CMSC: The "old for new" policy is expected to be included in the National IV heavy truck in 2025, which is expected to boost domestic demand within the industry.

CMSC released a research report stating that according to the emission standards for heavy trucks, the concentrated sales period for National III heavy trucks was from 2008 to 2010, and for National IV heavy trucks it was from 2013 to 2017. Currently, the number of National IV trucks in operation in the freight market is significantly higher than that of National III vehicles. Therefore, after the subsidy range is expanded in 2025, the potential demand for replacing new vehicles is expected to double compared to last year, further boosting the domestic demand elasticity in the heavy truck industry. The implementation of the policy to exchange old heavy trucks for new ones in 2025 is expected to provide effective support for the entire year's demand, while the stable growth in export market demand, combined with the increased certainty of an upward cycle in the heavy truck sector, further underscores investment opportunities in the sector. Key points from CMSC: On January 8th, the National Development and Reform Commission and Ministry of Finance jointly issued a notice on the expansion of the scope of the policy on large-scale equipment updates and replacement of old products with new ones in 2025. The notice proposed expanding the subsidy range for scrapping and renewing old operating freight trucks to include trucks that meet National IV and below emission standards. The subsidy standards will follow the implementation of the notice on implementing the scrapping and renewal of old operating freight trucks (Jinguihua issued [2024] No.90). Compared to the 2024 National Subsidy policy, this time the subsidy range for trucks has been expanded to include National IV trucks, with no change in subsidy standards. Looking back at the 2024 policy on exchanging old trucks for new ones, subsidies were given based on scrapping old emission standards National III and below diesel freight trucks, scrapping and purchasing new emission standard trucks of National VI or new energy trucks, and only purchasing qualified new energy trucks. The highest subsidy for scrapping old National III diesel heavy trucks was 45,000 RMB, 65,000 RMB for purchasing new National VI trucks, and 95,000 RMB for purchasing new energy heavy trucks. This time, the range of subsidies for scrapping old trucks has been expanded to include National IV trucks, with the subsidy amount per truck following last year's policy standard. Based on the emission standards cycle for heavy trucks, the concentrated sales period for National III heavy trucks was from 2008 to 2010 and for National IV heavy trucks it was from 2013 to 2017. Currently, the number of National IV trucks in operation in the freight market is significantly higher than that of National III vehicles, so after the subsidy range is expanded in 2025, the potential demand for replacing new vehicles is expected to double compared to last year, further boosting the domestic demand elasticity in the heavy truck industry. The heavy truck sector has a certain counter-cyclical attribute and, combined with policy stimulus, sales elasticity in the industry will increase in 2025. According to the China Association of Automobile Manufacturers, the total sales volume of the heavy truck industry in 2023 was 911,000 vehicles, a year-on-year increase of 36%, indicating that the industry has emerged from a low point. According to the First Commercial Vehicle Network, the sales volume for 2024 is expected to be around 900,000 vehicles, almost flat year-on-year. The current stock of heavy trucks in China is 8 million vehicles, and based on a 10-year scrapping cycle for heavy trucks, the theoretical central sales volume for natural replacement in the industry is at 800,000 vehicles per year. With policy stimulus, it is comprehensively estimated that wholesale sales of heavy trucks in 2025 are expected to exceed 1 million vehicles, with a year-on-year growth rate of around 10%, including 320,000 vehicles for export, a year-on-year growth rate of 10%, and 680,000-700,000 vehicles for domestic sales, a year-on-year growth rate of 13-15%. Regarding targets: it is recommended to focus on leading companies in the heavy truck industry such as Sinotruk Jinan Truck (000951.SZ) and Weichai Power (000338.SZ), while also suggesting to pay attention to related targets like Beiqi Foton Motor (600166.SH) and Weifu High-Technology Group (000581.SZ). Risk factors: End-user demand may not meet expectations; policy implementation and promotion may not proceed as expected, etc.