China Fund News reporter Fang Li Cao Wenjing
The lithium battery sector, which has attracted much attention, ushered in a new deal!
On May 8, the Ministry of Industry and Information Technology issued the "Lithium Battery Industry Standard Conditions (2024 Edition)" (Draft for Comments) and the "Lithium Battery Industry Standard Announcement Management Measures (2024 Edition)" (Draft for Comments) (hereinafter referred to as the "Draft for Comments"). The "Draft for Comments" proposes to guide enterprises to reduce manufacturing projects that simply expand production capacity, strengthen technological innovation, improve product quality, and reduce production costs.
Stimulated by the blockbuster policy of lithium batteries, the new energy sector soared on May 9, and individual stocks set off a tide of daily limits, and the Wind lithium battery index rose by more than 4% in a single day.
What is the guiding significance of the Draft for Comments on the development of the lithium battery industry? How much room is there for the lithium battery industry? Which segments are worth looking forward to? In this regard, a reporter from China Fund News interviewed six fund managers, namely:
Zou Hui, General Manager of Equity Investment Department of Industrial Fund
Wang Yang, head of the ESG team of Cathay Fund and manager of Cathay Pacific Intelligent Vehicle Fund
Ping An Fund Manager Mo Geng
Xiong Yuzhou, manager of Harvest Global Innovation Leading Equity QDII Fund
Chuangjin Hexin Climate Change Responsible Investment Fund Manager Cun Simin
Luo Yida, manager of IB Carbon Neutrality Fund
These fund managers said that although the "Consultation Paper" is only a guiding document and does not have the pre-emptive and mandatory administrative approval, it has a very positive significance for the development direction and trend of the industry. After the past two years of market adjustment, the valuation of the lithium battery sector has been at a low level, comprehensive inventory cycle, new demand scenarios, and marginal changes in the supply side and other factors, many people believe that the opportunity for the industry to reverse has been there, with technical advantages and scale advantages of each link of the leading enterprises are more investment value.
1. China Fund News to help promote the healthy development of the lithium battery industry in the mainland: The "Draft for Comments" is a revision of the original lithium battery industry standard conditions and announcement management measures, focusing on strengthening the standardized management of the lithium battery industry. What is the guiding significance for the development of the lithium battery industry? Zou Hui: The Draft for Comments ensures the orderly development of the lithium battery industry from the policy level. This version continues to maintain high standards for the R&D expense rate, capacity utilization, process control ability and control accuracy of manufacturers. On this basis, the requirements for the performance of enterprise products have been further improved, such as the energy density of ternary energy single batteries has increased by 10% compared with the previous version, and the silicon-carbon specific capacity requirements of the negative electrode have been increased by 14%.
The requirements of the specification are also more practical, such as the battery, from the original packaged power battery category subdivided into large and small power batteries, and then according to the energy type, power type, monomer and battery pack and other requirements are put forward, the detailed division of requirements will help guide the healthy development of the industry from top to bottom. In addition, the specification also emphasizes the green economy, which puts forward higher requirements for the energy consumption of enterprises. On the basis of the previous version of the comprehensive energy consumption limit of lithium battery enterprises, the energy consumption requirements for the four main materials have been added, and enterprises are required to carry out carbon footprint accounting.
Although this specification is only a guiding document and does not have the pre-emptive and mandatory administrative approval, it has a very positive significance for the development direction and trend of the industry, and the leading enterprises in each link with technical advantages and scale advantages are expected to benefit.
Wang Yang: Although the demand for the domestic new energy industry remains strong, the supply side, with the help of local governments and primary and secondary capital, has repeatedly launched a large number of homogeneous production capacity. Therefore, from the perspective of the industry, the price of lithium batteries and their upstream materials has entered the downward channel two years ago, and in the near future, there have been abnormal situations such as losses in some links and the whole industry. The "Draft for Comments" aims to discourage the expansion of backward and homogeneous production capacity and increase the proportion of high-quality advanced production capacity. Xiong Yuzhou: Considering only the two major scenarios of power and energy storage, the terminal demand for lithium batteries has expanded from 300GWh in 2021 to 1.2TWh expected in 2024, but the profitability of the industrial chain has declined in the case of a four-fold expansion of terminal demand, mainly due to the phased mismatch between capacity construction and downstream demand.
