Chinese automakers face widening divergence; AI, globalization, and premiumization are the next re-rating themes

Overview

This report focuses on China autos and shared mobility, updating the main automakers’ 2026-2028 assumptions for volume, revenue, gross margin, R&D, and selling expenses. The report argues that the Beijing Auto Show exposed product homogenization and intensified internal competition; anti-involution policies and price increases may actually suppress demand in the near term. However, automakers are accelerating their shift toward overseas expansion, AI and smart driving, premiumization, and technology commercialization, which will determine future valuation divergence.

Core views

The core view is that domestic auto demand remains weak, with consumers waiting on the sidelines because of frequent new model launches, price expectations, and subsidy extensions; 2Q sales face downside risk. But from 3Q onward, easier comps, new model launches, and reset earnings expectations could create trading opportunities. High-quality automakers need to rely on overseas sales, a higher-end product mix, supply chain bargaining power, smart-driving technology advantages, and To-B partnerships to withstand domestic competitive pressure. The report is more constructive on XPeng, Voyah, and SAIC, which have re-rating potential and downside protection, while continuing to favor NIO, Geely, and BYD for their long-term competitiveness.

Analysis framework

The report uses a top-down plus bottom-up approach: it first adjusts industry assumptions based on 1Q results, April sales, full-year target attainment, domestic demand, and export trends, then updates each company’s volume, revenue, gross margin, R&D expense, SG&A, and valuation scenarios. On valuation, it uses probability-weighted DCF for XPeng and similar names, combined with bull, base, and bear cases; for non-vehicle businesses such as AI chips, robotaxi, and humanoid robots, it uses SOTP to capture potential long-term value.

Methodology notes

• Valuation MethodProbability-Weighted DCF

  Target prices are derived by probability-weighting bull, base, and bear scenarios.

  XPeng ADR valuation uses 30%/50%/20% bull, base, and bear weights; the base case assumes 3% perpetual growth, 1.6x beta, and 12.8% WACC.

• Valuation MethodSOTP

  Sum-of-the-parts valuation is used to reflect the long-term value of vehicle and non-vehicle AI businesses.

  In XPeng’s bull case, the report separately estimates the value of the vehicle business, the AI Turing chip, humanoid robots, and robotaxi businesses to reflect the valuation re-rating potential from AI and physical AI commercialization.

• Industry AnalysisSales and Product Cycle Tracking

  Demand recovery is judged through sales run rates, new model launches, and product mix.

  The report focuses on April sales, the dense 2Q26 new model launch schedule, and key 2H26 models and premium SUV demand to judge whether the industry can shift from caution to recovery.

• Competitive AnalysisOverseas and Premiumization Mix

  Overseas sales, premium model mix, and smart-driving capability determine earnings resilience.

  The report believes overseas per-unit profitability may be 5-10x that of the domestic market, and the Rmb200-300k+ price band increased by 2-3 percentage points year over year in 1Q26; thus exports, premiumization, and AD capability are key differentiators for automakers.

Asset mapping & comparison

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

• XPeng (XPEV.N/9868.HK)

  One of the core preferred names, rated OW.

  Strengths

  The 2H26 model cycle, GX and Mona LO3, the Volkswagen partnership, rising ADAS penetration, the AI Turing chip, robotaxi, and humanoid robot businesses all provide re-rating potential.

  Weaknesses

  Losses are still expected in 2026-2027, volume forecasts have been cut, and R&D plus overseas expansion expenses are increasing.

  Comparison

  Year to date performance is weaker than the Hang Seng Index, pessimism appears largely priced in, and a sales recovery could create greater valuation upside.

  Risks

  Rising competition in the mid- to high-end price bands, lower-than-expected ADAS adoption, cash flow pressure, and delayed earnings recovery.

• Li Auto (LI.O/2015.HK)

  Maintained at OW, a low-expectation but high-upside name.

  Strengths

  The L9 upgrade and i9 launch may lift monthly sales back to around 40,000 units, while cash value discount, operating flexibility, and the shift toward physical AI provide support.

  Weaknesses

  Differentiation in the premium family vehicle market is still difficult, and execution and AI talent attraction are key constraints.

  Comparison

  Compared with some automakers that have already rallied sharply, market expectations are lower, and the buyback plan may support the share price.

  Risks

  Poor execution on new models, intensified competition in the premium market, and insufficient product differentiation.

• NIO (NIO.N/9866.HK)

  Maintained at OW, but there is short-term profit-taking risk.

  Strengths

  1Q performance was solid, and the launch of ES9/L80 plus the successful ES8 playbook should support 2H volume and margin improvement.

  Weaknesses

  The stock is already up about 17% year to date, so near-term market debate may increase.

  Comparison

  It benefits more than XPeng from recent share-price momentum, but valuation upside may be constrained by near-term profit-taking.

  Risks

  New model ramp-up falls short of expectations, the full-year break-even target is not achieved, and competition intensifies.

• BYD (1211.HK/002594.SZ)

  Maintained at OW, with a long-term positive view on global expansion and order capture.

  Strengths

  The company continues to gain share in LatAm, ASEAN, and Europe; the second-generation Blade Battery capacity bottleneck is expected to ease in summer 2026, and new model and smart-driving technology launches are catalysts.

  Weaknesses

  Upside depends heavily on a recovery in domestic sales, and battery capacity ramp-up may create near-term volatility.

  Comparison

  Compared with new entrants, BYD has stronger scale and supply chain advantages, but the market is more focused on domestic sales and pricing strategy.

  Risks

  Weaker-than-expected domestic demand, price competition, overseas protectionism, and capacity ramp-up risk.

• GWM (2333.HK/601633.SS)

  EW for H shares, UW for A shares.

