This material is neither intended to be distributed to Mainland China investors nor to provide securities investment consultancy services within the territory of Mainland China. This material or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. China Auto Industry Bottom-fishing opportunity emerging Head of APAC Auto Research Nick Lai AC Asia Pacific Equity Research 11 March 2026 (65) 6801-3176 nick.yc.lai@jpmorgan.com J.P. Morgan Securities Singapore ...

Summary of Li Auto Conference Call Company Overview - **Company**: Li Auto - **Industry**: Electric Vehicles (EV) Key Financial Performance - **2025 Performance**: - Total revenue: 112.3 billion CNY, down 22% YoY - Net profit: 1.1 billion CNY, down 86% YoY - Q4 2025 revenue: 28.8 billion CNY, down 35% YoY, up 5% QoQ - Q4 2025 net profit: 2.024 million CNY, down 99% YoY, turned profitable QoQ - Q4 2025 ASP: 264,000 CNY, down approximately 5,000 CNY YoY and 30,000 CNY QoQ [1][4][5] Q1 2026 Guidance - Expected deliveries: 85,000 to 90,000 units - Anticipated ASP: 240,000 CNY, a decline of over 20,000 CNY from Q4 2025 - Projected gross margin: approximately 5% due to tax incentives, inventory clearance discounts, and rising raw material costs [1][5] Product Launches and Innovations - **2026 Product Lineup**: - New L9 and L9 Live models to be launched in Q2 - Mega model facelift and new I9 to be introduced in H2 - New L9 to feature self-developed M100 chip and steer-by-wire chassis, with a price increase of over 100,000 CNY for the Levis version [1][6] Sales and Market Strategy - **Sales Strategy**: - Introduction of a store partner mechanism to enhance operational efficiency by decentralizing decision-making to store managers [1][7] - **International Expansion**: - 2026 marks the official year for overseas expansion, targeting exports of approximately 20,000 units, primarily in Central Asia and the Middle East [1][7] Smart Technology and AI Strategy - **Investment in AI**: - R&D focus shifting towards AI, with approximately 50% of 2025 R&D budget allocated to AI-related projects [1][3] - **Technological Advancements**: - Full-stack development in foundational models, chips, operating systems, and smart terminals [1][9] - Upcoming I9 Liveness product to feature dual self-developed M100 chips, enhancing computational power significantly [1][9] Market Outlook and Expectations - **Sales and Profitability Forecast**: - Anticipated sales volume for 2026: 480,000 to 530,000 units, representing over 20% YoY growth - Expected turning point in sales and profitability by Q3 2026 [1][6][8] Additional Insights - **Cost Management**: - Q4 2025 R&D expenses: 3 billion CNY, up 25% YoY, reflecting increased investment in new models and AI [1][5] - **Cash Flow**: - Cash reserves at the end of 2025: 101.2 billion CNY, indicating strong liquidity [1][5] This summary encapsulates the critical insights from the conference call, highlighting the financial performance, strategic initiatives, product developments, and market outlook for Li Auto.

