GF Securities: How do you view the sales elasticity of passenger cars under the policy of trading in old cars for new ones?

GF SEC released a research report, stating that the stimulus effect of the 24-year-old trade-in policy is different from the historical purchase tax preferential policy, and the impact of demand overdraft may be relatively small. This stimulus is different from the historical purchase tax preferential policy. The purchase tax preferential policy is a comprehensive stimulus for first-time purchases/increases/trade-ins demand, while this trade-in policy mainly stimulates trade-in demand by accelerating the updating rate. Assuming that the scrappage rate and the proportion of new car purchases after scrappage remain the same in 2025 as in 2024, the scrappage subsidy in 2025 will bring an incremental sales volume of approximately 820,000 vehicles, corresponding to a 3.6% elasticity of domestic passenger car sales in 2025. The main points of GF SEC are as follows: The scope of support for scrappage renewal of cars has been expanded, and the single car subsidy level remains the same as in 2024. On January 8, 2025, the National Development and Reform Commission and the Ministry of Finance issued a notice on "Expanding the Scope of Large-scale Equipment Renewal and Trade-in Policies for Used Goods in 2025": (1) Expanding the scope of support for scrappage renewal of cars; (2) The national scrappage subsidy for passenger cars remains the same: a subsidy of 20,000 yuan for purchasing new energy passenger cars, and a subsidy of 15,000 yuan for purchasing fuel passenger cars with a displacement of 2.0 liters or below; (3) The subsidy for local replacement of passenger cars remains basically the same as in 2024: the subsidy for purchasing new energy passenger cars does not exceed 15,000 yuan per vehicle, and the subsidy for purchasing fuel passenger cars does not exceed 13,000 yuan per vehicle. Review: The trade-in policy in 2024 is expected to stimulate sales of approximately 1.9 million units, with an effective stimulus period of about 4 months and manageable policy overdraft impacts. The stimulus effect of the trade-in policy in 2024 is different from the historical purchase tax preferential policy, and the impact of demand overdraft may be relatively small. This stimulus is different from the historical purchase tax preferential policy. The purchase tax preferential policy is a comprehensive stimulus for first-time purchases/increases/trade-ins demand, while this trade-in policy mainly stimulates trade-in demand by accelerating the updating rate. According to the data from the China Automotive Center, the proportion of trade-ins in new passenger cars in the first half of 2024 was 40.1%. The trade-in policy for passenger cars in 2024 had preconditions, and it had little impact on the first-purchase demand, which still accounted for around 60%. Outlook: It is expected that the sales volume of passenger cars in 2025 will increase slightly, considering the following factors: (1)The stimulus effect of the trade-in policy in 2024 is different from the historical purchase tax preferential policy, and the impact of demand overdraft may be relatively small; (2) There is still a large amount of inventory that qualifies for scrappage/replacement subsidies for passenger cars; (3) The effective stimulus period of the policy in 2024 was about 4 months, and the stimulus period of the trade-in policy in 2025 is longer. It is expected that the sales volume of passenger cars in 2025 will increase slightly. Specifically, assuming that the scrappage rate and the proportion of new car purchases after scrappage remain the same in 2025 as in 2024, the incremental sales volume brought by the scrappage subsidy in 2025 will be approximately 820,000 vehicles, corresponding to a 3.6% elasticity of domestic passenger car sales in 2025; for the replacement subsidy, assuming that the subsidy stimulates sales volume in 2025 to remain the same as in 2024 (the actual policy stimulus period is longer). Investment advice: With many structural supports combined with policy protection, it is expected that deflation will be overcome in 2025. In the passenger car chain: Targets on the right (comprehensive business performance, as below): BYD Company Limited (01211), Ideal Car (02015), Chongqing Sokon Industry Group Stock (601127.SH), Xiaopeng Motors (09868), LEAPMOTOR (09863); Targets on the left: Great Wall Motor (601633.SH,02333), Chongqing Changan Automobile (000625.SZ); Targets at the turning point (already or soon to appear): SAIC Motor Corporation (600104.SH). In the passenger car parts chain: Targets on the right: Zhejiang Yinlun Machinery (002126.SZ), Bethel Automotive Safety Systems (603596.SH), Ningbo Tuopu Group (601689.SH), IKD Co., Ltd.(600933.SH), Fuyao Glass Industry Group (600660.SH,03606), Zhengzhou Coal Mining Machinery Group (601717.SH,00564), China Automotive Engineering Research Institute (601965.SH), Jiangsu Xinquan Automotive Trim (603179.SH), Shanghai Baolong Automotive Corporation (603197.SH), Foryou Corporation (002906.SZ), etc.; Left targets: Hangzhou XZB Tech (603040.SH); Targets at the turning point (already or soon to appear): MINTH GROUP (00425), NEXTEER (01316), Ningbo Jifeng Auto Parts (603997.SH), etc. Risk warning: Policy effects are not as expected; industry sentiment declines; industry competition intensifies.