JPMorgan's Lai Yizhe: The valuation narrative for car companies has changed, with overseas expansion and AI potentially becoming new valuation anchors.

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Author | Zhou Zhiyu

Editor | Zhang Xiaoling

The recently concluded Guangzhou Auto Show left JPMorgan Asia's Head of Automotive Research, Nick Lai, with the deepest impression of "chill." As the final battle of 2025, he called this auto show “the smallest in scale in China over the past decade.”

When major new cars from some foreign brands chose to remain hidden, and second-tier brands such as Porsche, Jaguar Land Rover, and Hyundai were absent, the industry’s signal was very clear: everyone is saving their “bullets” for 2026—especially for next April's Beijing Auto Show.

In an interview with Wallstreetcn, Nick Lai warned that the Chinese auto market may face even more challenging conditions in 2026. He pointed out that capital markets will no longer pay just for sales volume; the anchors for valuation are rapidly shifting toward AI monetization capabilities and overseas profitability. Only companies with these two alpha attributes can break out and receive premiums in the market.

Nick Lai believes the root cause of fierce competition in 2026 is simply too many rivals. By the end of 2025, China's auto industry is projected to have a production capacity reserve of 50 million units, while total output in 2025 is estimated at only about 34 million units.

Additionally, Nick Lai forecasts that lithium carbonate prices will rise overall next year. Combined with a possible tightening of the “trade-in” subsidy policy, automakers’ profit margins may be further squeezed. However, OEMs can still ease these pressures through multiple strategies, such as building better sales portfolios, expanding overseas, or launching competitive new energy vehicle models. Indeed, a few interesting new NEV models from Chinese brands were spotted at the Guangzhou Auto Show.

"Assuming domestic demand remains flat next year (2026), the cost pressure will transfer from OEMs to Tier-1 suppliers, with every link in the supply chain possibly needing to bear the impact," he said.

With such intense competition, Nick Lai believes 2026 will be a year of further differentiation in industry landscape.

Nick Lai observed that some foreign brands have begun to rationally cut their losses.

Of course, not all foreign brands are retreating. Brands like Volkswagen, Audi, Nissan, and Toyota are embracing local supply chains such as Huawei, hoping to turn the tide through technological alliances.

For foreign brands, embracing China's local supply chain is no longer a matter of choice, but survival. Nick Lai believes joint ventures are splitting into two camps: one, like Volkswagen, where the Chinese management holds significant control and actively leverages local supply chains and platforms—these are poised for a comeback; the other still insists on global synchronization strategies and cannot keep up with the speed of product iteration in China, facing even greater future challenges.

Nick Lai judges that weak brands—those lacking the ability to generate profits—will exit faster, and the industry will become even more concentrated at the top.

In this red ocean market, how does the capital market pick the winners? Nick Lai points out that investors' valuation logic is undergoing fundamental change.

Looking back at 2025, although the auto sector overall underperformed the MSCI China Index, a record-high number of auto companies (five) saw their shares double mid-year. This demonstrates that the market is no longer making beta investments in entire sectors, but rather seeking stocks that can deliver alpha.

Looking ahead to 2026, Nick Lai identified two new valuation anchors: overseas expansion and AI.

As domestic competition becomes white-hot, overseas markets have become the new growth point. Nick Lai estimates that China's auto exports will reach about 6.6 million units in 2025, and surpass 7 million units in 2026. More crucially, overseas profits per vehicle are about two to four times higher than domestic sales.

Nick Lai expects that by 2026, for some OEMs, overseas businesses will account for 20%—or even more than 50%—of profits. Whoever succeeds abroad will enjoy higher earnings expectations in valuation models.

Beyond earning profits from selling cars, the capital market has begun to pay a premium for “tech attributes.” "Next year (2026), some companies will have AI stories to tell—for example, whether robot or autonomous driving models will take off..." Nick Lai emphasized, although humanoid robots are still in early stages, some firms have already laid out their strategies.

Future auto company valuations will no longer be confined to manufacturing's PE (price-earnings) logic, but will incorporate valuation systems of tech stocks like AI, chips, and robotics. Companies with these stories will see their share prices further diverge from traditional automakers.

In 2026, China's auto market will enter the real “finals.” For automakers, the era of gaining ground merely by slashing prices has ended. Only those able to earn profits overseas and tell a compelling “AI + mobility” story to the capital market will win favor and survive.

Risk Warning and DisclaimerThe market has risks, and investments require caution. This article does not constitute individual investment advice, nor does it take into account users’ specific investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their particular circumstances. Investments made accordingly are at users’ own risk. ```