Soochow: The entire vehicle and battery sectors remain strong, maintaining a compound growth of over 20% in the electric vehicle industry.

Soochow released a research report stating that the profit of the electric vehicle sector in 24Q2 still declined year-on-year, but showed a significant improvement compared to the previous quarter. The majority of profits came from the vehicle and battery segments, with an increase in the proportion of profits from upstream operations. The profits of vehicle, battery, structural components, and additives maintained positive growth, while the rest of the segments still declined year-on-year but showed improvements compared to the previous quarter (excluding lithium battery equipment). The profit level of the sector in Q2 improved, while capital expenditure continued to decrease compared to the previous quarter. Looking ahead, with the support of energy storage, the industry will maintain a compound growth rate of over 20%, and the supply and demand situation in 25H2 is beginning to improve. Due to the slowing expansion of the lithium battery industry in 24, the new supply of lithium batteries in 25 is expected to increase by 10-15%, and capacity utilization rates are expected to recover from 70% in 24 to 75-80%. Profit levels are expected to improve starting from the bottom. In 24Q2, the profit of the electric vehicle sector declined year-on-year, but showed significant improvement compared to the previous quarter. The majority of profits came from the vehicle and battery segments, with profits from upstream operations increasing: In 2024 Q2, the new energy vehicle sector achieved a 1% year-on-year increase in revenue and an 18% increase quarter-on-quarter. Net profit attributable to the parent company decreased by 11% year-on-year but increased by 48% quarter-on-quarter. In terms of profit distribution, in 24Q2, the vehicle segment accounted for 45% of profits, followed by the battery segment at 35%, midstream materials at 7%, and upstream resources at 2%. In terms of trends, the profit proportion of vehicles remained stable, while the profit proportion of upstream resources increased and the profit proportion of the battery segment decreased in Q2. In 24Q2, the profits of vehicle, battery, structural components, and additives maintained positive growth, while the rest of the segments declined year-on-year but showed improvements compared to the previous quarter (excluding lithium battery equipment). The year-on-year growth rates of net profit in 24Q2 are as follows: additives 211%, vehicles 53%, batteries 13%, structural components 3%, core components of automobiles 0%, iron-lithium positive electrode -7%, ternary precursor -10%, aluminum foil -30%, negative electrode -41%, diaphragm -62%, lithium battery equipment -63%, lithium hexafluorophosphate and electrolyte -67%, ternary positive electrode -67%, lithium carbonate -92%, positive electrode -249%, copper foil -1465%. The profit level of the sector in Q2 improved, with capital expenditure continuing to decrease compared to the previous quarter. There were increases in projects under construction for negative electrodes, diaphragms, ternary precursors, and vehicles, while the remaining areas were relatively stable. The gross margin of the sector in Q2 was 17.3%, an increase of 0.5% quarter-on-quarter and 0.4% year-on-year. Net profit margin attributable to the parent company was 5.2%, a decrease of 0.7% quarter-on-quarter and an increase of 1.1% year-on-year, showing an improvement in profitability. The net cash flow of the sector in Q2 was a decrease of 39% quarter-on-quarter and an increase of 186% year-on-year, with an increase of 6% in inventory and 3% in accounts receivable compared to the beginning of the year. Capital expenditure in Q2 decreased by 26% quarter-on-quarter and 12% year-on-year, with a 15% increase in projects under construction compared to the beginning of the year, particularly in the negative electrode, diaphragm, ternary precursor, and vehicle segments. The year-end operating capital of the sector decreased by 1% compared to the beginning of the year, with improvements in aluminum foil, batteries, and ternary positive electrode, while the rest decreased; interest-free cash decreased by 17% compared to the beginning of the year, with adequate funding in the battery, vehicle, and ternary positive electrode segments, and high funding pressure in the diaphragm, precursor, iron-lithium, and negative electrode segments. Looking ahead, with the support of energy storage, the industry will maintain a compound growth rate of over 20%, and the supply and demand situation in 25H2 is beginning to improve. Global electric vehicle sales maintained nearly 20% growth in 24, which is expected to decrease to 15%+ in 25, but with overseas demand recovering in 26, growth is expected to return to over 20%. In addition, energy storage is expected to grow by 40% over the next three years, with overall lithium battery demand growing by over 20%. On the supply side, due to the slowing expansion of the lithium battery industry in 24, the new supply of lithium batteries in 25 is expected to increase by 10-15%, and capacity utilization rates are expected to recover from 70% in 24 to 75-80%, leading to improvements in profit levels. Investment recommendation: Bullish on targets with stable competitive landscape, significant profit advantages, and support from energy storage, with a preference for Contemporary Amperex Technology (300750.SZ) and BYD Company Limited (002594.SZ). Also bullish on Eve Energy Co.,Ltd. (300014.SZ), Hunan Yuneng New Energy Battery Material (301358.SZ), Shenzhen Kedali Industry (002850.SZ), Shijiazhuang Shangtai Technology (001301.SZ). Additionally, recommend Shenzhen Capchem Technology (300037.SZ), Shanghai Putailai New Energy Technology (603659.SH), Guangzhou Tinci Materials Technology (002709.SZ), CNGR Advanced Material (300919.SZ), Jiangsu Cnano Technology Co.,Ltd. (688116.SH), Zhejiang Huayou Cobalt (603799.SH), Ningbo Ronbay New Energy Technology (688005.SH), Beijing Easpring Material Technology (300073.SZ), Yongxing Special Materials Technology (002756.SZ), Sinomine Resource Group (002738.SZ), Ganfeng Lithium Group (002460.SZ), Tianqi Lithium Corporation (002466.SZ), Shenzhen VMAX New Energy (688288.SH), YuNanan Energy New Material (002812.SZ), Shenzhen Senior Technology Material (300568.SZ), Dennano Nano, Shenzhen Manst Technology (301325.SZ).Risk Warning: price competition exceeding market expectations, fluctuations in raw material prices, decline in investment growth rate.