Planning to partner with Chery New Energy Co-operative Luxun Precision to officially "build cars"?

Per reporter: Wang Jing Per editor: Zhang Haini

On February 14, Luxshare Precision (002475, SZ; yesterday's closing price of 41.9 yuan) rose more than 5% intraday, and as of the close of the day, the company's stock price rose by 2.07%.

On the news side, on the evening of February 11, Lixun Precision issued an announcement that the company signed a "Strategic Cooperation Framework Agreement" with Chery Group. On the basis of this agreement, the Company and Chery New Energy intend to jointly establish a joint venture company specializing in the research and development and manufacture of new energy vehicles. The company's controlling shareholder, Lixun Limited, purchased 19.88% of the equity of Chery Holdings, 7.87% of the equity of Chery and 6.24% of the equity of Chery New Energy held by Qingdao Wudaokou for 10.054 billion yuan.

Subsequently, Luxun Precision stressed in the investor relations activity record table that the company did not build cars in this strategic cooperation with Chery, but cooperated with Chery to develop the vehicle ODM (original design manufacturer) model. In terms of business, Chery is good at the vehicle business, the joint venture company will be led by Chery, and Luxshare Precision will coordinate in terms of business and customers.

For The layout of Luxshare Precision's automotive business, SPDB International Securities believes that the electronic manufacturing capabilities of consumer electronics companies are exactly the capabilities that are very much needed in the intelligent process of new energy vehicles, and automotive electronics is expected to promote the growth of Luxshare Precision in a longer time dimension.

Data source: Company financial report Visual China chart Yang Jing mapping

The core goal is to become a Tier1 vendor

In a conference call on the afternoon of February 13, Wang Laichun, chairman and general manager of Luxun Precision, said that Smart EV is an opportunity that Chinese automakers have not encountered in a hundred years. The opportunities it brings include not only the whole vehicle, but also the more vital Tier 1 (tier 1 supplier of the depot). The market size of Tier1 itself is almost 70% of the total output value of all car companies, but at present, there are only 8 Chinese companies among the world's top 100 Tier1 manufacturers.

Wang Laichun further explained that Lixun Limited is an investor in Chery Holdings, Luxun Precision does not build a whole vehicle, but cooperates with Chery New Energy to develop the ODM business of building a good car for others, and the company aims to seize the opportunity window to enter the world's leading Tier1.

When talking about the cooperation model and development strategy between Luxshare Precision and Chery, the company's management said: "The company has always been in the automotive field to become a leading Tier1 manufacturer as the core goal, and is also looking for a platform that can exercise its own Tier1 core component capabilities. This strategic cooperation will rapidly develop the Tier1 business of listed companies on the basis of building a cooperative car manufacturing ODM model, realize dynamic entry, and rapidly improve the company's core components comprehensive capabilities as a Tier1 manufacturer. ”

It is understood that Luxshare Precision's ODM business has a relatively clear landing project, which will be put into production in about the next 12 to 18 months.

Regarding the main target business of the joint venture, Luxshare Precision responded: "It is expected to be the business of foreign traditional brand car companies and the new Smart EV brand business in China. ”

When it comes to Luxshare Precision, the most impressive thing to the outside world is the "fruit chain" faucet. In the early days, Luxshare Precision cut into the Apple system from the cable supply of the MacBook, and then smoothly entered the lightning connection line of the iPhone, thus occupying a leading position in the connection line business of personal computers and smartphones. From 2017 to 2019, Luxshare Precision began to expand into parts within the iPhone, and successfully obtained wireless charging, acoustic devices, LCP antennas, linear motors and other parts business, thereby rapidly driving the company's revenue growth.

In fact, in addition to the core field of consumer electronics, Luxshare Precision has already begun to lay out the automotive field and formed four major categories of automotive products, including automotive appliances, automotive wiring harnesses, connectors and connecting wires. According to the 2021 semi-annual report of Lixun Precision, the operating income of the company's automotive interconnection products and precision components was 1.774 billion yuan, an increase of 38.99% year-on-year, accounting for 3.68% of the company's operating income.

