partnership with SKF AB, it is developing and supplying high-precision joint-drive components for humanoid robots and planning a China joint venture.

  Weaknesses

  The joint venture is expected to become operational only by the end of 2026, so short-term revenue contribution is limited.

  Comparison

  Investors have generally positive feedback on the cost advantage of Chinese critical component suppliers, while concerns are rising about the scalability of Japan's Harmonic Drive System in robotics.

  Risks

  Joint venture execution pace, robotics demand timing, and technology competition.

Key data

• China battery July production outlook+6% m/mThe report expects China battery output to rebound month-over-month in July.
• CATL 2Q26 battery output~+80% y/yJuly is expected to be up more than 70% year-over-year.
• Year-to-date output of leading battery producers~+53% y/yDriven by energy storage demand, EV exports, and higher per-vehicle battery content.
• CATL 2Q26 net profit outlookRmb23-24bnThe report says investor expectations are broadly aligned with market consensus, with limited upside surprise room.
• Expected lithium price rangeRmb150k-200k/tA further rebound would need stronger downstream demand support.
• LIG D&A operating profit expectation gap~30% OP consensus beatDriven by strong export sales and faster M-SAM II delivery pace.
• Hyundai Motor June global retail sales344k units; flat y/y; +4% m/mThe United States is up 11% y/y, while Korea and Europe are down 5% y/y each.
• Kia June global sales282k units; +11% y/yKorea, Europe, India and the United States all saw growth, with strong EV and HEV demand.
• Airtac June salesNT$3.91bn; +45% y/y2Q26 revenue is about 10% above market consensus, with a positive read especially for Japanese automation firms, notably SMC.

Impact & implications

From an investment standpoint, the report favors names and value-chain links with clearly identifiable output, delivery, or earnings catalysts. In the battery chain, CATL and selected second-tier battery peers benefit from energy storage, EV exports, and rising battery content per vehicle. In Korea defense, LIG D&A stands out for earnings leverage and overseas order optionality. In Korea autos, Kia's sales resilience is stronger, while HMC remains supported by U.S. hybrid demand and FX tailwinds but faces earnings risk if 2Q volumes miss expectations. Robotics and industrial automation news further reinforce China's cost advantage in key components and rising competitive pressure on Japanese peers’ scale-up plans.

Risks

• Weak domestic new-energy-vehicle sales in China could offset demand from storage and exports.
• Volatility in lithium and battery-material prices may impact profit sharing across the chain.
• Korea defense order conversion, delivery pace, or localization progress may fall short of expectations.
• HMC's 2Q sales and cost performance may lead to earnings below market expectations.
• Changes in trade, defense procurement, and industrial policy in the U.S., Europe, and other regions may alter order and demand timing.
• The report includes sales and trading materials, and some content is not standalone research; compliance implications should be considered when using it.

What to watch

• The July recovery in China battery orders and raw-material price stability.
• Updates to CATL's 2027 capacity plan and progress on its U.S. energy storage strategy.
• LIG D&A's August 7 earnings, M-SAM II deliveries, Canada CPSP, the U.S. howitzer bidding, and NATO summit signals.
• 2Q26 reporting dates and earnings quality for Hyundai Rotem, KAI, Hanwha Aerospace, and LIG D&A.
• HMC/Kia Q2 earnings, HEV/EV mix, FX gains, and Middle East sales recovery.
• Cooperation in the key-automation components chain for robotics, Airtac demand strength, and China automation policy support.