Summary:

After the adjustment of the lithium battery sector in 2023, the profit has bottomed out and the pattern has been cleared, and it will usher in a rebound in the first half of 2024. The profitability of the battery and materials sector is stable, and the differentiated advantages of leading manufacturers are highlighted. In 2025, the supply and demand of the sector will improve, and the commercialization of new technologies such as solid-state batteries and high-voltage fast charging will be accelerated, which is expected to drive the recovery of the sector.

Fundamentals. In the battery sector, Gotion Hi-Tech and CATL will benefit significantly by virtue of their overseas layout and manufacturing capabilities; In the material sector, companies with excellent cost control such as CNGR and Shangtai Technology are expected to benefit.

New technology. In the process of solid-state battery industrialization, Rongbai Technology, Dangsheng Technology, Beiteri, Tiannai Technology, Dow Technology (Rights Protection), etc. have become potential beneficiaries; In the field of high-voltage fast charging, CATL is dominant, and the upgrading of materials such as Xinde New Materials, Tiannai Technology, and Tianci Materials is also the key.

Body:

In 2024, the lithium battery sector will rebound in the first half of the year after the bottoming adjustment in 2023, with improved profitability in all links, recovery in demand, and new technologies such as solid-state batteries, the overall recovery of the sector, and the pace of price, inventory and expansion are at a low level. As demand remains resilient, the sector boom rebounds, pessimism eases, the current performance is stable, the allocation value highlights the outlook for 2025, the demand is optimistic, and the outlook for the sector is promising.

Demand-side review and outlook: domestic new energy vehicles continue to be booming, and overseas assessment is expected to return to growth

China's NEV market is performing strongly, with passenger car penetration approaching the 50% mark. From January ~ November 2024, the cumulative sales of new energy vehicles reached 11.263 million units, a year-on-year increase of 36.4%, and the cumulative penetration rate was 40.3%, an increase of 9.6 percentage points year-on-year. The trend of plug-in hybrid throughout the year is significant, and the penetration of new energy commercial vehicles has accelerated, and the cumulative sales of plug-in hybrid new energy passenger vehicles in January ~ November accounted for 42.2%. 2025 is the last year for new energy vehicles to be exempted from purchase tax, and the exemption amount will not exceed 30,000 yuan per vehicle, and the purchase tax will be greatly reduced to half from 2026, which may lead to the early release of concentrated car purchase demand in 2025. Exports have slowed due to blocked overseas policies and sluggish demand, but exports from the non-European region have grown rapidly. There is a possibility of easing the tariff policy in Europe, and the impact of tariffs is relatively controllable in the context of the accelerated implementation of overseas production capacity of domestic automakers. Domestic NEV sales are expected to reach 15.33-16.24 million units in 2025, up 18%-25% year-on-year.

Sales of new energy vehicles in the European market fell short-term, with cumulative sales in the first nine months of 2024 reaching 2.127 million units, down 3.0% year-on-year, mainly due to increased costs due to insufficient demand and declining subsidies. The adjustment of carbon emission targets is expected to lead to a return to sales growth, which is expected to be 3.26-3.41 million units in 2025, a year-on-year increase of 10%-15%. During the adjustment period of sales and penetration growth in the U.S. market, the sales volume in the first nine months of 2024 will be 1.137 million units, an increase of 7.9%, and the product update cycle will support the sales growth, and it is expected that the sales volume will be 1.68-1.84 million units in 2025, a year-on-year increase of 5%-15%. In the global market, NEV sales are expected to be 19.17-19.48 million units and 21.91-23.23 million units from 2024 to 2025, up 24%-26% and 13%-20% year-on-year, with China's market share accounting for about 67%/70%.

