Core view: Taotao Auto is deeply involved in the North American leisure travel market and has the advantages of localized operation in the US (own brand/channel improvement) +cost control (Chinese supply chain). Strong categories (electric scooters, electric balance scooters, small-displacement all-terrain vehicles, etc.) seize market share with high cost performance and lead market share in the North American market. At the same time, the company continues to expand product categories, and emerging categories (e-bikes, electric golf carts, high-displacement all-terrain vehicles, etc.) can reuse existing channels to rapidly release volume. It is expected that in the future, electric bicycles, electric golf carts, and high-displacement special vehicle projects will fully contribute 500 million, 800 million, and 1 billion dollars in shipments every year after delivery, and the revenue scale is expected to double.

Competitive advantage: Deeply cultivating leisure travel, North America has significant advantages in localized operation+cost control. 1) Localized operation: The company has been deeply involved in localized operations in North America for nearly 20 years, which has strongly built the company's core competitiveness. Currently, it has laid out online and offline omni-channel marketing networks. Among them, Walmart stores have settled in more than 4,000 Walmart stores, and its own brands have established high brand awareness and loyalty in the North American market. 2) Self-developed and self-made cost control: The company's domestic hardware industry belt relies on the “Yongwu” hardware industry belt. Most of the raw materials can be purchased nearby, making it easy to reduce procurement costs. At the same time, self-development and self-development have a cost advantage. The self-made rate of core components is as high as 70%, which is not only conducive to controlling the quality of vehicle products, but also reducing production costs. 3) Category expansion: Guided by North American market demand, the company promised to invest in projects and overfunded investment in construction projects including annual production of 1 million smart electric vehicles, intelligent all-terrain vehicle manufacturing upgrade (additional annual production capacity 150,000 units), 40,000 high-displacement special vehicles, and 30,000 smart electric low-speed vehicles per year to open up new categories and new growth curves.

Strong category: The cost performance advantage is remarkable, and the basic market of old products is stable. 1) Electric scooters and electric balance scooters: Short-term European demand is weakening, North American micromobility is a trend, and ToC products are expected to continue to expand. The company's sales scale and market share in the North American market are gradually expanding with its outstanding product strength and cost performance ratio. Currently, the market share is high, and the sales scale is expected to remain stable in the future. 2) Small displacement all-terrain vehicles: All-terrain vehicles are widely used. ATV consumers are mainly young people, and the global ATV sales scale has remained stable. Previously, the company mainly used small-displacement ATVs, which won a large market share in the North American market with its cost performance advantage, and consolidated its position in the industry. 3) Off-road motorcycles: Global off-road motorcycle sales have resumed growth. Consumption is mainly in overseas markets, and the Chinese export market is highly concentrated. The company mainly focuses on low-emission fuel products and is actively preparing for the “oil to electricity” transformation. Since 2020, when focusing on the development of the smart electric low-speed vehicle field, compounded by factors such as insufficient production capacity, the company's off-road motorcycle sales scale has continued to shrink. As production capacity is further released, competitors are expected to continue to grow.

Emerging categories: Large displacement+electrification layout is accelerating, and the incremental contribution of new products supports future growth. 1) Electric bicycles: The European and American markets have broad development prospects. The European Union and the US are expected to have CAGR of 22.1% and 47.4% respectively in 2022-2025. Since China accounts for a relatively large export volume, the company covers North American channels through dual brand operations, and is expected to seize market share through cost performance advantages. The long-term annual shipment target is 100,000 vehicles. At an average price of 5,000 yuan, the annual shipment volume will reach 500 million yuan. (2) Electric golf carts: Community application and electrification of golf carts have become a trend. Chinese brands are superior to international brands in terms of product cost performance. The company can reuse existing production lines, brands and channels while steadily expanding the high-end dealer network. The construction project with an annual output of 30,000 smart electric low-speed vehicles has fully reached post-production, and is expected to increase revenue by more than 800 million yuan every year.) High displacement, UTV/SSV: In the future, the share of the high-displacement, UTV/SSV, and new energy segments will continue to increase. The company focuses on developing “large emissions,” “high-end,” “intelligence,” and “oil to electricity”. In 2023, 300 ATV mass production and sales, various ATV and go-kart products will achieve “oil to electricity” and launch, and other product line projects are progressing steadily according to plan. The annual production of 40,000 high-displacement special vehicle construction projects is expected to increase revenue by 10.1 billion yuan per year.

Profit forecast: The intelligent mobility industry is on a fast track of growth. The company's traditional categories have obvious cost performance advantages, leading the North American market share, and proposed the development direction of high volume+high-end, intelligence+oil to power, opening up new categories and new growth curves, and the revenue scale is expected to double. The company is expected to achieve operating income of 21.01/28.26/3.702 billion yuan in 2023-2025, with an operating income growth rate of 19.00%/28.80%/26.04%; achieving net profit of 2.94/3.55/447 million yuan, net profit growth rate of 42.47%/20.94%/25.66%, EPS of 2.69/3.25/4.09 yuan, and the current stock price corresponding PE of 22.16/18.32/14.58 times, covering the “buy” rating for the first time.

Risk warning: New product sales fall short of expectations, increased industry competition, freight and exchange rate fluctuations, etc.