After years of rapid development, the scale and quality advantages of the new energy vehicle industry in mainland China have gradually emerged. With the continuous growth of new energy vehicle production and sales, the waste power battery recycling industry has also attracted more and more attention.
After all, considering the general service life of power batteries of 5-8 years, new energy vehicles before 2019 have been retired one after another, and according to the second round of new energy vehicle market growth cycle (2020-2022), a new round of power battery retirement is expected to occur around 2025, which will significantly drive the scale of power battery recycling capacity.
At the current point in time, it is urgent to accelerate the layout of the power battery recycling industry. So, how do you view the development status of the power battery recycling industry, and are there relevant investment opportunities behind this?
The potential space of the lithium battery recycling market is huge
According to China's new energy vehicle sales data, 2014-2018 and 2020-2022 are two rounds of rapid growth in China's new energy vehicle market, the former round of growth cycle is longer, the annual growth rate of new energy vehicle sales is more than 50%, and the latter round of market cycle is shorter, but the average annual growth rate is more than 90%.
However, after two rounds of growth, the mainland has grown into the world's largest producer and seller of new energy vehicles, accounting for more than 60% of the world's production and sales of new energy vehicles. According to the China Association of Automobile Manufacturers, the production of new energy vehicles in mainland China in 2023 will be 9.587 million units, and the sales volume will be 9.495 million units, a year-on-year increase of 37.9%.
Figure 1: EV sales in mainland China increased by 37.9% year-on-year in 2023
Source: Sinolink Securities
Considering that the power battery is the core component of new energy vehicles, the rapid development of the new energy vehicle industry has also brought a very considerable scale to the lithium battery recycling market. From 2018 to 2022, the market size of the power battery recycling industry in mainland China has increased from 50 billion yuan to 100 billion yuan, with an average annual growth rate of more than 20%.
According to the second round of the cycle from 2020 to 2022, a new round of power battery retirement is expected to occur around 2025.
The Ministry of Industry and Information Technology pointed out that the comprehensive utilization of waste power batteries for new energy vehicles in 2023 has reached 225,000 tons, a year-on-year increase of 121%. In order to further promote the recycling of waste power batteries, the Ministry of Industry and Information Technology expects that the comprehensive utilization of waste power batteries will be more than 260,000 tons in 2024, indicating that the potential space of the lithium battery recycling market is huge.
A number of lithium battery companies are vying for layout
Previously, there were 156 whitelisted enterprises that met the industry specifications for the comprehensive utilization of waste power batteries announced by the Ministry of Industry and Information Technology, but according to the statistics of the enterprise investigation, as of April 2024, the total number of power battery recycling enterprises has reached about 120,000. On the one hand, this shows that the considerable scale of the power battery recycling industry in the future has attracted many enterprises to enter the market, but on the other hand, this reflects the problem of "small scattered" in the industry.
However, in view of the significant advantages of lithium battery head enterprises in terms of channels, technology, scale, cost control, etc., the battery recycling projects in mainland China are gradually developing from "small and scattered" to the direction of concentration of head enterprises.
In other aspects, under the guidance and support of policies and the financial strength of leading enterprises, the industry is also changing from a single power battery recycling to battery recycling and cascade energy storage project recycling, and from the domestic battery recycling boom to overseas battery recycling is in the ascendant.
At present, enterprises related to the lithium battery industry chain have begun to lay out recycling business, and technical advantages are the core competitiveness. A number of domestic and foreign companies, including CATL, GEM, Ganfeng Lithium, Tianqi, Stellantis, LGES, Toyota, etc., have deployed battery recycling. Considering that these lithium battery head companies have a first-mover advantage, there is reason to believe that it is easier for them to establish channel barriers, so the advantages of the head enterprises may be more prominent.
Figure 2: A number of companies have begun to deploy lithium battery recycling business
Source: GEM, CATL and other company announcements, Guojin Securities
Layout of head enterprises + low valuation, battery ETF may be a good choice
Overall, the potential space of the lithium battery recycling market is huge, and the leading enterprises still have significant advantages. Therefore, the battery ETF (SH561910), which is the leader in the lithium battery industry, may be a good choice.
The battery ETF (SH561910) tracks the CSI Battery Theme Index (hereinafter referred to as the CS Battery Index), on the one hand, the underlying assets select high-quality core battery leading stocks. Specifically, the top five constituents of the CS battery index are CATL, Sungrow, Sanhua Intelligent Control, EVE and GEM, with a cumulative weight of 40.43% of the index, in-depth layout of the industry leader.
Figure 3: Top 10 heavyweights in the CSI Battery Thematic Index
Source: China Securities Index Company Limited
On the other hand, Wind data shows that as of April 18, 2024, the latest valuation of the CS battery index (931719.CSI) is 20.58 times PE, which is located at the historical quantile of 4.43%, and the absolute value has been at the bottom of the history, and the current investment cost performance is highlighted.
Figure 4: CSI Battery Thematic Index P/E Ratio TTM
Source: Wind
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