CMSC: The high-end and intelligent transformation of two-wheeled vehicles leads the trend, and the electrification of motorcycles is on the rise.

CMSC's research report stated that, influenced by policy regulation, the domestic electric two-wheeler industry will see reshuffling in 2024. The market capacity for high-end electric two-wheelers priced at 3500 yuan and above will still maintain a scale of over 15 million units, with factors such as youthfulness, intelligence, entertainment attributes, and government subsidies further driving the industry's structural upgrade. Currently, the regulation of electric two-wheelers focuses on both supply and demand, promoting industry vertical integration; the electrification of motorcycles is still in its infancy, with broad overseas market potentials. CMSC's key points are as follows: Review: Competition among electric two-wheelers will see a K-shaped differentiation in 2024. Influenced by policy regulation, the domestic electric two-wheeler industry will see reshuffling in 2024. The high-end two-wheeler brand Ninebot has performed excellently, with adjustments to product structure increasing the proportion of lead-acid models, pushing down prices, accelerating the expansion of channel stores, and empowering offline retail with new retail O2O marketing, implementing a strategy of diminishing brand momentum. Looking ahead, the market capacity for high-end electric two-wheelers priced at above 3500 yuan will still maintain a scale of over 15 million units (Frost & Sullivan), with factors such as youthfulness, intelligence, entertainment attributes, and government subsidies further promoting the industry's structural upgrade. Supply chain: Regulation of supply and demand drives industry vertical integration. The upstream components of electric bicycles such as batteries, motors, controllers, and chargers are relatively dispersed, while downstream brand concentration is high with large volumes. The current regulation focuses on product requirements, production thresholds, white list qualifications to raise entry barriers, aiming for vertical integration in segments such as vehicle informationization, anti-tampering requirements, and production processes to increase the self-sufficiency of core components: Leading company Yadea has the highest level of industrial chain integration; after completing in-house production of motors (by 2022), investing in battery companies, and in-house production of controllers (by 2023), the average purchasing price of key components has shown a downward trend year by year; more importantly, based on hardware development and in-house production, by enhancing products with intelligent systems, Ninebot continues to release iterations of its intelligent systems such as Ridey Go (released in 2019, upgraded in 2022), RideyFUN (in 2021), Ridey Long (long battery life in 2022), and Ridey POWER (intelligent lead-acid system in 2024), providing users with whole vehicle OTA wireless updates through intelligent APP, creating continuous value from user subscriptions, significantly improving profitability. Growth point: The electrification of motorcycles is on the rise, with vast opportunities for overseas expansion. Global motorcycle sales reach 50 million units, with China and India in the top tier, annual sales fluctuating between 15-20 million units. The Southeast Asian market remains stable at around 15 million units, with significant market capacity. In terms of electrification, only China has broken through 4.81 million units, leading with a penetration rate of close to 28% globally, with Vietnam and India at 10% and 5% penetration rates respectively, while Indonesia and Thailand are below 1%. Electric motorcycles are economically advantageous, more suitable for urban and short-distance travel replacements, and leisure motorcycles that focus on speed and power are more suitable for petrol-powered models. Considering that motorcycles below 150cc account for up to 85% of domestic sales, there is vast potential for substitution. Investment advice: 1) Ninebot Limited (689009.SH): New business initiatives in 2024 show signs of growth after years of cultivation, entering an acceleration phase of growth, with the company's profit margins expected to increase rapidly, entering a valuation expansion phase; 2) YADEA (01585): With a strategic long-term vision, leading in the upstream supply chain core aspects, sodium batteries driving industry technological advancements, optimistic about the company benefiting from subsidy rollouts and operational improvements under new regulations next year, presenting greater elasticity under low base and extremely low inventory levels this year; 3) Aima Technology Group (603529.SH): Optimization of industry framework following new regulations, stimulus from trade-ins, the company has the potential to capitalize on capacity restoration and channel expansion, expected to resonate positively with and ; 4) Niu Technologies Sponsored ADR Class A (NIU.US): Starting from 2024, the company's expansion into lead-acid vehicles has significantly increased, maintaining industry leadership in intelligence, continued improvement in O2O conversion rates with store expansions, expected to drive a reversal of the company's operational difficulties. Risk warning: Government subsidy consumption effect lower than expected; strict regulation of domestic policies; slower-than-expected overseas expansion.