If the specific measures of the Consultation Paper can be successfully implemented, it will greatly alleviate the pressure on the production capacity of the industrial chain, and then create favorable conditions for the gradual stabilization and upward movement of profits. China's lithium battery and its industrial chain have world-class competitiveness, and are the main suppliers of global production capacity in all aspects, and the supply optimization measures in advantageous industries will also be conducive to the healthy development of the global new energy industry.
Mo Geng: The "Draft for Comments" is mainly to strengthen the standardized management of the lithium battery industry, guide the industry to accelerate transformation and upgrading and structural adjustment, and promote the healthy development of the lithium battery industry in the mainland. The 2024 version of the Draft for Comments further improves the requirements for a number of core properties of lithium batteries, fully reflecting the strict requirements of mainland China in leading the high-quality development route of global lithium batteries. The introduction of the "Draft for Comments" is conducive to restraining the backward production capacity of the disorderly expansion of the tail of the industry, and is conducive to the benign and healthy development of the industry in the medium term.
Luo Yida: The "Draft for Comments" was launched at this time, which is of great significance for standardizing and guiding the healthy development of the lithium battery industry. A careful analysis shows that the 2024 draft is based on the 2021 version with relevant modifications, continuing the requirements for R&D expenses to account for no less than 30% and capacity utilization to be no less than 50%. The details of the modification are mainly focused on the battery production process and the performance requirements of battery products, such as putting forward higher parameter requirements for indicators such as the energy density of batteries and materials. In the context of the current overcapacity of the lithium battery industry, industry norms require enterprises to improve the level of research and development, not blindly expand production, solve the two major pain points of safety and battery life in the battery industry through technology, gradually eliminate backward production capacity, and guide the industry to the road of healthy development. 2. The lithium battery sector is at the bottom of the historical rangeChina Fund News: The lithium battery sector has continued to adjust in the past two years, and it has continued to decline from the high point in 2022. What is the overall valuation situation at the moment? Zou Hui: The performance of the lithium battery sector in the past two years has been unsatisfactory, and the Shenwan lithium battery industry index has retraced by nearly 70% from the high point in July 2022 to the lowest point in February this year.
Based on the global situation, the reasons for the long-term deep adjustment of the plate are summarized into two: first, due to the stimulus of policies, the penetration rate of new energy vehicles has grown rapidly to more than 30% in a few years, and the penetration rate continues to increase relatively slowly, and the growth rate of the industry has entered a relatively low but stable state, which has punctured the previous valuation bubble; Secondly, due to the disorderly expansion of the industry in the early years, a lot of new production capacity has been added in various links, and the intensification of competition has led to a continuous decline in prices, resulting in a decline in the profitability of enterprises. Under the combined effect of the above two reasons, the sector suffered a sharp correction due to the double kill of performance and valuation.
After two years of adjustment, the profitability of enterprises in the first quarter of this year has basically bottomed out, in the state of meager profits of leading enterprises, breakeven or even losses of second- and third-tier enterprises, and at present, the valuation of leading enterprises is generally around 20 times.
Wang Yang: In recent years, lithium batteries have been adjusted greatly, but from the perspective of the terminal growth rate of new energy vehicles and energy storage, it is still a median growth, and the core is the deterioration of competition caused by excessive supply and homogenization. However, at present, whether in terms of absolute decline in stock price or performance, it is difficult to further deteriorate on the margin, and most companies have reached historical lows from the perspective of PB valuation. Xiong Yuzhou: Whether from the perspective of PE, PB, PS, etc., the lithium battery sector is at the bottom of its own history, mainly due to the phased mismatch between capacity construction and downstream demand and the impact of inventory cycle disturbances, which has caused a significant decline in unit profitability. However, according to the several rounds of industrial cycles we have experienced, it is often the stages of "phased overcapacity - price decline - cost-effective appearance of driving demand suddenly - insufficient capacity again - accelerating capacity construction", among them, the cost-effective driving demand explosion is the key inflection point, and has seen the recovery of power battery demand, the acceleration of energy storage orders, and the demand for electric heavy trucks.