  Strengths

  New Tank and WEY models and higher export share in LatAm and ASEAN remain profit supports.

  Weaknesses

  Russia scrappage tax increases, tax rebate volatility, and rising AD material costs may pressure overseas and domestic margins.

  Comparison

  Compared with OW names, GWM’s sales upside relies more on specific brand launches, and earnings risk is more visible.

  Risks

  Disruptions in the Russian market, lower overseas margins, and rising domestic smart-driving costs.

• Voyah (7489.HK)

  One of the report’s preferred re-rating names.

  Strengths

  Continued product launches in 2026 should support sales growth, and its current valuation discount versus peers is attractive.

  Weaknesses

  Brand scale still needs further validation, and market awareness plus the ability to sustain orders are key.

  Comparison

  Compared with some mainstream automakers that have already rallied, the valuation discount may offer better risk-reward.

  Risks

  New model volume falls short of expectations, competition intensifies, and the valuation discount fails to narrow.

• SAIC (600104.SS)

  The report is constructive on its sales recovery trend, rated OW.

  Strengths

  Deep integration across the automotive value chain helps improve profitability.

  Weaknesses

  It still faces domestic demand uncertainty and global geopolitical pressure.

  Comparison

  Compared with new entrants, SAIC is more of a traditional leader recovery story.

  Risks

  Weak domestic demand, overseas geopolitical risk, and earnings improvement that falls short of expectations.

• Geely (175.HK)

  Still viewed positively, but near-term profit-taking should be watched.

  Strengths

  Overseas upside, ZEEKR order backlog, iHEV launches, and the Galaxy pipeline support unit profit improvement.

  Weaknesses

  The stock is already up more than 25% year to date, so the market may demand more delivery evidence in the short term.

  Comparison

  To revisit prior highs, the market needs to see progress toward the 750k overseas target and more blockbuster models.

  Risks

  Insufficient progress on overseas targets, weaker-than-expected new model sales, and near-term valuation pullback.

Key data

• 2026 passenger vehicle export growth forecast33% YoYRaised from the prior 22%; overseas expansion is seen as the main growth and profit driver.
• 2026 new-energy vehicle export forecast+88% YoY to 4.5 million unitsUsed to offset weak domestic demand and price competition pressure.
• 2026 L2+ penetration expectation32%Above 25% in 2025, with L3/L4 moving from concept to commercialization.
• Premium price-band changeRmb200-300k+ model mix up 2-3 percentage points year over year in 1Q26Shows demand continuing to tilt toward premium and mid-to-large SUVs.
• Overseas per-unit profitabilityAbout 5-10x domestic levelsBased on the report’s estimates and automaker guidance, exports are seen as a core source of profit resilience.
• XPeng 2026-2028 volume forecast revisionCut by 8-16% to 462k/596k/666k unitsReflects weak domestic demand in 1H26 and intensifying new-energy vehicle competition.
• XPeng R&D expense forecastRmb12.4bn in 2026Raised from Rmb12bn, reflecting higher investment in AI computing, autonomous driving, and physical AI.
• XPeng earnings forecastLosses of Rmb3.7bn/Rmb1.0bn in 2026/2027 respectively, with net profit of Rmb202mn in 2028The report expects XPeng to break even on net profit by 2028.
• XPeng target priceXPEV.N US$25; 9868.HK HK$96The ADR target price comes from the probability-weighted method, while the Hong Kong target price is converted at an exchange rate of 7.8 HKD/USD.
• BYD target price1211.HK HK$121; 002594.SZ RMB120The H-share target price is cut by 4% from the prior HK$126, implying about 27x 2026e P/E.

Impact & implications

The investment implication is that China autos is no longer a sector where investors should simply bet on beta or sales recovery; the market will focus more on companies that can preserve orders, gross margin, and overseas growth amid weak domestic demand. AI, autonomous driving, robotaxi, humanoid robots, and technology-services revenue provide a long-term re-rating narrative, but in the near term the sector still faces rising R&D and SG&A, margin pressure, and new-model execution risk. If the 2H26 new model cycle, exports, and smart-driving commercialization materialize, AD-related names may see valuation recovery; if domestic price competition and consumer confidence deteriorate further, sector valuations and earnings expectations could still be revised down.

Risks

• Domestic auto demand recovers more slowly than expected, with consumers continuing to wait for new models, price changes, and subsidy extensions.
• Competition intensifies in the new-energy vehicle and mid- to high-end segments, and price promotions or rising costs compress gross margins.
• Anti-involution policies, price increases, and raw-material cost pass-through may further suppress orders.
• Overseas expansion faces protectionism, geopolitics, taxation, and policy volatility across regions.
• Commercialization of AI, smart driving, robotaxi, and humanoid robots falls short of expectations, preventing the valuation re-rating from materializing.
• Higher R&D and overseas sales expenses may delay the earnings inflection point.
• Key new model launches or capacity ramp-ups may disappoint.

What to watch

• Whether order conversion improves after the dense 2Q26 new model launch wave and whether consumer caution eases.
• Whether the low base from 3Q26 and the new model cycle create sector trading opportunities.
• BYD’s May Tech Day disclosures on next-generation smart-driving capabilities and new model strategy.
• XPeng’s 2H26 sales recovery, Volkswagen technology-services revenue, AI Turing chip, robotaxi, and humanoid robot progress.
• NIO’s sales, gross margin, and full-year break-even path after the ES9/L80 launches.
• Whether Li Auto’s monthly sales return to around 40,000 units after the L9 upgrade and i9 launch.
• Export growth, overseas per-unit profitability, and market share changes in LatAm, ASEAN, and Europe.
• L2+ penetration, the pace of L3/L4 commercialization, and the impact of AD hardware costs on margins.