The bank believes that the key to the future profitability difference of battery companies lies in the continuity of demand and incremental space (determining the level of production capacity utilization rate, the higher the rate, the smaller the difference), the degree of product differentiation (determining the price difference), and new technologies such as solid state batteries and high-voltage fast charging.
According to a report from Everbright Securities obtained by the Financial Intelligence APP, the lithium battery sector is currently at historically low valuations and at the bottom of the cycle. The industry's supply continues to shrink, financing is tight with insufficient expansion capacity, and the start-up rate may drive the profit cycle to hit bottom and rebound. From a cyclical perspective, the 2025 production capacity cycle is expected to rise, with most sectors expected to recover profits; the strong continuity of energy storage demand, the recovery of growth under European carbon emission constraints, is expected to drive 25% growth in lithium battery demand by 2025. The turning point for the lithium battery industry may arrive in 2025, and investors are advised to focus on leaders with excellent positioning and cost advantages in various sectors.
The main points of view of Everbright Securities are as follows:
1. Cyclical Perspective 2. Capacity Cycle: Continuous supply contraction. In 24H1, the lithium battery industry's capital expenditure was 64.6 billion yuan, a 20% decrease from 23H1, decreasing year-on-year for four quarters, showing an accelerating trend of contraction. The capital expenditure/depreciation and amortization ratio in 24H1 was 2.7, reaching a historical low. The industry's capital expenditure focus is shifting upstream. Limited expansion capability. Looking at the cash earning capabilities of each link, only top companies have expansion capabilities. Sales cash ratio in cathodes, electrolytes, and other links is negative. In the background of future subsidy and tightening financing, profitability quality and 'hematopoietic' ability are the foundation of expansion. Supply expansion capabilities are concentrated on leading companies, while differentiation within the battery sector is expanding. 3. Capacity Cycle Relay Inventory Cycle, Profit Emerging from the Bottom: Lithium price fluctuations have caused significant profit fluctuations in this cycle. Currently, the reduced impact of lithium prices is determined by production capacity utilization rate. The dominant profit recovery in 24H inventory cycle, 24H2 production capacity utilization rate continues to rise, and processing fees for iron lithium cathode top companies are expected to see a recovery. The 2025 production capacity cycle is expected to rise, with most sectors expecting profit recovery. 4. The battery cost curve is steeper. Under the background of low lithium prices, the impact of production capacity utilization rate on battery costs is dominant.
1) Capacity Cycle: Continued supply contraction. In 24H1, the lithium battery industry's capital expenditure was 64.6 billion yuan, a 20% decrease from 23H1, decreasing year-on-year for four quarters, showing an accelerating trend of contraction. The capital expenditure/depreciation and amortization ratio in 24H1 was 2.7, reaching a historical low. The industry's capital expenditure focus is shifting upstream. Limited expansion capability. Looking at the cash earning capabilities of each link, only top companies have expansion capabilities. Sales cash ratio in cathodes, electrolytes, and other links is negative. In the background of future subsidy and tightening financing, profitability quality and 'hematopoietic' ability are the foundation of expansion. Supply expansion capabilities are concentrated on leading companies, while differentiation within the battery sector is expanding.
2) Capacity Cycle Relay Inventory Cycle, Profit Emerging from the Bottom: Lithium price fluctuations have caused significant profit fluctuations in this cycle. Currently, the reduced impact of lithium prices is determined by production capacity utilization rate. The dominant profit recovery in 24H inventory cycle, 24H2 production capacity utilization rate continues to rise, and processing fees for iron lithium cathode top companies are expected to see a recovery. The 2025 production capacity cycle is expected to rise, with most sectors expecting profit recovery.
The battery cost curve is steeper. Against the backdrop of low lithium prices, the impact of production capacity utilization rate on battery costs is dominant.
The bank has found through cost modeling and sensitivity analysis that the current three-line battery companies are already losing cash costs, and the operating rate has a significant impact on the cost gap. During the industry downturn, the capacity utilization rate gap of the companies widened, and the cost curve became steeper; since Q2 2024, the capacity utilization rate has rebounded, and second-line companies have improved profitability. Also, due to economies of scale, the bank believes that the profit improvement is sustainable.
Looking ahead at the future trends of profit gaps in battery companies, the bank believes that the key lies in the sustainability and incremental space of demand (which determines the level of capacity utilization, the higher it is, the smaller the gap), the degree of product differentiation (which determines price differences), and new technologies such as solid-state batteries and high-voltage fast charging will determine the direction of competitive gaps.
Second, growth perspective.
It is expected that in the neutral scenario, the global lithium battery demand in 2024 and 2025 will be 1,228 and 1,531 GWh, with growth rates of 27% and 25%.
2024: Energy storage (67%) > China's electric vehicles (32%) > USA electric vehicles (10%) > Europe electric vehicles (0%).
2025: Energy storage (40%) > Europe electric vehicles (25%) > China's electric vehicles (22%) > USA electric vehicles (15%).
Demand expectations difference 1: Europe in 2025 carbon emissions assessment nodes, the bank estimates that when the year-on-year growth rates of new energy vehicle sales in Europe are approximately 25%, 40%, and 50%, the average carbon emissions values are higher than, close to, and exceed the target value. At that time, the penetration rates of new energy vehicles will be approximately 26%, 29%, and 32% respectively.
Demand expectations difference 2: The parity of light storage promotes the sustainability of energy storage. The significant decrease in LCOE of light storage in this round drives rapid growth in energy storage demand, and the elasticity in emerging markets such as Asia, Africa, and Latin America with relatively lower economic levels and higher sensitivity to economics is more apparent. Taking into account economic level, sunlight conditions, power structure, and electricity price levels, the bank believes that the demand for energy storage in emerging markets in Asia, Africa, and Latin America will remain strong.
The predictability of demand is relatively low due to the financial and overseas policy risks in Europe, making supply less likely to be a rigid constraint but more predictable. According to the supply-demand balance calculation, the excess in each link of the lithium battery will decrease by 25 years, and the capacity clearance is about to be completed.
Recommend focusing on: Contemporary Amperex Technology (300750.SZ), eve Energy Co.,Ltd. (300014.SZ), Cngr Advanced Material (300919.SZ), Shangtai Technology (001301.SZ), Hunan Yuneng (301358.SZ), Shenzhen Kedali Industry (002850.SZ), Shenzhen Dynanonic (300769.SZ).
Risk analysis: macroeconomic risks, lower-than-expected power demand in Europe, overseas trade protection, and policy risks, etc.
