JPMorgan has downgraded Li Auto to underweight, warning of a bleak demand outlook for Chinese automakers in 2026. The bank cut its forecast for domestic passenger vehicle growth to a 4% decline, citing weak demand from late 2025 that is expected to persist. Rising raw material costs and policy uncertainty are adding pressure.

Shares of Li Auto fell 3.4% in premarket trading following the downgrade. JPMorgan now expects Li Auto to move into a loss in 2026 as lithium, copper and storage chip prices have surged 30% to 50% recently. The bank lowered earnings estimates for several major manufacturers including NIO, XPeng, Geely and Great Wall Motor.

JPMorgan named BYD and Sinotruk as its top picks, citing more resilient earnings outlooks. Exports are expected to play a larger role in 2026, potentially accounting for 20% to 50% of earnings at major automakers. The sector could see selective buying opportunities emerge from March into the second quarter, supported by seasonal demand rebounds and clarity on subsidy policy after China's March policy meetings. Quick Fact: Lithium, copper and storage chip prices have risen more than 30% to 50% recently.