After the lithium battery industry has adjusted the inventory of the whole industry chain to a very low level, there have been signs of marginal improvement on the demand side, the supply side and the policy side. In April, the trade-in subsidy for automobiles was implemented, and the demand began to pick up after the wait-and-see sentiment of the industry eased; The "Draft for Comments" means that the tightening of the supply side of the industry is expected to kick off, which will speed up the clearance of backward production capacity, prevent low-price disorderly competition, and help the capacity utilization rate and profit repair of leading enterprises with technical advantages and high-quality production capacity.
Recently, the U.S. Department of the Treasury and the Internal Revenue Service issued the final rule for the clean energy vehicle provisions in the Inflation Reduction Act (IRA), which added a new definition of "non-traceable battery materials" and set a buffer period for them, which to some extent eases the restrictions on the origin of battery materials, in fact, once again proves the global competitive advantage of China's lithium battery supply chain.
Cun Simin: The lithium battery sector is a typical cyclical growth industry. At present, the industry as a whole is still overcapacity, but there are differences in all aspects of lithium batteries. The safety requirements derived from vehicle regulations are extremely high, and the requirements for technological progress, safety, quality, responsiveness, and supply chain security are complex and detailed. There is no differentiated link, and the cycle adjustment since 2022 is a permanent profit kill, and it is currently in the process of finding the center of EPS and PB; However, there are differentiated links, which have reflected the differentiation of earnings, and PE is at a reasonable valuation in the overall manufacturing industry. For some globally competitive high-quality manufacturing industries, there is still some room for valuation, and when the stability of unit earnings continues to be verified, such companies have the value to hold in the medium cycle. Luo Yida: The development of the lithium battery sector in recent years is in line with the development law of the Gartner curve of emerging industries, and deduces a cycle of the industry from germination to outbreak to capacity expansion and then to surplus. In December 2020, the penetration rate of new energy passenger vehicles in China exceeded 10%, and then ushered in a period of rapid increase in the penetration rate, and as of December 2023, the penetration rate has exceeded 40%. With the increase in penetration rate in the past few years, on the one hand, the rapid increase in sales of new energy vehicles has directly driven the high prosperity of the upstream and downstream of the industrial chain; On the other hand, all links in the upstream and downstream of the industrial chain have started a large-scale expansion of production capacity.
Due to the insufficient barriers in many links in the industrial chain, a large number of homogeneous production capacity will be released rapidly after 2022, and at the same time, the growth rate of overseas new energy vehicle demand will slow down in 2023, resulting in the industrial chain entering a long price reduction channel. Due to the high prosperity and high growth in the early stage, the stock valuation of the lithium battery sector is relatively high, and after two years of adjustment, the current valuation level tends to be reasonable, especially the valuation of competitive leading enterprises has become attractive.
