CITIC SEC: Electric bicycles are expected to benefit from a triple boost in demand, short-term industry recovery may surpass expectations.

CITIC Securities released a research report stating that after the Spring Festival, the overall delivery of main motorcycle factories continued the strong trend driven by inventory replenishment before the Spring Festival. Stimulated by the further strengthening of subsidies for replacing old vehicles with new ones in various regions, and after nearly half a year of process refining, the subsidies were implemented faster and terminal sales quickly recovered after the festival, leading the industry into a peak season. The current high prosperity of the electric two-wheeler industry is mainly benefited from three-fold DRIVE accumulation - the start of inventory replenishment cycle, unprecedented strength of subsidies for replacing old vehicles with new ones, and accelerated supply optimization due to the update of national standards. In the midst of major changes, the electric two-wheeler industry is currently in a golden period of policy, demand, and supply resonance, with the current prosperity continuously increasing, and it is recommended to actively invest in leading stocks. CITIC SEC's main points are as follows: Systematic inventory replenishment in the industry is still ongoing. By 2024, the electric two-wheeler industry will have consumed over 4 million types of inventories due to compliance checks, re-3C verification, and other processes. With the implementation of the new 3C verification in November 2024 and the new national standard in January 2025, the industry inventory has reached the bottom. As the disruptions end, the industry will officially enter the inventory replenishment cycle in 1Q25, with the belief that inventory replenishment will be an important support for two-wheeler demand in 1H25. The new national standard ensures supply optimization, and the "replace old with new" policy continues to stimulate demand further. In January, the new national standard for two-wheelers was introduced, with the belief that it continues to protect demand as per the draft, starting to implement strong control on the production side, and strengthening the logic of industry supply optimization. In addition, the policy of replacing old with new two-wheelers is still being intensified. The detailed rules for 2025 have relaxed the recognition of the source ownership of old vehicles and explicitly required that the selling amount of old vehicles be outside the subsidy range, regulating the participating parties. Most provinces have continued the subsidy policy, while some provinces have increased the subsidy intensity. In terms of the specific subsidy amount, in some provinces, the subsidy amount for certain models can reach 40% of the selling price. According to Xinhua News Agency, in 2024, the national subsidy exceeded 1.38 million units, driving sales of 3.74 billion yuan. Considering that the processes in the second half of 2024 have not been clarified and the subsidy intensity is relatively smaller, the report believes that in 2025, the industry sales volume is expected to increase by over 5 million units. Traditional peak season combined with a low base, the report believes that high-frequency data may be more impressive. The report believes that after the Spring Festival, as we gradually enter the period of returning to work and school, we will enter the traditional peak season of demand. In addition, after the Nanjing fire incident in February 2024, the industry was affected by spot checks and safety inspections, leading to a low sales base. The industry's short-term recovery performance is expected to exceed expectations, further validating the increase in industry prosperity and confidence. Risk factors: Demand for two-wheelers lower than expected; subsidies for replacing old with new two-wheelers lower than expected; deteriorating competition in the two-wheeler sector; and a weaker-than-expected implementation of the new national standard for two-wheelers.