Sinolink: Car market consumption remained stable in August and will welcome the peak season in September.

Sinolink released a research report stating that it continues to be optimistic about leading companies in competitive fields and internationalization (the international supply and demand and competitive landscape). Among them, the entire vehicle market shows a clear smile curve effect, with the best market structure below 150,000 yuan and above 400,000 yuan. Focus on opportunities for BYD Company Limited (002594.SZ) and Huawei at both ends of the spectrum driven by new models and new technologies; the international market is on the rise, focusing on joint venture models such as LEAPMOTOR (09863). Sinolink's main points are as follows: Industry events: 1. China Association of Automobile Manufacturers released August passenger car sales: 1) Total: in August, a total of 2.104 million narrow passenger cars were sold, with a year-on-year increase of -3.9% and a month-on-month increase of +9.6%. From January to August, a total of 15.882 million units were sold, a year-on-year increase of +3.3%; retail sales were 1.905 million units, with a year-on-year increase of -1.0% and a month-on-month increase of +10.8%. From January to August, a total of 13.472 million units were sold, a year-on-year increase of +1.9%; 2) Electric vehicles: in August, a total of 1.052 million electric vehicles were sold, with a year-on-year increase of +31.7% and a month-on-month increase of +11.4%. From January to August, a total of 6.622 million units were sold, a year-on-year increase of +30.2%; retail sales were 1.027 million units, with a year-on-year increase of +43.2% and a month-on-month increase of +17%. From January to August, a total of 6.016 million units were sold, a year-on-year increase of +35.3%; the market penetration rate of electric vehicles this month was 53.8%. 2. Domestic auto sales figures have been released, including: 1) Among new energy vehicle companies: we calculated that the total sales of 10 new energy vehicle companies in August was 237,000 units, with a year-on-year increase of +30.0% and a month-on-month increase of +1.5%. From January to August, a total of 1.513 million units were sold, a year-on-year increase of +46.1%. 2) Among traditional Chinese automakers: BYD Company Limited has steadily improved, with sales of 373,000 vehicles in August, a year-on-year increase of +36% and a month-on-month increase of +9.5%. From January to August, a total of 2.32 million units were sold, a year-on-year increase of +29.9%. There were 31,451 units exported in August, with a year-on-year increase of +25.7% and a month-on-month increase of +4.8%. A total of 264,869 units were exported in 2024, with a year-on-year increase of +125.5%; driven by the new technology cycle, BYD Company Limited continued to improve steadily; among other traditional Chinese automakers, Geely/Changan/Great Wall sold 181,229/110,856/94,461 vehicles in August, with year-on-year changes of +18.7%/-16.0%/-17.2%, and month-on-month changes of +20.2%/-14.1%/+3.5%. Review and outlook of events: 1. The trade-in policy has stimulated the August car market consumption to remain stable, which is in line with expectations. In July, the trade-in policy doubled in amount, stimulating the release of market demand. The strong insurance-calculated data show that the car market rebounded year-on-year in August. Since September, local replacement subsidy policies have been issued frequently, further stimulating market demand. Coupled with the strong season of September and October, the market is expected to remain strong, with a possible year-on-year growth rate turning positive. Looking at the whole year, we expect retail sales to remain stable throughout the year. The biggest contradiction in the current domestic retail market lies in market demand, and we recommend focusing on the marginal catalysts from both supply and demand ends: 1) Supply side: a large number of new electric vehicles are being launched. In the first half of the year, due to market price wars, many car companies delayed the release of new models, leading to a weakening supply of new vehicles. Starting from Q3, new energy companies, including the Huawei group and BYD Company Limited, will release new models in quick succession, contributing to marginal growth. 2) Demand side: focus on the implementation of the trade-in policy and local government subsidies, which will boost market demand. 2. Structural opportunities that exceed expectations are still present: since the beginning of the year, the market has been concerned about the level of automotive consumption. Currently: 1) Exports are the biggest variable in the entire automotive sector. Currently, due to factors such as tariff barriers, there have been short-term fluctuations in whole vehicle exports since June. However, the layout of main manufacturers to go overseas is still exceeding expectations, and with the opening up of new markets, exports will continue to be strong in the long term; 2) The penetration rate of electric vehicles continues to exceed expectations. This month, the retail penetration rate of electric vehicles exceeded 50% again, maintaining a steady growth rate. With the concentrated launch of new cars in the second half of the year and the bias towards electric vehicles in the trade-in policy, there may be opportunities for the industry and various car companies to exceed expectations in sales. Automobile consumption is under pressure, but structural opportunities still exist. We believe that the market has already priced in the fluctuation of automotive consumption level in 2024. Currently, the main opportunities in the automotive sector in 2024 come from structural factors, with a continued optimism for leading companies in competitive fields and internationalization. Specifically, the domestic market structure shows a significant smile curve, with the ends performing better than the middle. From the analysis of competition at different price levels, the market structure is most clear in the segments below 150,000 yuan and above 400,000 yuan. In the market below 150,000 yuan, BYD Company Limited is recommended (assuming an absolute advantage in market share and product strength). In the market above 400,000 yuan, a combination of product strength and brand power is needed, and currently, the group with the most potential to become a leader in the high-end market is the Huawei group. Investment recommendation: We repeatedly emphasize that the market structure is the primary driving factor for stock prices in the automotive sector. We continue to be optimistic about leading companies in competitive fields and internationalization. Among them, the entire vehicle market shows a clear smile curve effect, with the best market structure below 150,000 yuan and above 400,000 yuan. Focus on opportunities for BYD Company Limited and Huawei at both ends of the spectrum driven by new models and new technologies exceeding expectations; the international market is on the rise, focusing on joint venture models like LEAPMOTOR.