Several fruit chain companies are targeting cars

At present, the growth of mobile phone market shipments is weak. According to IDC data, global mobile phone shipments in 2021 Q3/Q4 were 3.312 million units and 3.624 million units, respectively, with a year-on-year growth rate of -6.33% and -6.09%, respectively, and the annual shipments in 2021 increased by 4.84% compared with 2020, but fell by 1.18% compared with 2019 before the epidemic, and mobile phone shipments generally continued the downward trend since 2017.

In the case of mobile phones encountering growth bottlenecks, new energy vehicles have maintained a strong growth momentum. In January this year, the Ministry of Industry and Information Technology released data at the press conference on the development of the automobile industry in 2021 showed that the annual sales of new energy vehicles in 2021 exceeded 3.5 million, and the market share increased to 13.4%. The Association expects that new energy vehicles are expected to exceed 6 million in 2022, and the penetration rate of new energy vehicles will reach about 22%.

New energy vehicles have brought a series of opportunities and attracted many fruit chain enterprise layouts. Among them, Foxconn is one of the typical representatives.

In August 2021, Li Junqi, chairman of Industrial Fulian, said, "The company will cut into the new energy vehicle track from three paths of auto parts, vehicle-related products and lighthouse factories, and enter foxconn's system." "Foxconn established the Open Platform for Electric Vehicle Hardware and Software (MIH) in 2020, which aims to integrate resources from the global car-related supply chain.

For the progress of industrial Fulian's "car-making", Zheng Hongmeng, general manager of Industrial Fulian at that time, said that in the context of the increase in the computing power of new cars, the company's automatic driving central control module ACU, electric vehicles have the trend of strengthening automatic driving / unmanned driving functions, sensing data sources increase, camera and millimeter wave radar data expansion, ACU computing power and demand will be enhanced. At the same time, ACU has spawned new business areas, and the company expects to ship related sensing products to customers. In addition, the world's top customers' data center computing power and autonomous driving computing power related products are expected to achieve mass production in 2022.

In addition to Foxconn, Changying Precision entered the field of new energy vehicles in 2016 and acquired 70% of the shares of Suzhou Corrent in 2016 and 2017 through equity acquisition and capital increase. Suzhou Corent's main business is busbar (high voltage connector busbar) products, which are widely used in new energy vehicles, communications, military radar and ship manufacturing. Corent is also a supplier of well-known brand automobile manufacturers, providing services for major new energy vehicle manufacturers in Europe and the United States, and has in-depth cooperation with new energy vehicle manufacturers and pack manufacturers at home and abroad.

At present, Changying Precision's layout of the new energy automobile industry includes power battery cover, busbar, precision automotive electronics, charging equipment related, heavy-duty connectors, hydrogen fuel cells, automotive interiors, etc.

Lens Technology, a fruit chain enterprise in the mobile glass track, has chosen to expand into the field of vehicle glass and photovoltaic glass. Since 2015, Lens Technology has begun to deeply lay out the new energy vehicle market, and in 2017, it became one of Tesla's global first-class core suppliers. In the 2021 semi-annual report, Lens Technology positioned its development goal in the field of new energy vehicles as "to provide one-stop automotive electronic services and solutions for new energy vehicle customers".

For upstream companies, being able to join Apple's supply chain system means recognition of its technology or market position. However, once it is eliminated by Apple, it is bound to face the risk of a sharp decline in performance. On the other hand, under Apple's strong bargaining power, many Apple supply chain companies are also in the dilemma of increasing revenue and not increasing profits. The profit margin of the new energy track will point out a new direction for electronic supply chain enterprises.

In October last year, Luxun Precision released the third quarter of 2021 financial report showing that the company's net profit in the first three quarters was 4.69 billion yuan, an increase of 0.21% year-on-year, of which the net profit in the third quarter was 1.6 billion yuan, down 25.28% year-on-year. Coincidentally, the performance forecast released by Lens Technology a few days ago shows that it is expected that the net profit attributable to shareholders of listed companies in 2021 will be about 2.007 billion to 2.399 billion yuan, down 51% to 59% year-on-year.

Some views believe that fruit chain companies are expected to use cross-border to get rid of the long-term "low profit" dilemma in the past, which is also conducive to laying the foundation for the follow-up Apple automobile foundry business; but there are also views that the current new energy vehicle track is crowded, and the future reshuffle is inevitable.

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