Zhongjin: Prosperity in the automotive market in 2024, the continuation of the "trade-in old for new" policy is expected to support domestic demand in 2025.

CICC released a research report stating that in 2024, the narrow sense of passenger car retail/wholesale/production is expected to achieve 22.89/27.19/26.85 million units, an increase of +6%/+6%/+5% year-on-year. The performance of production, wholesale, and retail is better than expected at the beginning of the year, mainly due to the efforts of the policy of replacing old cars with new ones. The continuation of the policy of replacing old cars with new ones to support passenger cars is in line with expectations. However, considering that the subsidy application channels for 2025 have not been opened yet, and the delivery period may be affected by the Spring Festival holiday, there may be some pressure on passenger car retail sales in the short term in January-February. But in the long term, the continuation of the policy is expected to continue to support domestic demand, and it is expected that passenger car retail sales in 2025 will achieve a positive growth of 5% year-on-year. Key points of CICC: High prosperity continues, wholesale in 2024 reached historic highs Retail sales in December increased by +9% month-on-month, continuing the strong sales at the end of the year; with wholesale in December growing weaker than retail, and production volume decreasing by -3% month-on-month, manufacturers overall showed destocking characteristics. Passenger car exports in December were 404,000 units, with a month-on-month increase of +6%/+2%, showing steady growth. In 2024, the narrow sense of passenger car retail/wholesale/production achieved 22.89/27.19/26.85 million units, an increase of +6%/+6%/+5% year-on-year. The performance of production, wholesale, and retail is better than expected at the beginning of the year, mainly benefiting from the efforts of the policy of replacing old cars with new ones. Passenger car exports achieved high growth for the whole year, reaching 4.79 million units, a year-on-year increase of +25%, of which new energy vehicles increased by +24% to 1.29 million units. In 2025, car companies will accelerate their expansion in overseas markets, and it is expected to drive exports to achieve a steady growth of +15%-20% year-on-year. The penetration rate of new energy vehicles remains high, and hybrid vehicles continue to grow The wholesale penetration rate of new energy vehicles in December was 49%, reaching 45% for the whole year, and breaking through 50% for five consecutive months, corresponding to a high year-on-year growth in wholesale of new energy vehicles, with a growth rate of 38%. In 2024, the sales proportion of pure electric/hybrid/extended-range vehicles was 58%/32%/10%; among them, hybrid vehicles performed well, with year-on-year growth rates of 91% and 77% for hybrid and extended-range vehicles, mainly driven by the policy of replacing old cars with new ones stimulating demand in the price range of 100-200,000 RMB and the greater demand for hybrid vehicles. Among the car companies, BYD Company Limited/Tesla/Geely ranked in the top three, with total wholesale sales of 4.25/0.92/0.89 million units for the whole year. Independent car companies are accelerating their transformation to new energy vehicles, with Changan/Chery/Chongqing Sokon Industry Group Stock all achieving high growth. In 2025, the policy of replacing old cars with new ones will continue to support domestic demand for the whole year The National Development and Reform Commission released a notice on January 8, 2025, regarding the policy of replacing old cars with new ones in 2025. The subsidy for passenger cars will be expanded to include the first-year models with emission standards of National IV and below, with the subsidy amount per vehicle remaining unchanged; the changes for commercial vehicles are more significant, with the subsidy for trucks expanded to include models with emission standards of National IV and below, and the subsidy for each passenger vehicle increased by 2,000 to 8,000 RMB. In addition, many local governments have made it clear that they will continue the policy of replacing old cars with new ones in 2025, and specific policies will be supplemented after the national policy is enacted. Overall, the policy support for passenger cars is in line with expectations, but considering that the subsidy application channels for 2025 have not been opened yet, and the delivery period may be affected by the Spring Festival holiday, there may be some pressure on passenger car retail sales in the short term in January-February. However, in the long term, the continuation of the policy is expected to continue to support domestic demand, and it is expected that passenger car retail sales in 2025 will achieve a positive growth of 5% year-on-year. Investment recommendations In the short term, from January to February, it is recommended to focus on target stocks with defensive attributes, high dividend attributes and the potential for improvement in valuation driven by the policy of replacing old cars with new ones, recommending Yutong Bus Co., Ltd. (600066.SH), Sinotruk Jinan Truck (000951.SZ, 03808), Weichai Power (000338.SZ, 02338). Expect that the passenger car sector will reach a turning point after the Spring Festival with the implementation of policies and improvements in data. At the same time, it is recommended to continue to focus on themes such as Siasun Robot&Automation and intelligent driving. Risk factors If the level of price competition is more intense than expected, and the effect of the policy of replacing old cars with new ones is lower than expected.