Please explain how auto upgrade/retrofitting works

[invaderzim]

Can someone explain how the retrofit settings work? I've seen a lot of weird behavior of ships retrofitting when I thought they were not going to. As far as I can tell, there are 4 possibilities:

1. Auto upgrade, auto retrofit: The AI will design new ships for you and upgrade all capital ships in this example to the latest design.

2. Manual upgrade, manual retrofit: The AI will never design new ships of this class (construction ships) and will never upgrade them automatically.

3. Auto upgrade, manual retrofit

4. Manual upgrade, auto retrofit

But what happens when you selection option 3 or 4? And have you ever had the AI upgrade when you told it not to? For example, I think the AI will upgrade medium starports to large ones based on empire policy settings which ignore your manual upgrade settings.

[Plant]

3) I think that Automatic Upgrade will upgrade the Ship Designs. Manual Retrofit would then mean that the AI never upgrades them. So you have new AI designs, but none will ever be retrofitted into them, unless you asked.

4) I think Manual Upgrade, so no new AI designs. Once you do make a new design, they will Automatically Retrofit.

But I have Fully Automate Ship Design in Research and Design section of the Empire Policy Screen, with some military ships unticked.
It says that Ship Design must be automated for designs to be automatically upgraded.

I never had starports changing types before though, but I rarely build medium starports.
I've never seen ships retrofitting when they are never supposed to, and I play on Manual Upgrade with Automatic Retrofit. Unautomated ships never automatically retrofit, and as for automated ships, I have no idea if they do or not.

[invaderzim]

But I have Fully Automate Ship Design in Research and Design section of the Empire Policy Screen, with some military ships unticked.
It says that Ship Design must be automated for designs to be automatically upgraded.

I was wondering about that. I also keep Ship Design checked because I want the computer to create designs with new components like ECM, targeting, etc. as they become available, but I don't usually want to actually use those designs until I modify them.

What effect does checking Ship Design box have if all your ships are set to manually upgrade?

[Plant]

"Ship Design" BOX under Automation is Ticked.

This is what I use:

I also try to untick the prompt for retrofit, later in the game.

The Destroyer and Transports Designs which are unticked above, and only upgrade when I ask to upgrade.