Ceramic bearings are important new mechanical basic parts and have obvious advantages over traditional bearings. Ceramic bearings use ceramics as rolling bearing materials. They have excellent characteristics of light weight/high temperature/corrosion/non-magnetic/insulation/high rigidity, and can be used in many special situations where traditional bearings cannot meet the requirements, such as high speed/high temperature/corrosive media. In recent years, benefiting from the accelerated development of the NEV and wind power industries, the market space for ceramic bearing balls has continued to expand. According to IMARC, the global market for ceramic ball bearings will reach US$1.904 billion by 2028, with a CAGR of approximately 8.18% for the period 2023-2028.

Ceramic rolling elements are the core components of ceramic bearings, and the downstream field continues to expand. Compared with traditional bearing steels, precision ceramic balls have excellent comprehensive properties such as low density, high hardness, high elastic modulus (high stiffness), wear resistance, low thermal expansion coefficient, good thermal stability and chemical stability, insulation, and non-magnetism.

Silicon nitride (Si3N4) ceramic balls have become the most widely used variety due to their excellent comprehensive properties, and have been very successful in the application of ceramic ball bearings. At present, ceramic balls have been widely used in many fields such as aerospace, military, petroleum, chemical, and high-speed precision machinery. According to the official account of China Powder Network, the global silicon nitride ceramic bearing ball market reached US$660 million in 2022, an increase of 8.9% over the previous year.

The 800V platform has gradually become the mainstream solution for electric vehicles, and the ceramic bearing market has huge potential. As of November 2023, more than 60 800V high-voltage platform electric vehicle models have been released on the market, and the 800V platform architecture is expected to gradually become the mainstream choice for new energy vehicles in the future. 800V high voltage systems usually use SiC inverters to increase the power supply frequency, increase the motor speed, reduce torque at the same power, and reduce size.

In the 800V architecture, the rotor/motor shaft/bearing forms a closed circuit. The bearing ball is in point contact with the inner surface of the raceway. If the shaft voltage is too high, it is easy to break through the oil film to form a circuit, and shaft current causes bearing corrosion.

The car company applied the 800V platform architecture to once again improve the high speed, corrosion resistance, and insulation of the motor. Car companies such as Tesla, Audi, and Zhiji have taken the lead in using ceramic bearing solutions in motors. With the spread of fast charging technology, large-scale applications of SiC inverters in 800V high voltage systems will exacerbate the occurrence of electrical corrosion. Ceramic bearings may become the best choice to solve electric corrosion in bearings, and there is great potential to replace traditional bearings in the future.

The company is steadily promoting mass production of ceramic balls and is expected to lead the way to domestic replacement. (1) In September 2022, the company issued a foreign investment announcement, and plans to invest 100 million yuan to establish a wholly-owned subsidiary to enter the field of ceramic rolling elements; (2) In May 2023, the company successfully held a high-precision ceramic ball project commissioning ceremony; (3) In October 2023, the company updated the progress of ceramic balls. The company cooperated with the Chinese Academy of Sciences to accelerate the development of ceramic balls, and built 2 intelligent R&D production lines for G3 and G5 grade ceramic balls and 73 industrial production lines. It is expected that the production capacity will reach 1 billion grains by the time the project is completed in 2025 The largest high-tech industrial base in China with a full value chain of high-end ceramic balls. (4) In January 2024, Lixing Mexico Precision Co., Ltd. and SKF Monterey Plant formally signed a 5-year strategic contract. The contract agreed that the two parties would carry out extensive and in-depth strategic cooperation on products such as rollers/steel balls/ceramic balls. The application areas covered all application scenarios in the North American market, from general industry, commercial vehicles to new energy passenger vehicles. The Lexar Monterey plant is expected to be completed and put into operation in 25Q1. It mainly produces full-size steel ball/roller/ceramic ball products of various specifications, serving local business in the US and improving the layout of LiXing's global industrial chain. The company continues to steadily advance the mass production process of ceramic rolling elements, and is expected to lead the industry to localize the replacement of ceramic rolling elements.

Investment advice: The company is a leader in the domestic rolling element industry. It is actively increasing high-end categories such as ceramic rolling elements, and is expected to lead the industry to achieve localized replacement. Considering the company's leading manufacturing capacity and huge room for localization replacement, the downstream NEV industry's demand for ceramic rolling elements is expected to continue to rise at an accelerated pace, compounding the boom in high-speed rail, wind power and other industries, we expect the company to maintain good growth in the future. The company is expected to achieve net profit of 0.7/1.4/260 million yuan in 2023-2025, corresponding to PE of 47/25/13 times, maintaining an “increase in holdings” rating.

Risk warning: High-speed rail roller tests fall short of expectations, penetration rate of ceramic rolling elements falls short of expectations, risk of trade policy changes, etc.