Key investment points: The company recently issued an announcement to revise the 2018 annual performance forecast to calculate goodwill impairment of 2.25 billion yuan to 2.45 billion yuan for the acquired subsidiaries of Shanghai Electric Drive and Beijing Petra. After the revision, the company expects net profit attributable to shareholders of listed companies to lose 2.1 billion yuan to 2.3 billion yuan in 2018. Ping An's view: Electric vehicle subsidies are falling at an accelerated pace, and the field of motor and electronic control is under increasing pressure: On January 30, 2019, the company issued a revised announcement to the 2018 annual performance forecast. The company disclosed the “Full Report for the Third Quarter of 2018”. The net profit attributable to shareholders of listed companies in 2018 is expected to change by -45% to 5%. The net profit range attributable to shareholders of listed companies in 2018 is 229.7663 million yuan. The revised The estimated net profit attributable to shareholders of listed companies is a 2018 loss of 2.1 billion yuan to 2.3 billion yuan. The main reason for the performance revision is Shanghai Electric Drive Co., Ltd.'s 2018 performance loss, failure to meet performance promises, and a significant decline in the 2018 performance of Beijing Petrai Electric Co., Ltd. Among them, due to the adjustment of the national NEV industry subsidy policy, the price of NEV powertrain systems continued to drop. At the same time, Shanghai Electric Drive invested a large amount of human and material resources in the development of serial three-in-one assembly products and 48V system projects. The gross margin of Shanghai electric drive products, especially commercial vehicle series products, declined significantly; in 2018, NEV production and marketing structure adjusted, NEV production accounted for 84.25%. The NEV market growth rate slowed. The production of plug-in hybrid commercial vehicles dropped sharply by 58% year on year. For Shanghai Electric Power Sales of major driving products all had a major impact; in addition, due to the rapid model renewal and the low utilization rate of related inventory in the NEV industry, Shanghai Electric Drive prepared a large amount of inventory price reduction for the final inventory calculation. Since 2016, Shanghai Electric Drive has failed to meet its performance promise for three consecutive years since 2016, and its promised net profit for 2015, 2016, 2017 and 2018 was not less than 94 million yuan, 138 million yuan, 18,900 and 2018, respectively 277 million yuan, while the actual net profit for 2015-2017 was 9681/11513/126.7 million yuan, and Shanghai Electric Drive's net profit for the first half of 2018 was a loss of 5.17 million yuan. According to its current operating conditions and future industry conditions, the company believes that the goodwill formed due to the acquisition of Shanghai Electric Drive has signs of significant impairment, and corresponding goodwill impairment preparations need to be calculated, and the accrued amount is about 20.00-2150 million yuan; the specific amount has yet to be determined after evaluation and audit by the evaluation agency and auditing agency. The medium and heavy commercial vehicle market declined, and Petra's performance declined significantly: the overall size of the market segment (large and medium-sized buses and medium heavy trucks) in which Beijing Petra had an advantage declined; second, the gross margin of Beijing Petra products decreased. Furthermore, the release of product quality risks during the strategic shift from Beijing to Weifang led to an increase in the three-package cost of the product, which had a certain impact on Beijing Petra's profitability. In addition, Beijing Petra Motor Drive Technology Co., Ltd., a joint venture company of Beijing Petra, was affected by the slump in the NEV market and experienced a loss in this year's results, which also had a major impact on Beijing Petra's performance. According to Beijing Petra's current business situation and future industry situation, the company believes that the goodwill formed as a result of the acquisition of Beijing Petra has signs of significant impairment, and that corresponding goodwill impairment preparations need to be calculated. The accrued amount is about 250-300 million yuan; the specific amount has yet to be determined after evaluation and audit by the evaluation agency and auditing agency. Under policy pressure, adjustment and consolidation is a priority: most of the company's current goodwill calculation is due to the accelerated decline in NEV subsidies since 2017. Among them, the annual decline in the commercial vehicle sector was 30-40%, and the annual price reduction for corresponding motor electronic control products was 10-20%; on the one hand, there was a price reduction, and on the other hand, volume reduction. In the first half of '18, the company's NEV powertrain system business achieved main business revenue of 431.18.85 million yuan, an increase of 59.08% over the previous year, mainly due to the low base figure triggered by policy adjustments in the same period in '17, compared to 18. After the transition period ended in the second half of the year, the NEV market grew weak, sales of major electric drive products in Shanghai were under pressure, and faced greater pressure to remove inventory due to accelerated downstream model changes. Looking ahead to 2019-2020, there is still declining pressure on subsidies. The company's commercial vehicle products are still facing the challenge of volume reduction and price reduction. The incremental expansion of the NEV passenger vehicle market, the introduction and release of SAIC Roewe, Great Wall Motor, etc., and the continuous upgrading of the product system will be the main points of the company's adjustment and consolidation. Profit forecast and rating: Considering the large amount of goodwill, inventory impairment provisions, and the tightening of the downstream market as calculated in the 2018 company announcement, we lowered the company's profit forecast for 18-20 to -21.5/1.8/220 million yuan, respectively. The company's EPS for 18-20 is -0.91, 0.08, and 0.09 yuan respectively (the original value was 0.26/0.29/0.37 yuan), corresponding to the closing price PE on February 18, and downgraded the company rating to” “Neutral” rating. Risk warning: 1. The growth rate of electric vehicle production and sales is slowing down. As the production and sales base of new energy vehicles continues to grow, it will become more difficult to maintain a high growth rate, and the launch of mainstream models for the public is the key; 2. The price war in the industrial chain intensifies. Subsidies continue to decline and new production capacity continues to be invested, causing all links in the industrial chain to face price reduction pressure; 3. Overseas competitors are entering at an accelerated pace. With the growth of the domestic market and the dilution of subsidy policies, the pace of entry of overseas giants into the domestic market is accelerating, causing a new impact on the industrial landscape.