Mo Geng: At present, the overall valuation position is at a relatively reasonable but not low level. 3. Whether the lithium battery sector has reversed in the bottoming stage remains to be seen China Fund News: With the help of policies, the lithium battery sector rose sharply in the first week of May, and the industry reversed or rebounded? What do you think about the market outlook? Xiong Yuzhou: Based on the current node, from the combination of factors such as inventory cycle, new demand scenarios, and marginal changes on the supply side, the opportunity for the industry to reverse has been met, and the gradual rise in prices and recovery of some varieties in the industrial chain is also a side verification. Based on some of our analysis of historical data, markets tend to undervalue at cycle lows and overvaluations at cycle highs, which is more pronounced in industries with cyclical growth attributes. At present, lithium battery is undoubtedly in a state of low valuation at the low point of the cycle (mainly measured by PB, PS, etc.), with the improvement of fundamentals and the gradual strengthening of the signal of upward profitability, we still look forward to the future performance of the sector. Wang Yang: This week, the lithium battery sector rose sharply under a number of catalysts, behind which the plate was at the bottom of the bearish passivation and sensitive to bullishness. In lithium batteries, the business model is good, the competition pattern is clear, and the profit is at the bottom of the link leader is at the bottom of the stock price, which will be the first to reverse; Other links, as well as the overall beta of the sector, may need to be promoted by further or even more mandatory policies. Zou Hui: New energy is a stable development industry, and the introduction of rules has discouraged the entry of inferior production capacity and accelerated the clearance of tail production capacity. Subsequently, with the steady increase in demand and the recovery of corporate utilization rate, a quarter will be better than a quarter, so we are optimistic about the investment opportunities of lithium batteries for a long time. Mo Geng: The normative conditions of the Draft for Comments are guiding documents to encourage and guide the technological progress and standardized development of the industry, and it does not have the pre-requisite and mandatory nature of administrative approval. In the future, it is necessary to pay more attention to the changes in supply and demand of the industrial chain, and at the same time measure the valuation level of the sector to judge whether there may be a major reversal. Luo Yida: The lithium battery sector has entered the stage of grinding the bottom, and excellent leading enterprises can take the lead in passing through the cycle. The introduction of industry normative policies is more of a guide to the industry, not an immediate mandatory constraint policy, for the capital market, the pessimism of the lithium battery sector has been partially repaired.
Fundamentally, the expansion of the supply side is slowing down, and the elimination or withdrawal of tail capacity is a sign that the industry has bottomed out. In terms of demand, the penetration rate of China's new energy vehicles has reached a high level, and the growth rate has declined. We are cautiously optimistic about the future development of the lithium battery sector, and in this round of downward cycle, there have been companies that have passed through the cycle to come out. With the rapid decline in the cost of new energy vehicles and the application of intelligence, the product power is getting stronger and stronger, the demand will be continuously stimulated, and the excellent leading enterprises can benefit from the next round of upward cycle.
Cun Simin: The lithium battery sector has passed the stage of general rise, and the differences in each link are large, and the general rise is based on the supply and demand structure of the plate into the medium-term benign and healthy repair. However, after the restoration, it is still necessary to do differentiated research on each subdivided industry, and continue to be optimistic about the subdivision opportunities in the fields of differentiation, cost advantage, and competitiveness. Fourth, optimistic about batteries, vehicle links, lithium carbonate and other China Fund News: How much space is there for the development of the lithium battery industry? Which segments are worth looking forward to? Zou Hui: As a consumer, it is an eternal demand to have a battery that charges faster, has a longer battery life, is smaller in size, and has better safety, and this demand ceiling is far from being met, so there is no need to worry about the sustainability of the lithium battery industry. From the analysis of industry barriers, the pattern of raw materials and battery cells is relatively good. In terms of new technology, the technological revolution of solid-state batteries is worth looking forward to. Xiong Yuzhou: According to the International Energy Agency (IEA), the global demand for new energy vehicles will reach 45 million units in 2030, more than three times the global sales in 2023 and nearly five times the output in China in 2023. In 2030, the global demand for power batteries will reach 3,500GWh, more than four times the global shipment in 2023 and more than five times the output of China in 2023. There is still a large long-term space in the lithium battery industry in the future, especially the cost of power batteries has been lower than the empirical oil and electricity parity of 100 US dollars/kWh, and the rapid decline in the cost of photovoltaic energy storage has made the integration of photovoltaic energy storage parity has been realized, and the growth of demand may show non-linear changes at a certain node.
At present, although there is some moderate advance construction of production capacity, considering that there is still a gap in global forward demand, if the rapid growth of demand is driven by price changes, short-term supply and demand are also expected to see a dynamic balance.