Core Viewpoint - Li Auto, once a leading player in the new energy vehicle sector, reported disappointing financial results for 2025, with significant declines in both revenue and net profit [2][3]. Financial Performance - In 2025, Li Auto achieved revenue of 112.31 billion yuan, a year-on-year decrease of approximately 22.25% [3][8]. - The net profit for 2025 was around 1.1 billion yuan, down 69.08 billion yuan from the previous year, marking an 86% decline [3][8]. - Vehicle sales revenue fell to 106.7 billion yuan, a 23% decrease compared to the previous year [2]. Sales and Delivery - The total new vehicle deliveries for 2025 were 406,300 units, a drop of approximately 94,200 units or 18.8% from 2024 [9]. - The flagship MPV MEGA delivered only 18,500 units, less than 30% of its annual target [9]. - The company faced challenges with its models, including the i6 and i8, which did not meet market expectations due to various factors [9]. Profitability and Margins - The overall gross margin for 2025 was 18.68%, a decline of 1.85 percentage points from 2024 [11]. - The vehicle gross margin was reported at 17.9%, down 1.9 percentage points from the previous year, attributed to changes in product mix [11][12]. Future Outlook - For 2026, Li Auto aims to deliver approximately 487,600 vehicles, representing a 20% growth target [13][14]. - The company plans to launch a new flagship electric SUV, the Li Auto i9, in the second half of 2026 [15]. - Li Auto is also focusing on humanoid robots and AI technologies to enhance its competitive edge in the market [18][19]. R&D Investments - In 2025, Li Auto invested 11.3 billion yuan in R&D, with 50% allocated to AI-related projects [21]. - The planned R&D investment for 2026 is around 12 billion yuan, maintaining a similar focus on AI and related technologies [21]. Operational Adjustments - Li Auto is optimizing its operations, including the closure of underperforming stores, which is part of a broader strategy to enhance operational efficiency [16]. - The company has introduced a "store manager partnership plan" to empower store managers with decision-making authority and profit-sharing [17].

EHang (EH) Conference Call Summary Company Overview - **Company**: EHang Holdings Limited (EH) - **Industry**: Autonomous Aerial Vehicles (AAVs) Key Financial Highlights - **4Q25 Revenue**: Rmb244 million, representing a **48% YoY** increase and **164% QoQ** increase, exceeding estimates by **12%** [1][5] - **eVTOL Deliveries**: 100 units delivered in 4Q25, up from 42 units in 3Q25 [2][5] - **Gross Margin**: Improved to **62.1%** in 4Q25 from **60.7%** in 4Q24 and **60.8%** in 3Q25 [5][10] - **Net Income**: Turned positive at Rmb10 million in 4Q25, compared to a net loss of Rmb47 million in 4Q24 [5][9] Future Guidance - **2026 Revenue Guidance**: Expected to grow **18% YoY** to Rmb600 million, up from Rmb510 million in 2025 [1][5] - **Incremental Revenue**: Anticipated from eVTOL operation services in 2026 [1] Product Launches and Market Expansion - **EH216-S Launch**: Commercial operations for EH216-S expected to start in March 2026, with aerial sightseeing services planned in Guangzhou and Hefei [4][5] - **Overseas Expansion**: Collaboration with the Thailand government to obtain commercial operation licenses, supporting international business growth [4][5] Operational Efficiency - **Operating Loss**: Narrowed to Rmb9 million in 4Q25 from Rmb95 million in 3Q25, indicating improved operational efficiency [5][9] - **Type Certificate (TC)**: Progressing for the new VT-35 model, with shipments to clients already initiated [1][4] Earnings Revision - **Revised Loss Estimates**: 2025E net loss revised to Rmb231 million from Rmb280 million; 2026E loss revised to Rmb167 million [10][11] - **2027E Earnings**: Revised down by **39%** due to lower revenue expectations [10][11] Valuation and Price Target - **Target Price**: Maintained at **US$19.60**, down from US$22.80, based on DCF methodology [11][17] - **Implied 2027 P/S**: Target price implies a **2027 P/S** of **8x**, consistent with historical averages [11][17] Risks and Challenges - **Regulatory Risks**: Potential delays in regulations regarding AAV airworthiness in China [18] - **Market Adoption**: Uncertainty regarding customer willingness to adopt passenger-grade AAVs [18] - **Operational Expansion**: Risks associated with slower-than-expected fulfillment of AAV pre-orders and operational service expansion [18] Conclusion EHang is positioned for growth with strong revenue performance in 4Q25 and positive net income, alongside strategic plans for product launches and international expansion. However, regulatory challenges and market adoption remain key risks to monitor.

