JPMorgan has released a research report stating that it does not anticipate a meaningful recovery in mainland China's automotive market demand during the second half of the year, primarily due to weak consumer confidence.

Consequently, the firm believes that even if further policy stimulus measures are introduced in the second half of 2026, their impact is likely to remain limited.

Following a 23% year-on-year decline in domestic passenger vehicle demand in the first half of 2026, JPMorgan estimates that demand in the second half will largely remain at or below seasonal levels, although the year-on-year decline is expected to narrow to approximately 10%.

The focus within the mainland market is on relative growth after new energy vehicle (NEV) penetration reached a historic high of 63% in June.

The report suggests that automakers with competitive NEV models, such as BYD COMPANY (01211), XPENG-W (09868), and LEAPMOTOR (09863), will be better positioned to weather domestic headwinds compared to their peers.

Should these companies launch new models or sustain sales momentum in the second half of 2026, it could trigger a positive stock price reaction.

The situation in overseas markets is described as completely the opposite and very positive.

JPMorgan believes the overseas sales targets set by all major Chinese automakers are overly conservative, with actual performance potentially exceeding expectations by about 20% to 50%.

Overseas markets are projected to account for 30% to 50% of major automakers' revenue in 2026.

Following recent adjustments to earnings forecasts, JPMorgan has downgraded both Saic Motor Corporation Limited (600104.SH) and GAC GROUP (02238) from "Neutral" to "Underweight," expecting their weak performance to persist.

On the other hand, the firm has raised its forecast for NIO-SW (09866) and maintains an "Overweight" rating, anticipating that NIO's second-quarter 2026 results will surpass expectations.

GEELY AUTO (00175) is also expected to deliver better-than-anticipated performance.

Additionally, JPMorgan has lowered target prices for some automakers to reflect the adoption of more conservative price-to-earnings multiples amid the weak domestic market and cost pressures.

In summary, the firm recommends focusing on automakers with potential for earnings upgrades, strong NEV product portfolios, and higher exposure to overseas revenue.

The top picks for the second half of the year, in order of preference, are GEELY AUTO, NIO-SW, and BYD COMPANY.