China Galaxy Securities: With the establishment of the economic cycle, we are optimistic about the stable and healthy growth of the lithium battery industry's performance throughout the year.

China Galaxy Securities released a research report stating that China's market cultivation and capacity building network over the years has formed a good endogenous growth momentum. The negative impact of decreasing subsidies is diminishing marginally. At the same time, with the accelerated implementation of technologies such as solid-state batteries and intelligent driving, the long-term growth of the new energy vehicle market can be expected. Changes in exports and commercial vehicles are worth noting. The core of the battery starts a new round of production expansion cycle. Industry revenue in the first quarter of 26Q1 was 184.07 billion yuan, with a year-on-year/half-on increase of +49.8%/-7.6%, and a net profit attributable to the mother of 22.5 billion yuan, with a year-on-year/half-on increase of +47%/-5%. The downstream market scale continues to expand with higher market sentiment. The current capacity utilization rate has reached a high level, and the release of new production capacity throughout the year effectively supports the performance growth. The industry has passed the cyclical trough and is optimistic about the competitive advantages of leading new products and flagship products. Under the wave of new technologies such as solid-state batteries and sodium batteries, the leading companies have obvious competitive advantages, and are optimistic about the performance realization of the leading companies. The main points of China Galaxy Securities are as follows: Stable growth of power, emphasis on increasing the energy density of single vehicles. 1) China: The good endogenous growth momentum formed by years of market cultivation and capacity building network, the negative impact of decreasing subsidies is diminishing marginally. At the same time, with the accelerated implementation of technologies such as solid-state batteries and intelligent driving, the long-term growth of the new energy vehicle market can be expected. Changes in exports and commercial vehicles are worth noting. 2) United States: The decline in policies has a significant impact on the new energy vehicle market in the United States, coupled with factors such as inadequate public facilities, the US sales market may enter a period of continuous depression. 3) Europe: Stringent carbon emission regulations, continuous enhancement of subsidies in various countries, and the continuous launch of affordable models by car companies such as Volkswagen and Renault will stimulate the promotion of electric vehicles, providing a support for the sales volume in 26. It is expected to maintain growth of around 10-20%. 4) Globally, China remains the leader in electrification, with growth in Europe as a bright spot. On the other hand, the relatively high competition in the domestic market also prompts domestic car companies to go abroad in search of emerging and high-growth markets, with significant potential in markets such as South America, the Middle East, and Southeast Asia. 5) Energy density of single vehicles: The bank emphasizes the multiplier effect brought about by the increase in the energy density of single vehicles in China, with this cycle relying on the existing large customer base, driven by technology; coupled with overseas electrification keeping pace, it is optimistic about the maintenance of 10-20% growth in power batteries in 26. Energy storage realizes growth, resonating domestically and overseas. 1) Overseas: Due to weak overseas grid construction, energy storage plays a crucial role in the integration of new energy sources, with obvious pull from existing new energy projects and integrated projects, while the electricity shortage effect brought about by the AI wave and the guarantee of power supply in emerging regions accelerate the development of energy storage. 2) Domestic market: Under the influence of capacity price policies and the decrease in cell costs, the endogenous development momentum of energy storage is gradually forming, and the domestic installation and bidding markets are expected to continue to exceed expectations. The core of the battery starts a new round of production expansion cycle. Industry revenue in the first quarter of 26Q1 was 184.07 billion yuan, with a year-on-year/half-on increase of +49.8%/-7.6%, and a net profit attributable to the mother of 22.5 billion yuan, with a year-on-year/half-on increase of +47%/-5%. The downstream market sentiment is high and the market scale continues to expand. Currently, the capacity utilization rate has reached a high level, and the effective release of new production capacity throughout the year supports performance growth. The industry has passed the cyclical trough and is optimistic about the competitive advantage of leading new products and flagship products. Under the wave of new technologies such as solid-state batteries and sodium batteries, the leading companies have obvious competitive advantages, and are optimistic about the performance realization of leading companies. Attention to price elasticity in the materials sector: 1) Electrolyte and related processes: Driven by demand, prices and quantities have increased simultaneously, leading to a substantial improvement in performance. The current industry inventory level remains low, and there is still room for price increases along with the demand rhythm, ensuring performance certainty. 2) Copper foil: With strong demand in the lithium battery and energy storage industries, the copper foil industry is expected to continue to perform well, while electronic copper foil contributes to incremental elasticity in response to the AI wave. 3) Lithium iron phosphate: Expansion of production capacity continues to increase with maintained high capacity utilization rates, profit increase due to higher processing fees, and attention to the marginal changes brought about by lithium iron phosphate. 4) Negative electrode materials: Intensifying competition, returning profits to the central axis, with price rises building up under cost pressures. 5) Structural components remain stable, with leading structural component companies actively entering the smart components supply chain, expanding into a second growth curve, with promising growth prospects. 6) Separator prices bottoming out and rebounding, increasing industry start-up rates, obvious profit recovery trends, with the industry as a whole possibly entering a fast-paced state of tight balance between supply and demand. Risk alerts: Risks of lower-than-expected downstream demand for new energy vehicle sales and energy storage installations. Risks of sharp increases in raw material prices due to shortages of resources or components, leading to operational difficulties for companies.