According to the Zhongtong Finance APP, Debon Securities released a research report stating that with the release of the new Apple 16 model, the upgrade in AI performance brings strong charging demand. With this trend, it is expected that Apple (AAPL.US) will widely use steel shell batteries in its future product line, presenting higher requirements for battery life, energy density, and replaceability, all aspects of battery.

The iPhone 16 and 16 Plus are equipped with the A18 Bionic chip, while the Pro series adopts the more powerful A18 Pro chip, providing strong support for AI functions and also increasing the requirement for battery life.

The 16 series of batteries have higher energy density. Compared to the previous 15 series, the battery capacity of the standard version has increased from 3349mAh to 3561mAh, and the Pro Max version has increased from 4422mAh to 4747mAh. In July 2023, the European Union officially issued new battery regulations (EU) 2023/1542 concerning batteries and waste batteries, aiming to promote the development of the battery industry towards a more sustainable and environmentally friendly direction, also imposing requirements on the battery's detachability and replaceability. With this trend, it is expected that Apple will extensively use steel shell batteries in its future product line.

The upgrade in AI performance brings strong charging demand, and steel shell batteries may become a major trend.

With the first introduction of Apple Intelligence on the iPhone, future iPhone models will be equipped with a higher-performance main processor. The A18 chip, compared to the A16 chip of iPhone 15, has seen a 30% increase in CPU performance. To support the energy needs of high-performance hardware and AI functions, high-energy density batteries have become an inevitable choice. With the trend of using silicon-carbon anodes to increase the energy density of the battery cells, steel shell batteries have several advantages: 1) the surface is harder compared to aluminum-plastic film batteries, deforming less after impact and able to withstand higher expansion pressure, with less noticeable bulging due to internal gas formation in soft pouch cells. 2) Higher battery compartment utilization rate due to better metal surface hardness protection, eliminating the need for more 'safety distance'. In terms of layout, the entire surface that belongs to the negative pole of the metal shell battery can be considered together with PCBA wiring for the layout. 3) By using a steel shell with better thermal conductivity, the overall heat dissipation of the device will have a quicker and more uniform effect, relieving issues of poor heat dissipation. 4) The hard surface provides better protection, making the dismantling process safer, reducing the occurrence of deformation during installation, making it easier to disassemble and replace the battery. With the push from environmental compliance, technological requirements, and major manufacturers, the use of steel shell batteries is likely to be a major trend in the future.

The application trend of steel shell batteries is expected to drive significant growth in various aspects such as steel shell, cells, and PACK.

1)Steel Shell: The application of steel shell batteries promotes the increase in demand for steel shell materials, driving the growth of steel shell manufacturing companies' business, stimulating enterprises to expand production capacity, and improving the quality of surface treatment technology. 2)Cells: Apple's battery capacity continues to iteratively upgrade. By comparison, the latest iPhone 16 series today has a battery capacity of 4747mAh for the iPhone 16 Pro Max, a increase of over 3000mAh compared to the original iPhone. The improvement in cell energy density and battery capacity upgrade bring about an increase in the value of the cells. 3)PACK: The main components of the battery pack include battery modules, battery management systems (BMS), and the housing. With the increase in the value of steel shells and cells, the overall value of the end battery pack is expected to experience growth.

Investment advice

Bullish on the steel shell battery industry chain, it is likely to become a solution for future high-capacity batteries. Key focus areas: 1) Cells: Zhuhai Guanyu (688772.SH); 2) Steel Shell: Lingyi Itech (002600.SZ), Shenzhen Sunway Communication (300136.SZ), Shenzhen Everwin Precision Technology (300115.SZ); 3) PACK: Shenzhen Desay Battery Technology (000049.SZ), Sunwoda Electronic (300207.SZ).

Risk warning

Terminal sales below expectations; risks of technical route changes; risks of intensified industry competition.