Tianfeng: AIDC focuses on the construction of diesel engine units with high demand space and emphasizes the opportunities for domestic core manufacturers 0-1.

, Tianfeng released a research report stating that global AI capital expenditures are rapidly increasing, and the AI infrastructure wave is accelerating. High-level IDCs need to have fault-tolerant or redundant configurations, typically using dual mains electricity + UPS + diesel generators, with diesel generators expected to benefit the most. The diesel generator market driven by AIDC: the demand for diesel generators in data centers is doubling, leading to a tight supply from international leading suppliers, with the prospect of accelerated domestic imports. It is recommended to focus on domestically produced original equipment manufacturers/diesel engines with price increase capabilities, domestic OEMs, and components with price increase capabilities. In a situation of tight production capacity, it is recommended to focus on: 1) Achieve a breakthrough from 0 to 1 in the application of domestically produced/large-bore diesel engines with brand advantages for data center backup power: Weichai Heavy Machinery (000880.SZ), China Yuchai International Limited (CYD.US), Shanghai New Power Automotive Technology (600841.SH)(holding Shanghai Lingzhong); 2) Domestically produced OEM manufacturers with price increase capabilities: Shanghai Cooltech Power (300153.SZ), Tellhow Sci-Tech (600590.SH), Sumec Corporation (600710.SH); 3) Components with price increase capabilities, profit release space, and tied to top generator sets: Xiangyang Changyuandonggu Industry (603950.SH), Tianrun Industry Technology (002283.SZ). 1. The AI infrastructure wave is accelerating, and diesel generators are expected to benefit Global AI capital expenditures are increasing rapidly, with continuous investment in AI computing infrastructure. The U.S. government is pushing the "Stargate" project, planning to invest $500 billion in AI Infra; according to Huaxin Consulting Design and Research Institute, China will invest at least 500 billion yuan in the construction of AIDC in the next three years; Microsoft Corporation, Amazon.com, Inc., Alphabet Inc. Class C, and Meta plan to invest over $300 billion in AI over the next 25 years. The Zhisuan Center extensively uses high-power chips like GPUs, pushing chip and cabinet power higher, leading to a rapid increase in data center scale. Sources: Wind, IDC, Inspur Electronic Information Industry, "China Artificial Intelligence Computing Power Development Evaluation Report," Langchao AIHPC Official Account, Tianfeng Research Institute The importance of data center infrastructure continues to increase, requiring high reliability of power supply. High-level IDCs need to have fault tolerant or redundant configurations, typically using dual mains electricity + UPS + diesel generators. According to Tianfeng's analysis, the redundant configuration rate of domestic high-level data centers with diesel generators (calculated by power) is between 120% to 150%, and large-scale Zhisuan Centers have an even higher redundancy configuration (close to 150%). Tianfeng believes that the large-scale Zhisuan Centers will drive a steeper demand curve for diesel engines. Sources: "Research on the Application of Energy Storage Systems for Data Centers" by Zhou Yu et al., "Research on Switching Control Logic of Data Center Mains and Backup Power Supply" by Ye Zhengning et al., "Analysis of Mains and Backup Power Supply Switching Control Logic in a Certain IDC Data Center" by Chen Yixin, "Discussion on Solutions for Installing Generator Sets in Data Center Buildings" by Sun Yun, "Overview of Power Supply Engineering for a Data Center in Shaanxi" by Zhou Qiaoqiao, "Comparative Analysis of Electrical Systems in a Certain Data Center" by Fan Xin, "Discussion on the Design of Power Supply and Distribution System for Artificial Intelligence Computing Center" by Zhu Faxi, IDC Circle, Tianfeng Research Institute 2. Diesel engines: The high-end market is dominated by domestic OEMs and foreign diesel engine manufacturers, with domestic original equipment achieving a breakthrough Diesel engine technology is mature and widely used, especially in high-value scenarios like data centers. According to Frost & Sullivan and China Industry Research Institute, the global diesel engine market is expected to increase from $114 billion in 2015 to $165 billion by 2023, with the Chinese market increasing from $23 billion to $47 billion. According to Kohler, the top three customers in the Chinese diesel engine market from 2017 to 2019 were data centers, manufacturing, and power markets, accounting for 40%, 16%, and 14% of the market capacity, respectively. Data center customers are high-end customers, with unit prices exceeding 2 million yuan. Sources: "Research on the Sales Channel Strategy of K Company's Diesel Generator Sets in the Southwest Region" by Fan Xingjia, internal data of Kohler Company, Tianfeng Research Institute International major players dominate the diesel engine market, with domestic original equipment achieving a breakthrough. The global diesel generator