Sector performance return and outlook: supply and demand are gradually improving, and the trend of pattern differentiation continues

Battery: In terms of installed capacity & pattern, in January ~ November 2024, the installed capacity of domestic power batteries will be 473.1GWh, a year-on-year increase of 39.3%, and the growth rate of Q3 will rebound, with lithium iron batteries accounting for 80%, thanks to the growth of new energy vehicle sales under the "trade-in" policy. CATL's market share was 45.0%, an increase of 2.1 pct, and its dominant position was solid, while the share of second-tier manufacturers fluctuated, affected by the self-produced batteries of OEMs. The global installed capacity was 686.7GWh, an increase of 25.0%, and the overseas installed capacity was 290.2GWh, an increase of 13.1%, dragged down by flat demand. The overseas share of Chinese manufacturers increased, and CATL's global installed capacity was 252.8GWh, an increase of 28.3%, with a market share of 36.8%. The global market share of Chinese manufacturers has increased steadily, and the overseas layout has been strengthened. In 2024, the global installed capacity is expected to be 875GWh, an increase of 24%, China's 539GWh, an increase of 39%, and 336GWh overseas, an increase of 6%. In 2025, the global installed capacity is expected to be 993~1,053GWh, an increase of 14~20%. China's market demand supports the high growth of global installed capacity, and overseas demand is expected to rebound; In terms of performance, the revenue of the battery segment in 24Q3 decreased by 8.0%, and the profit increased by 3.1%, and the profit advantage of the leading company was solid. The gross profit margin in Q3 was 27.1%, a 19-year high, and the gross profit margin gap between Ningde and second-tier manufacturers widened. The inventory scale was 78.22 billion, +12.7% month-on-month, and the leading stocks were more active. Capex Q3 was -3.5% QoQ, which was higher than in '23 as a whole, indicating a cautious expansion strategy. Capacity expansion has slowed, supply and demand have improved in 25 years, and competition has eased. The battery is highly customized, and it is expected that the profitability will continue to rise in 25 years, and the advantages of leading and overseas enterprises will expand.

Cathode: In 2024, the price of lithium carbonate will fall first and then rise, affected by the reduction of Australian mine production and strong demand. After May, supply increased, prices fell, and the relationship between supply and demand stabilized. It is expected that the supply growth rate of Chinese-funded mining enterprises will decline after 2026, and the supply and demand will be balanced in 2026, and the potential for price reversal is small. In 1~11 months, the output of ternary and iron-lithium materials was 43.9/1.692 million tons, and the demand in Q2 was strong and the output was large. The market share of iron and lithium is nearly eighty percent, and the share of ternary is decreasing, and lithium iron is leading due to cost performance and technological progress. The profit margin of most cathode manufacturers is stable, the iron-lithium manufacturers are loss-making, and the ternary manufacturers are profitable. In 2025, the price of raw materials will be stable, and profits are expected to increase. The ternary competition is tight, the head effect of iron and lithium is obvious, and the pattern may continue in 2025.

Anode: The price of artificial graphite will fall in 2024, and the price of anode will drop to 30,500 yuan, driven by cost and technological improvement, and it is expected that the price of graphite anode will gradually decline in 2025. The output of anode increased with the penetration rate of new energy vehicles, reaching 1,693,800 tons in October. The profit margins of most manufacturers are stable, with beiteri taking the lead, followed by Shanshan and Putailai. In 2025, the profit margin and share of enterprises with good cost control and excellent integrated layout are expected to increase.

Electrolyte: In 2024, the price of lithium hexafluorophosphate will drop by more than 15%, and the price of electrolyte will drop slightly. It is expected that lithium carbonate will be low in 2025 and the price of electrolyte will be stable. The output increased, and the output of lithium hexafluorophosphate and electrolyte in November was 15.86/1.162 million tons. The profit margin of the electrolyte industry is solid, Tianci is leading, the self-supply rate determines the profit and share, and the head enterprises will be strengthened in 2025.

