比亚迪 (002594.SZ): China Auto Industry 2027: Will the worst case become the base case? Downgrade BYD-A to UW

J.P. Morgan believes upcoming 3Q26 results will lead to downgrades of 4Q26 and 2027 earnings, as the Street starts to incorporate key headwinds: stagnant domestic demand (JPMe flat to -5% in 2027), cost inflation particularly for memory chips (JPMe further 22-26% hike in 2027), an export VAT rebate cut from 13% to 9% from Apr-27, and a volume shortfall of ~200k-250k units on PHEV exports to the EU in 2027 following the EU's latest measure. The team estimates the VAT rebate cut could hit 2027E earnings by ~5-10%, while the EU PHEV volume cap would hit BYD and Chery earnings by 6-8%, though it should accelerate Chinese OEM localization. Geopolitical watch items include the EU-UK Summit on 20-Nov, Thailand's potential excise tax hike to 30% on imported EVs, the Dec-26 EU Parliament vote on the IAA, and early-2027 EU-Japan/Korea trusted partner negotiations. Reflecting a cautious sector stance, the team cuts 2H26 and/or 2027 earnings forecasts for BYD, Geely, Great Wall, Li Auto, Nio, Leap