market is growing rapidly, with an increased market share in China. In 2015, the Chinese market accounted for 19.8% of the global market, reaching 27.8% in 2019, and stabilizing at around 28% in recent years. International major players occupy the top tier, with a competitive market. T1 international leading companies such as Cummins Inc., MTU, and Caterpillar Incorporated mainly serve the high-end market; T2 includes domestic original equipment manufacturers Weichai, Yuchai, domestic OEMs Taihao, Ketai, Sumec Corporation, with limited influence in the IDC and financial industries. Domestic diesel engines have made a breakthrough, leading to a continuous substitution of domestic products in the diesel engine market. Tianfeng believes that with the integration of new energy sources into the grid in recent years, stricter environmental policies, the construction of high-energy-consuming projects like data centers, technological advancements in domestic diesel engines, and validation from high-end customers, the prosperity of the diesel engine market is expected to continue to rise, benefiting domestic diesel engine brands. Starting in 2024, domestic original diesel engine brands will enter the large IDC market, with Weichai winning the bid for the first time in the mobile diesel generator set procurement in 2025. Sources: China Industry Research Institute, "Research on the Sales Channel Strategy of K Company's Diesel Generator Sets in the Southwest Region" by Fan Xingjia, Frost & Sullivan, Tianfeng Research InstituteSource: Research on Market Marketing Strategy Optimization of TH Company Diesel Generator Set Products by Liu Wenlong, Research on Southwest Region Sales Channel Strategy of K Company Diesel Generator Sets by Fan Xingjia, internal statistical data of Taihao and Kohler companies, Tianfeng Research Institute.3. Components of diesel engine: Engine/generator/control module account for 65%/15%/2%, the large diameter diesel engine is solidly entrenched. Diesel engines: The sales volume of Chinese diesel engines had a CAGR of only -1.65% from 2019 to 2024, but the sales volume of diesel engines used for power generation increased from 188,000 to 409,000 units, with a CAGR of 21.4%. Large diameter diesel engines are mainly used for power generation and ships, and have long been monopolized by foreign brands; Weichai acquired the technology for large diameter engines, and from 2019 to 2022, the sales volume of large diameter products increased from 2,800 to 8,800 units, and revenue increased from 780 million to 2.95 billion, with an additional 2,500 units of capacity added in 2024. Data source: China Internal Combustion Engine Industry Association, Tianfeng Research Institute Controller: Provides functions such as starting/stopping/monitoring/protection for the engine, with brands such as Deepsea, Datcon, and Zhongzhi domestically and internationally. The performance gap is small, and large power generator manufacturers tend to produce their own controllers. Components: High standards and complex technology are required, with strict but stable supplier imports. China's diesel engine components have formed a complete industry chain, with many high-value linkages now domestically produced. China already has a number of globally competitive enterprises, with a high proportion of overseas revenue, such as Tianrun Industry Technology, whose crankshaft customers include international well-known customers such as Cummins Inc., Caterpillar Inc., and Deere & Company. By 2023, Bohai Automotive Systems' overseas revenue will account for as much as 55.8%. Data source: Wind, Xiangyang Changyuandonggu Industry, Tianrun Industry Technology, Weifu High-Technology Group, HLHS, Bohai Automotive Systems announcements, Tianfeng Research Institute 4. The diesel market under AIDC drive: Power concentration construction doubling the demand for diesel engines, international leading supply tight, domestic import expected to accelerate Demand side: The expected concentration of power construction from 2025 to 2026 is expected to double the demand for diesel engines. According to Tianfeng's calculations, the corresponding intelligent power consumption for smart computing centers in China in 2025/26/27 would require the deployment of 6,330/8,912/12,327 diesel engines. Currently in the period of concentrated construction of computing power, if considering the moderate overbuilding of computing power from 2025 to 2026, the current demand for diesel engines is about 5,000 units, with faster growth in demand for diesel engines compared to 2024. Supply side: Overseas leading companies generally have full orders and delayed deliveries, and we believe that capacity expansion in the short term may prioritize supplying overseas demand. Data source: "China Smart Computing Center Industry Development White Paper (2024)", "Assessment Report on China's Artificial Intelligence Computing Power Development (2024)", Huaxin Consulting Design Research Institute, IDC, Inspur Electronic Information Industry, Inspur Electronic Information Industry AIHPC public account, Wanlin AI public account, et cetera, Tianfeng Research Institute.