Key Takes From Company Visit: The Watt Cycle Has Just Begun

Research evidence excerpt

Key Takes From Company Visit: The Watt Cycle Has Just Begun

horsepower products, alongside continued

pricing support from tight industry supply. While competition remains intense among major

players such as Caterpillar, Cummins, Weichai, Yuchai and MTU, mgmt sees the competitive

landscape remaining broadly stable, with capacity additions across the industry largely

matching growth in AIDC demand.

Limited read-across from PSI. Weichai shipped around 200 diesel engines into North America

in FY25, with volumes split roughly 50/50 between PSI and its broader channel network. Mgmt

noted that PSI's 1Q weakness was driven by softer oil & gas demand rather than data center

end markets and does not view PSI as representative of Weichai's broader US business. The

company continues to operate a diversified channel strategy spanning PSI, Generac, direct

sales and OEM partners.

LNG HDT penetration to hold at c.25%. LNG HDT sales remained resilient in April before

moderating in May and June as the diesel-LNG spread narrowed. Given Weichai's FY25 LNG

engine shipment base of c.103k units, some softening in 2H26 would be normal. Mgmt sees

LNG HDT penetration holding at around 25% in FY26, with the diesel-LNG spread remaining

the key variable to watch.

Electrification overhang looks more manageable than the market fears. While NEV HDT

penetration reached 28% in 2025 and continues to rise in 2026, mgmt estimates that

even a move to 50% penetration would reduce group earnings by only RMB200–300mn.

More importantly, this estimate excludes any contribution from further share gains in NEV

powertrains. Although per-unit profit for an NEV powertrain remains lower at RMB5-6k versus

RMB8-10k for a diesel HDT engine, Weichai is rapidly expanding its NEV powertrain business