Wang Yang: At present, from a global perspective, the penetration rate of electric vehicles is less than 20%, and emerging markets other than Europe, the United States and China are still in the early stage of development, and the trend of electrification is irreversible, and the future electrification rate is expected to reach 70%~80% or even higher; Energy storage is an important means to solve the problem of grid consumption and electricity stability, and it is still maintaining a growth rate of dozens to doubles. We are relatively optimistic about the leading companies in the battery, structural parts and large inverter links. Mo Geng: New energy is the long-term development direction, and new energy vehicles have a great possibility to achieve full replacement of fuel vehicles. At present, the global penetration rate of new energy vehicles has only reached the level of about 20%, coupled with the increase in the proportion of wind power and photovoltaic in the power structure, the lithium battery energy storage industry is also in a stage of vigorous development, so the development space of the lithium battery industry is still huge. The segments with a better competitive landscape are relatively worthy of attention. Cun Simin: The global sales of automobiles are nearly 100 million units, and there is still a lot of room for electrification. In addition to power batteries, the lithium battery industry also has a large space for energy storage, consumer electronics, communications, robots, flying cars, etc. At present, we are optimistic about the battery and vehicle links, because of their technology, cost differences and competitiveness. Luo Yida: The lithium battery industry is a trillion-yuan market, and there is a lot of room for development. On the one hand, the demand comes from the continuous improvement of the penetration rate of new energy vehicles, and on the other hand, the demand for lithium battery utilization and other applications, each of which is a trillion-yuan market space with broad development prospects. In the subdivision, it is necessary to look for links with competitive barriers and steep cost curves, such as batteries, structural parts, lithium carbonate, lithium hexafluorophosphate, etc. 5. Pay attention to the uncertainty of the supply pattern, geopolitics and other risk pointsChina Fund News: What are the uncertainties and risk points in the lithium battery industry that need to be paid attention to? Zou Hui: On the one hand, raw materials account for a large proportion of costs, and the price fluctuations of costs have a great impact on the profitability of enterprises. On the other hand, due to the slowdown in the growth rate of the industry, car companies have become more demanding for batteries with better performance but lower prices, and the bargaining power of various companies in the industry chain is the key to ensuring that profitability continues to improve. Therefore, changes in prices and supply and demand in each link need to be paid attention to. Xiong Yuzhou: The main risk point comes from geopolitics, but considering that the European anti-dumping and anti-dumping forces in 2012 and 2013 could not stop China's photovoltaic industry chain, and the details of the IRA bill were re-relaxed restrictions on China's industrial chain, we believe that even if the restrictions occur, it will not affect the long-term competitiveness of the industrial chain. Wang Yang: The most important thing to pay attention to at the moment is geopolitical risks. The automobile industry is the pillar industry of a country. Domestic auto export data has grown rapidly in the past two years, but it is also facing the problem of competition with local enterprises. At present, local companies, represented by the United States and parts of Europe, have repeatedly lobbied the government to introduce relevant tax policies.
For domestic enterprises, the overall difficulty of going to sea has increased, but it may be good for the leader. In the future, going overseas is not simply a matter of domestic production and selling overseas, but requires global production, channels, brands, and management capabilities, and leading enterprises may benefit in the long run.
Mo Geng: This year, the penetration rate of new energy vehicles in China has increased better than expected, but there is still uncertainty about whether it can continue to achieve good penetration growth in the next few years. In addition, the continued establishment of trade barriers in the United States and Europe for the lithium battery industry is still a potential risk. Cun Simin: At present, the industry is still in the stage of oversupply, and it is gradually digested by slowing down the growth of input and demand, and it is necessary to pay close attention to whether the balance point between supply and demand will be delayed in the future. Luo Yida: The uncertainties and risks of the lithium battery sector include the uncertainty of the supply pattern and the risks of geopolitics. The excess capacity of the lithium battery industry is not easy to withdraw, and at the same time, due to the broad prospect of carbon neutrality, some cross-border enterprises are constantly entering, bringing uncertainty to the supply pattern. Editor: Captain
Review: Xu Wen