Core Viewpoint - BYD has launched its second-generation blade battery and a 1500kW fast charging station, planning to establish 20,000 fast charging stations nationwide by the end of the year [1][4]. Group 1: Charging Infrastructure - BYD has constructed 358 new fast charging stations from March 6 to March 12, bringing the total to 4,597 stations across 279 cities [1][4]. - In comparison, NIO Energy has built 3,755 battery swap stations and 4,938 charging stations, while Huawei's Hongmeng Zhixing plans to have over 1,100 supercharging stations by August 2025 [3][5]. Group 2: Battery Technology - The second-generation blade battery allows BYD vehicles to charge from 10% to 70% in 5 minutes and to 97% in 9 minutes, setting a new record for charging speed [3][5]. - In extreme cold conditions (down to -30°C), the charging time only increases by 3 minutes compared to normal temperatures, addressing a significant industry challenge [3][5]. Group 3: Safety and Design Features - The second-generation blade battery can withstand 500 fast charge cycles without catching fire from punctures and does not explode under 10 times the national standard impact [4][5]. - The fast charging station features a unique design that allows for easy handling (weighing only 2 kg) and automatic payment without the need for mobile operation [4][5]. Group 4: Strategic Positioning - BYD is recognized as one of the early adopters of large-scale charging infrastructure in China, with a cooperative model that simplifies installation without the need for ground excavation [6].

Core Insights - The article discusses the dual approach of top-down and bottom-up analysis in investment strategies, emphasizing the importance of both macroeconomic indicators and individual company evaluations to identify undervalued securities [2][4][8]. Investment Strategy - The company employs a four-pillar approach, utilizing proprietary tools such as TRIM™ for market decline alerts and TEC™ for recession spotting, alongside bottom-up analysis focusing on fair market value and optimizing entry and exit points [3][4]. - Current hedging strategies are maintained due to recession alerts from TEC™, with short positions and inverse long ETFs being utilized to navigate potential market downturns [5][8]. Economic Outlook - A recession is anticipated due to factors such as an inverted yield curve, weak monetary growth, and rising unemployment, with overall economic growth expected to soften [9][10]. - Population growth in the U.S. is declining, leading to potential long-term economic challenges, as net emigration is now occurring, which has not been seen since 1935 [10][11]. Sector Analysis - Certain sectors, particularly technology, are experiencing overspending, while the housing market is already in decline due to previous excesses [5][6]. - The article highlights that despite potential economic downturns, quality companies may trade at attractive discounts, presenting investment opportunities during periods of market fear [7][8]. Valuation Concerns - The median price-to-earnings ratio for U.S. stocks has reached concerning levels, indicating a lower return outlook for equities, particularly when valuations exceed historical averages [23][24]. - Investment-grade corporate bonds are trading at narrow spreads compared to government bonds, suggesting that they are not cheap either, with high-yield corporate bonds also trading below historical averages [25][26]. Company-Specific Insights - CONMED is highlighted as a potential growth opportunity due to improvements in supply chain issues and innovative products, with a fair market value estimate of $60 [38]. - Superior Plus faces challenges in its propane delivery cost reduction initiative, leading to a stock price near a 20-year low, with a fair market value estimate of $14 [39]. - Uber Technologies is adapting to the threat of autonomous vehicles with new initiatives, while its core business is expected to generate substantial free cash flow, with a fair market value estimate of $110 [42]. - Netflix's strategic decision to withdraw from a bidding war demonstrates prudent capital management, with a focus on its core streaming business, and a fair market value estimate of $140 [43]. - Sanofi's Dupixent is projected to drive earnings growth, but uncertainty looms post-patent expiration, with a fair market value estimate of €100 [44][45].

