CITIC SEC Smart Driving Investment Framework 2025: The two main investment themes of "Equal Rights" in Intelligent Driving.

CITIC SEC released a research report stating that the penetration rate of medium and high-end intelligent driving in China is expected to double by 2025, driving a market increment of 35 billion yuan. The four major industry chain links of chips, controllers, sensors, and connectors will all benefit, with chips and controllers having greater market elasticity and a clearer structure. Considering that by 2026, independent car manufacturers are expected to follow the intelligent driving equality strategy, the industry outlook will continue to improve over the next two years. Investors are advised to focus on two investment themes: BYD Company Limited's supply chain and the localization of chip production. Key points from CITIC SEC: Intelligent driving industry chain: The penetration rate of medium and high-end intelligent driving is expected to double by 2025, creating a domestic market space of hundreds of billions of yuan and an incremental market of 35 billion yuan. 1) Industry overview: The hardware aspect of the intelligent driving industry chain includes intelligent driving chips, controllers, sensors, and connectors. With the improvement of intelligent driving solution functions, the value of each link will grow rapidly, and the value of high-end solutions can be more than ten times that of low-end solutions. 2) Industry changes: With the cost reduction and standardization of medium-grade intelligent driving solutions, independent car manufacturers represented by BYD Company Limited are beginning to mass-produce high-speed NOA functions in low-price models, leading to a doubling of industry penetration rate and rapid expansion of market space. 3) Penetration rate calculation: Using a bottom-up approach, it is estimated that the penetration rate of high-speed NOA in China will increase from 11.3% in 2024 to 26.3% in 2025, while urban NOA will grow from 6.1% in 2024 to 10.9% in 2025. 4) Elasticity calculation: The overall size of the intelligent driving industry is expected to grow from 70.59 billion yuan in 2024 to 105.6 billion yuan in 2025, a year-on-year increase of 49.6%. Value distribution of industry chain: All four links benefit, with chips and controllers having greater elasticity and a clearer structure Chips: Domestic substitution is the core development logic of the intelligent driving chip industry. High-end intelligent driving chips are the incremental market, with shipments in China expected to exceed 8.9 million units in 2025, a year-on-year increase of 93%, and a market space of 12.5 billion yuan, a year-on-year increase of 74%. Controllers: The assembly link of the intelligent driving industry, where low-end products are dominated by overseas suppliers and the localization rate of high-end products is higher. It is estimated that the domestic shipments in 2025 will be about 17 million sets, a year-on-year increase of 16%, with integrated park-by-wire domain control reaching 6.13 million sets, a year-on-year increase of over 140%. The overall market space for controllers is over 54.7 billion yuan, a year-on-year increase of 58%, with integrated park-by-wire domain control accounting for about 84%. Lidar: Nearly all domestic car models equipped with urban NOA function are standard with lidar, and there are only four suppliers in the lidar industry, with a trend towards concentration in two leading companies. It is estimated that domestic shipments in 2025 are expected to exceed 2.7 million units, a year-on-year increase of over 75%. Camera: An essential sensor for medium and high-end intelligent driving solutions, with the number of cameras per vehicle increasing exponentially compared to low-end solutions. Driving cameras are the main incremental market, with shipments expected to reach 49.76 million units in 2025, a year-on-year increase of over 70%, and a market space of over 12 billion yuan, a year-on-year increase of about 65%. High-speed connectors: High-speed connectors correspond one-to-one with sensors in terms of quantity, with a low localization rate in the industry and a potential increase in per-vehicle value of 500 yuan for high-end intelligent driving. The market space for high-speed connectors used for intelligent driving functions in China is expected to exceed 11.5 billion yuan in 2025, a year-on-year increase of 41%. Investment outlook: In 2025, focus on BYD Company Limited's supply chain and the localization of chip production; in 2026, focus on the follow-up by independent car manufacturers 1) BYD Company Limited's supply chain: It is expected that the company will contribute approximately 2 million incremental vehicles to the high-end intelligent driving market in 2025, accounting for over half of the incremental sales of high-speed NOA and one-third of the incremental sales of urban NOA. The core revenue elasticity of the industry chain in 2025 will focus on three major links in BYD Company Limited's industrial chain: controllers, high-end intelligent driving chips, and connectors. 2) Chip localization: Horizon Intelligent Driving Chip's new product is expected to be mass-produced in 2025, with performance and cost-effectiveness superior to overseas products, securing deals with over a hundred customers. 3) Sustainability: The intelligent driving equality promoted by BYD Company Limited in 2025 is the starting point, not the end point, of the upward trend of the industry chain. It is expected that in 2025, the sales proportion of high-speed NOA in independent car manufacturers will be less than 50%. After other independent car manufacturers follow BYD Company Limited's strategy in 2026, the sales proportion is expected to increase to 55-60%, and the industry penetration rate will continue to rise to 37%-42%, maintaining a high level of industry prosperity. Investment strategy: The intelligent driving industry chain will see a second wave of investment opportunities after the market from 2021-2022, driven by the mature and cost-reduced medium and high-end intelligent driving solutions promoted by independent car companies through the "intelligent driving equality" strategy, leading to a rapid doubling of industry penetration rates. From a bottom-up perspective, the current intelligent driving industry, especially the industry chain focused on medium and high-end intelligent driving functions, has high certainty and investment value. Risk factors: Risks of AI technology development falling short of expectations; risks of slower progress in automatic driving algorithm iteration; risks of legal compliance for the implementation of automatic driving; risks of consumer acceptance falling short of expectations; risks of increased industry competition; risks of supply chain disruptions; risks of lower-than-expected passenger car sales.