Zhongjin: Q2 Weihuali profit and cash flow improved, focus on product cycle and smart driving iteration.

CICC released a research report stating that recently, NIO-SW (09866), XPENG-W (09868), and LI AUTO-W (02015) released their second quarter performance, and the gross profit margins of the three new energy vehicle companies exceeded market expectations, with performance meeting expectations. At the current point in time, the industry side continues to benefit from the government's incentive policies to replace old vehicles with new ones, and it is expected that the companies will usher in a new product cycle. This, combined with ongoing cost reduction and efficiency improvement efforts and the mass production of end-to-end intelligent driving, continues to highlight investment opportunities for the above-mentioned companies. CICC's main points are as follows: Industry sales remain steady, with new energy vehicle companies' sales and gross profit margins performing well Looking back at the second quarter of 2024, the sales performance of the three new energy vehicle companies mentioned above was good, partly driven by product cycles such as the delivery of the Ideal L6, and partly driven by adjustments to user benefits, as seen with NIO. XPENG further optimized its product structure by gradually discontinuing old models. From a financial perspective, all three new energy vehicle companies achieved outstanding performance on cost reduction, efficiency improvement, and expense control fronts, with automotive gross profit margins exceeding market expectations and performance meeting expectations. With the strengthening of the incentive policies to replace old vehicles with new ones and the increase in local exchange subsidies, new energy vehicle companies are entering a new product cycle Entering the third quarter, at the industry level, the incentive policies to replace old vehicles with new ones and local exchange subsidies have once again strengthened, with recent industry data showing good performance. It is expected that the demand for cars will be supported steadily, with the penetration rate of new energy vehicles reaching new highs. At the same time, new energy vehicle companies are entering a new product cycle, with NIO planning to launch the family SUV Le Dao L60, XPENG already launching the MONA M03 and planning to launch the P7+, and Ideal L6 expected to see further increases in production. CICC indicated that with the support of policy incentives and product cycles, the above-mentioned vehicle companies are expected to reach a new level of sales, thereby improving their profitability and cash flow situation. Intelligent driving enters the end-to-end stage, establishing a leading edge in data and technology CICC pointed out that with the maturity of L2+ functions represented by urban NOA, advanced intelligent driving is expected to gradually enter a period of widespread maturity, becoming a core competitive point for new energy vehicles. From a technological perspective, mainstream car companies are entering the stage of end-to-end technological exploration, where the application of large models has enhanced the experience limit of urban NOA function, leading to an increase in the proportion of advanced intelligent driving options. Currently, Ideal/Xpeng/NIO have all accumulated over 1 billion kilometers of intelligent driving mileage, and computing resources have reached several EFLOPS, gradually solidifying the technological foundation. CICC believes that the period from the second half of 2024 to the second half of 2025 is crucial for the realization and maturation of the end-to-end model, completion of urban functions, consumer education, and widespread adoption. They will continue to monitor the trend of changes in the proportion of advanced intelligent driving configurations, and are optimistic about the advanced intelligent driving capabilities of NIO and XPENG continuing to lead the industry. Risk factors: Lower-than-expected sales in the future, and narrowing differentiation with competitor products.