Core Viewpoint - Oil prices are experiencing significant increases due to the ongoing U.S.-Israeli conflict with Iran, which has disrupted oil infrastructure and supply routes, particularly through the Strait of Hormuz, a critical chokepoint for global oil supply [1][2][8]. Price Movements - Brent crude futures rose by $2.01, or 1.95%, reaching $105.15 per barrel, while U.S. West Texas Intermediate crude increased by $1.61, or 1.63%, to $100.32 per barrel, marking a surge of over 40% this month [2][7]. Geopolitical Developments - The U.S. has targeted Iran's Kharg Island oil export hub, which is responsible for approximately 90% of Iran's oil exports, leading to retaliatory threats from Tehran [3][4]. - The U.S. administration is considering high-risk military options, including potential ground operations in Iran, to secure the Strait of Hormuz [4][5]. Oil Supply and Reserves - The International Energy Agency (IEA) announced that over 400 million barrels of oil reserves will soon be released to the market to mitigate price spikes caused by the conflict [6][7]. - Oil loading operations at Fujairah, which exports about 1 million barrels per day, have resumed following an attack, although the situation remains uncertain [3][4]. Diplomatic Efforts - The Trump administration has dismissed calls from Middle Eastern allies for diplomatic negotiations, while Iran has rejected ceasefire talks until U.S. and Israeli strikes cease, complicating the resolution of the conflict [7][8].

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Core Viewpoint - Syrah Resources and Tesla have agreed to extend the deadline for resolving an alleged default in their graphite supply agreement to June 1, 2026, following Tesla's notice regarding Syrah's failure to provide conforming graphite samples [1]. Company Summary - Syrah Resources, an Australian graphite miner, is involved in a supply agreement with Tesla for natural graphite active anode material (AAM) from its Vidalia facility in Louisiana [1]. - The original contract with Tesla, established in 2021, is valued at 8,000 tons annually for four years, which is crucial for Syrah's strategy to become a significant U.S. supplier of non-Chinese graphite [1]. - Syrah's shares increased by 2.9% to A$0.175 following the announcement of the deadline extension [1]. Industry Context - Tesla issued its first default notice in July 2025, citing Syrah's failure to deliver the required AAM samples for electric vehicle batteries [1]. - The extension of the deadline is subject to approval from the U.S. Department of Energy, indicating regulatory involvement in the supply chain [1].

Core Viewpoint - Li Auto, once a leading player in the new energy vehicle sector, reported disappointing financial results for 2025, with significant declines in both revenue and net profit [2][5][10]. Financial Performance - In 2025, Li Auto achieved a revenue of 112.3 billion yuan, a year-on-year decrease of approximately 22% [5][11]. - The net profit for 2025 was around 1.1 billion yuan, down from a profit of 6.9 billion yuan the previous year, marking an 86% decline [5][11]. - Vehicle sales revenue fell to 106.7 billion yuan, a 23% decrease compared to the previous year [2][5]. Vehicle Delivery and Sales - The total new vehicle deliveries for 2025 were 406,300 units, a drop of about 94,200 units or 18.8% from 2024 [3][13]. - The flagship MPV MEGA delivered only 18,500 units, less than 30% of its annual target [13]. - The sales performance of the Li Auto i6 and i8 models was hindered by various challenges, including policy changes and production capacity issues [13][14]. Market Competition and Strategy - The decline in net profit is attributed to increased market competition and the need for greater sales incentives, which led to a decrease in gross margin [14][15]. - The overall gross margin for 2025 was 18.68%, down 1.85 percentage points from 2024, with vehicle gross margin at 17.9%, a decline of 1.9 percentage points [16][17]. Future Outlook - For 2026, Li Auto aims to deliver approximately 487,600 vehicles, representing a 20% increase from 2025 [19][20]. - The company plans to launch a new pure electric flagship SUV, the Li Auto i9, in the second half of 2026 [21]. - Li Auto is also focusing on humanoid robots and AI technologies as part of its strategy to enhance its competitive edge in the market [23][24]. Research and Development - In 2025, Li Auto invested 11.3 billion yuan in R&D, with 50% allocated to AI-related projects [3][26]. - The planned R&D investment for 2026 is around 12 billion yuan, maintaining a similar focus on AI technologies [26].