Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Auto Dealers - **Focus**: Luxury car dealers in China, particularly the performance and recovery outlook for 2026 [2][3][9] Core Insights and Arguments - **Earnings Recovery**: Investors anticipate a recovery in earnings for China's luxury car dealers in 2026, supported by dealer store capacity cuts and increased profit contributions from Huawei Aito [2][3] - **Model Cycle Concerns**: There is skepticism regarding whether the new model cycles from Mercedes-Benz and BMW will restore profitability to levels seen in 2021-2022 [2][4] - **Sales Performance**: Current sales figures indicate that traditional internal combustion engine (ICE) models like the Mercedes GLC and BMW X3 average 10-15K units monthly, while current electric vehicle (EV) models are underperforming, with Mercedes EQC/EQE selling less than 1K and BMW iX3 selling 2-3K units monthly [4] Recovery Timeline - **Earnings Bottom**: The consensus is that 2025 will mark the trough for earnings, with a more significant recovery expected in 2026. However, some investors believe that recovery could begin in the second half of 2025 [3][5] - **Negative Catalysts**: Factors such as widening retail discounts on ICE cars, lower profit contributions from auto finance commissions, and a 10% consumption tax effective July 2025 are expected to negatively impact demand for ultra-luxury cars before recovery occurs [5] Valuation Insights - **Zhongsheng Valuation**: Zhongsheng currently trades at 8x the estimated EPS for 2026, compared to a historical P/E of 10x. Analysts suggest a justified P/E range of 10-15x as the company is positioned for recovery [6] Additional Considerations - **Investor Sentiment**: While there is broad agreement on the recovery thesis, there remains uncertainty about the strength and timing of the recovery, particularly regarding the new EV models [3][4] - **Market Dynamics**: The upcoming models are expected to include advanced features tailored for the Chinese market, which may influence future sales performance [4] Conclusion - The luxury car dealer sector in China is poised for a recovery in 2026, but challenges remain in the interim, particularly with the transition to EVs and market dynamics affecting pricing and demand [2][5][6]