Soochow: The lithium battery industry steadily resumes production in response to the turning point of supply and demand, leading the way with stable market positioning and profitability for the leading battery manufacturers.

Soochow released a research report stating that with the implementation of the "old for new" policy for 25 years, the subsidy support scope has expanded. The domestic sales volume in February was 890,000 vehicles, an increase of 87% compared to the previous year. The off-season is not weak, and the bank predicts a 25% growth for 2025. In the industry chain, the production capacity of the lithium battery industry chain in Q1 increased by 50-70% compared to the previous year, and decreased by 5-15% month-on-month. The industry's off-season is not weak, and the bank expects a 30% increase in industry production for the whole year, with continuous improvement in market conditions. The bank believes that the lithium battery industry is currently at a valuation bottom, with performance support and a strong outlook for the supply and demand reversal in the peak season soon. It strongly recommends leaders in the industry such as Contemporary Amperex Technology (300750.SZ), BYD Company Limited (002594.SZ), and Eve Energy Co., Ltd. (300014.SZ). Soochow's main points are as follows: The domestic sales volume in February was 890,000 vehicles, an increase of 87% compared to the previous year. The off-season is not weak, and the bank predicts a 25% growth for 2025. In February 2025, the sales of new energy vehicles reached 890,000 vehicles, an increase of 87% compared to the previous year. The off-season is not weak, with a month-on-month increase of 87% and a decrease of 6%. The penetration rate is 41.9%, with a month-on-month increase of 11.8% and a year-on-year increase of 3%. In January-February, the sales of new energy vehicles reached 1.84 million vehicles, an increase of 52%, with a penetration rate of 40.3%, an increase of 10%. Exports reached 131,000 vehicles, an increase of 60%. With the implementation of the "old for new" policy for 25 years and the expansion of subsidy support, along with the advancement of high-level smart driving and further acceleration of electrification, the bank expects sales volume to reach 16 million vehicles in 2025, an increase of 25%. The sales volume in Europe and the US slightly exceeded expectations in February, with the new car cycle for 2025 in Europe on the horizon and a global growth of around 20% in the next two years. In February 2025, the mainstream registration volume in Europe reached 174,000 vehicles, an increase of 18% month-on-month and 2% year-on-year, with a penetration rate of 23%, an increase of 3.2% month-on-month and a decrease of 0.3%. In the US, the sales of new energy vehicles in February reached 120,000 vehicles, a decrease of 4% compared to the previous year, with a penetration rate of 9.6%, a 0.4% decrease compared to the previous month and a 1.2% decrease year-on-year. The bank expects stable growth of 14% in Europe and the US in 2025, with the new car cycle starting in the second half of 2025, and a relay of growth to the domestic market in 2026. Globally, the bank forecasts sales volume to exceed 20 million vehicles in 2025, an increase of 23%. In 2026, sales volume is expected to reach 24.08 million vehicles, an increase of 16%, with a compound growth rate of 10-15% from 2026 to 2030. The off-season in Q1 is not weak, with steady growth in April, and a 30% increase in demand expected for 2025. The production capacity of the lithium battery industry chain in Q1 has increased by 50-70% compared to the previous year, with a decrease of 5-15% month-on-month. The industry's off-season is not weak, and the bank expects a 5-10% increase in month-on-month production capacity for the lithium battery industry chain in April, and a 30-50% year-on-year increase, with further upward momentum expected in Q2, returning to the level of Q4 2024. The bank predicts a 20% month-on-month increase, with a year-on-year increase of 30% or more. For the whole year, the bank expects a 30% increase in industry production, with sustained improvement in market conditions. Price hikes have been successfully implemented, combined with high-voltage density and fast charging iteration, leading to expected profit improvement. For the industry chain, there has been a successful price increase of 2-3k in the iron-lithium B-side, and smooth negotiations on the C-side, with price increases effectively implemented. Profit elasticity will be evident starting in Q2, with expected improvements of 1-2k per ton in profitability. Raw materials for the negative electrode have risen significantly, but Q1 saw only a slight decline in profitability due to low-priced inventory dilution, which was better than expected. The bank expects that the next round of price increases in raw materials will be transmitted when executing new orders, leading to profit recovery. Dry-process diaphragms have seen a 30% price increase before the festival, improving net profits by approximately 7-8 points per ton. With the price increase implemented, profits are expected to improve for leading manufacturers in Q1, and as demand continues to recover, the bank expects a turning point in supply and demand in the second half of 2025, with prices expected to continue to rise and leading manufacturers expected to return to reasonable profitability. Price elasticity indicates that profits will improve for iron-lithium positive electrodes, fluorides, copper foils, negative electrodes, lithium carbonate, and diaphragms. At the same time, with more new products from leading manufacturers and gradual effects of overseas expansion, profit and price increase are expected from 2025 to 2026, opening up growth opportunities. Investment recommendations: The industry is at a valuation bottom, with performance support and a strong outlook for the supply and demand reversal in the peak season soon. It strongly recommends leading companies with stable operations and profitability in the battery (Contemporary Amperex Technology, BYD Company Limited, Eve Energy Co., Ltd.) and structural components (Shenzhen Kedali Industry) sectors. It also looks favorably upon material leaders with profit elasticity, first recommending (Hunan Yuneng New Energy Battery Material, Shijiazhuang Shangtai Technology, Guangzhou Tinci Materials Technology, Jiangsu Cnano Technology Co., Ltd.), and then looking favorably upon (Shanghai Putailai New Energy Technology, Shenzhen Capchem Technology, Ningbo Ronbay New Energy Technology, Zhejiang Huayou Cobalt, CNGR Advanced Material, Yunnan Energy New Material, Shenzhen Senior Technology Material, Shenzhen Dynanonic, etc.). Additionally, it focuses on (Fulin Precision, Hunan Zhongke Electric, Jiangsu Lopal Tech.), and others. Considering that lithium carbonate prices have bottomed out, it looks favorably upon leading companies with quality resources, including (Sinomine Resource Group, Yongxing Spec...).IAL Materials Technology, Ganfeng Lithium Group, Sichuan Yahua Industrial Group, etc.Risk warning: price competition exceeds market expectations, fluctuations in raw material prices, and declining investment growth.