China Securities Co.,Ltd.: Resonance of lithium battery demand and performance, with a new cycle starting to emerge.

China Securities Co., Ltd. released a research report stating that the electric vehicle industry has strong driving force during the peak season at the end of each year. It is expected that February to April is the time when the industry's terminal data will gradually strengthen, with the possibility of upgrading the full-year expectations. In terms of electric vehicles, it is expected that the domestic electric car sales will reach 15.6 million units by 2025, but there is still room for upward revisions, with key points in March and April; despite the impact of the IRA subsidy budget stoppage, the United States saw a 12% year-on-year increase in January sales, dispelling market concerns; Europe's nine countries saw a strong performance with a 26% year-on-year increase in January, setting a good start for carbon emission reduction in 2025. On the supply side, after two years of price declines, the current situation has bottomed out and there is a strong demand for price increases. The negotiations on prices between leading companies and materials have basically been settled. According to the calculations by China Securities Co., Ltd., it is expected that starting from the end of the year and the end of Q2 in 2025, the industry's supply-demand situation will effectively reverse, gradually entering the price recovery range. The industry will see a boost in April with the arrival of the peak season, together with the opportunities for the stock prices of leading companies during the annual and quarterly report period. China Securities Co., Ltd.'s main points are as follows: Demand side: The current key period for the strong demand with the arrival of the peak season in 2025, with slightly higher expectations for the whole year: It is expected that the domestic sales will exceed 15.6 million units, possibly reaching 16 million units for the whole year. It is predicted that by 2025, the demand for lithium batteries will exceed 1813 GWh, with a year-on-year increase of 23%, maintaining a high growth rate. In the short term, January sales reached 944,000 units, a 29.4% year-on-year increase; with the Chinese New Year affecting demand for electric cars in February, demand is expected to bottom out in March, and the demand is expected to grow rapidly with the arrival of the new car listing in March, with sales of 800,000 and 1.15 million units expected in February and March, respectively. March and April are crucial times to determine whether the full-year sales can exceed expectations. Supply side: After a three-year surplus cycle, the industry's supply-demand reversal is beginning, with recent price increases settling: According to the supply-demand ratio, it is expected that in 2024 Q4, some tight material links will see price hikes, with leading companies releasing information indicating the completion of price negotiations, enhancing market expectations for material profit improvement. The bank expects that after 2025 Q2, almost all the material companies that were losing money (including copper foil, lithium hexafluorophosphate, lithium iron phosphate, diaphragms, etc.) will enter a phase of profit recovery. Potential opportunities include: 1) Demand exceeding expectations with the arrival of the peak season: With expected sales of 800,000 units in February and 1.15 million units in March, with March and April being crucial times to determine whether the annual sales can be upgraded to over 16 million units. Coupled with the strong start of the energy storage tariff hike, focus on sector opportunities brought by terminal demand, including complete vehicles, components, lithium batteries, especially targeting companies with strong certainty in Q1 performance. 2) Expectation of the sector bottoming out with supply-demand reversal: In 2024 Q4, some tight links including lithium iron, high-voltage reality and negative fast charging opened price hikes, negotiations with downstream clients began in December and basically settled after the Spring Festival. Starting from 2025 Q2, almost all material companies that were losing money can enter an overall price hike range. Focus on Q1 performance realization and the possibility of another price increase in June, recommending leading companies in lithium iron, negative, copper foil, diaphragms. 3) Undervalued targets with confirmed demand for 2025. 4) Further focus on new technology developments in the sector, including solid-state batteries, composite foils, and other technologies. 5) Confirmation of electronic component selection under the landing of the 2025 autonomous driving program, bringing a year of significant volume, recommending cameras, sensors, PCB boards, and other directions.