Summary of Conference Call Notes on China Machinery: Trucks & Engines Industry Overview - Industry Focus: Heavy-Duty Trucks (HDT) and Engines in China - Key Companies Discussed: Weichai Power, Sinotruk Jinan Truck, Sinotruk-H Core Insights Domestic HDT Cycle - 2025 Sales Outlook: Industry participants expect domestic HDT sales volume to be between 700k-800k units, up from previous estimates of 600k-700k units, driven by a stronger-than-expected equipment upgrade program [4][6][7] - 2026 Uncertainty: There is uncertainty regarding demand in 2026, with expectations of flat or declining sales due to the diminishing impact of the equipment upgrade program [7][8] Near-Term Trends - Strong Order Momentum: OEMs reported strong order momentum in 3Q25, with retail sales volume more than doubling year-over-year in early September [6][8] - Sales Projections for September: Expected retail sales volume of 75-80k units (up 80%+ YoY) and wholesale volume exceeding 100k units (up 70%+ YoY) [6][8] Export Performance - 3Q25 Export Volume: Sinotruk reported stronger-than-expected export volumes, with a monthly run-rate of ~13k units, primarily driven by demand from Africa and Southeast Asia [8][10] - Full-Year Export Expectations: Industry participants expect full-year HDT export volume to be in the range of 300-310k units [10] Powertrain Dynamics - Shift Towards LNG and Electrification: There is a notable comeback of LNG HDTs, with sales volume up +110% YoY in early September. Electrification is accelerating, but concerns remain regarding technology and business models [9][11] - Electrification Projections: eHDT penetration could reach 25-26% for the full year, with expectations of continued growth into 4Q25 [11] Competitive Landscape - Intensified Competition: Despite better-than-expected demand, competition among truck and engine OEMs has intensified, leading to price reductions and market share shifts [12][13] - Market Share Changes: Foton and Dongfeng gained market share, while FAW and Sinotruk lost shares, particularly in the LNG segment [12][13] Regulatory Developments - China VII Emission Standard: The draft policy for the China VII emission standard is expected by end-2025 or 1H26, with potential implications for pre-buying and phasing out older models [14] - GB 1589 Amendment: Discussions are ongoing regarding increasing the weight limit for eHDTs, which could enhance their economic returns [14] Financial Outlook Weichai Power - Investment Thesis: Positive outlook on cyclical recovery for HDTs, with expectations of stronger profitability and robust free cash flow [50][53] - Valuation: Target price set at HK$21.00/share, reflecting improving engine earnings prospects [54] Sinotruk - Investment Thesis: Concerns over accelerating truck electrification and its impact on competitive landscape and margins [56][57] - Valuation: Target price set at HK$20.00/share, reflecting expected margin deterioration due to electrification [60] Key Risks - Macro Activity: Slower-than-expected macro activity, particularly in road freight and infrastructure [55][61] - Electrification Impact: Risks associated with the shift to higher electrification penetration and lower LNG usage [55][61] Additional Insights - Channel Inventory: Healthy channel inventory observed, with sell-in and sell-through trends moving in tandem [6][22] - LNG Price Dynamics: Favorable LNG/diesel price spread expected to support LNG HDT sales, despite seasonal price volatility [11]