Diaphragm: In 2024, the price of separator will drop by 30% to 1.03 yuan/m2, with an output of 17.1 billion m2. Enjie leads, followed by Xingyuan and Sinoma. In 24Q3, the profit margin decreased slightly, the production capacity gradually increased, and the competition heated up. In 25 years, the new factory has been expanded, and the price of diaphragm is expected to continue to fall.

New technology outlook: The industrialization process of solid-state batteries is accelerating, and the application of high-voltage fast charging is expected to continue to increase

The industrialization process of solid-state battery technology is accelerating, and it is expected to become one of the key technologies in the field of lithium batteries by 2025. The solid-state battery industry chain includes basic materials, equipment, battery pack processing, preparation and application fields. According to the China Business Industry Research Institute, global solid-state battery shipments will increase from 1GW in 2023 to 614.1GW in 2030. China's solid-state battery market space is expected to increase to 20 billion yuan, and the penetration rate will reach 10%. At present, solid-state battery technology is still in its early stages, but with the advancement of technology, it is expected to achieve large-scale commercial application. Domestic enterprises are giving priority to the layout of semi-solid-state batteries, in order to achieve industrialization.

In 2024, the rapid development of high-voltage fast charging technology will reduce the price of models to below 200,000, promoting the broad space of the fast charging market and the continuous growth of the penetration rate. The upgrading of battery materials and processes, especially the improvement of anode materials, including multiple granulation, surface carbon coating and the application of silicon-based anodes, has improved the fast charging performance of batteries. At the same time, the increase in the amount of conductive agent and the upgrading of materials, as well as the application of new lithium salt LiFSI, have improved the conductivity and safety of the battery and met the high requirements of fast charging performance. These technological advancements have contributed to the improvement of the performance of fast-charging batteries, which is expected to accelerate the popularization of fast-charging technology in the field of electric vehicles.

Investment strategy

In 2025, after the adjustment of the lithium battery sector in 2023, the profitability of all links will bottom out, the inventory cycle of midstream materials will complete the decline, and the price and expansion rhythm will be at a low level for many years. With the recovery of demand and the catalysis of new technologies such as solid-state batteries, the prospects of the sector are promising, the pessimistic expectations are weakened, the performance is stable, and the allocation value is highlighted. Improving supply and demand and the adoption of new technologies will be key drivers and are worth paying attention to.

In the battery sector, leading companies such as CATL (SZ300750) and Guoxuan Hi-Tech (SZ002074) have seen a steady increase in profitability by relying on customized demand and overseas expansion. In the material sector, with the optimization of production capacity and the iteration of new products, profits are expected to recover, ternary materials maintain a certain profit, and CNGR (SZ300919) and other enterprises benefit; Anode materials, Shangtai Technology (SZ001301) and other enterprises stand out with their low-cost advantages.

Solid-state battery technology is accelerating, led by Gotion Hi-Tech (SZ002074) and CATL (SZ300750), cathode materials are shifting to high-voltage systems, and Rongbai Technology (SH688005) and Dangsheng Technology (SZ300073) are benefiting; The development of anode materials to lithium metal, led by beiteri (BJ835185); In the field of electrolytes, carbon nanotubes improve conductivity, and Tiannai Technology (SH688116) and Dow Technology (SZ300409) are effective. With the rise of high-voltage fast charging, led by CATL, "Shenxing" and "Kirin" products cover high-quality customers, and the material side is upgraded, benefiting Xinde New Materials (SZ301349), Tiannai Technology (SH688116), and Tianci Materials (SZ002709).

Ending:

To sum up, the lithium battery industry is showing strong signs of recovery after experiencing an adjustment in 2023. With the stabilization and recovery of fundamentals and the accelerated application of new technologies, especially the gradual maturity of solid-state batteries and high-voltage fast charging technology, it is expected that by 2025, the entire industry will usher in new development opportunities. The demand for new energy vehicles in domestic and foreign markets continues to grow, driving the production and sales of lithium batteries and their materials. With its technical advantages and market layout, leading enterprises will occupy a more favorable position in the future competition.