According to the report released by Central China Securities, the booming new energy car market is driving the improvement of the lithium battery sector's performance, maintaining an industry 'outperforming the market' investment rating. Global and domestic sales of new energy cars continue to grow, with China's new energy car industry transitioning from development driven by policies to product-driven. Looking ahead to 2025, the demand for lithium batteries will continue to rise, focusing on the power and energy storage sectors. With the release of production capacity and downstream demand growth rates, the overall industry chain prices remain volatile, and overall industry profitability is still not optimistic, with continued differentiation. It is recommended to focus on four key themes.

The main viewpoints of central China Securities are as follows:

The short-term performance of the lithium battery sector is under pressure, trending weaker than the CSI 300 Index.

In 2023, revenue and net income of the lithium battery sector increased by 6.65% and -33.61% respectively; in the first three quarters of 2024, they decreased by 5.21% and 26.56% respectively, with both revenue and net income showing negative growth, and significant differentiation in specific areas. Since 2024, the lithium battery index has risen by 7.67%, underperforming the CSI 300 Index by 8.90 percentage points.

Global and domestic sales of new energy cars continue to grow, with China's growth expected to exceed 20% in 2025.

From January to September 2024, global sales of new energy passenger vehicles reached 11.7266 million units, a year-on-year increase of 24.05%, with BYD maintaining its position as the global leader. From January to October 2024, China's sales of new energy cars reached 9.751 million units, a year-on-year increase of 34.85%, mainly due to changes in supply and demand, continued policy encouragement, and the transition of China's new energy car industry development from policy-driven to product-driven.

Our country's macro policies continue to encourage the development of new energy vehicles, with the charging infrastructure steadily improving. It is estimated that in 2024, our country's sales of new energy vehicles will reach approximately 12.6 million units, a year-on-year increase of 33.36%; in 2025, it will be around 15.4 million units, accounting for about 50%.

Sector performance is expected to resume growth.

The growth of lithium batteries mainly focuses on power and energy storage. The shipment volume of lithium batteries is expected to continue to grow. From January to September 2024, the global installed capacity of power batteries reached 599.0GWh, a year-on-year increase of 23.40%. Among the top 10, Chinese power battery companies accounted for 68.05%. From January to October 2024, China's production of power and other batteries reached 847.50GWh, a year-on-year increase of 38.30%.

Looking ahead to 2025, the demand for lithium batteries is expected to continue growing, with a focus on the power and energy storage sectors. Considering capacity release and downstream demand growth rate, the industry chain prices will mainly fluctuate. Overall industry profitability is still not optimistic, and differentiation will continue. Overall, sector performance is expected to be under pressure in 2024, with performance recovering in 2025, but with increased differentiation.

Industry ratings and investment themes.

Based on industry policies, industry development prospects, performance growth expectations, and valuation levels, maintain an investment rating of "outperforming the market" for the industry. Taking into account the competitive characteristics of China's lithium battery industry, industry chain price trends, as well as the specific characteristics and trends of sub-sectors and industry development, it is recommended to focus on investment themes including:

First, overall pressure on industry chain prices, especially upstream raw material prices, downstream lithium battery companies will relatively benefit, focusing on enterprises with technological and scale advantages;

Second, the proportion of installed capacity of lithium iron phosphate batteries continues to increase, companies with technological advantages in the lithium iron phosphate sub-sector will emerge victorious;

The third is the advantage enterprise with a growing market share in the sub-sectors of lithium battery key materials, focusing on symbols with cost advantages;

The fourth is the thematic investment opportunity with solid state battery progress exceeding expectations and the sales of new energy vehicle startups exceeding expectations.

Risk warning: Macro-economic downturn exceeds expectations domestically and internationally; New energy vehicle sales fall short of expectations; Industry policy enforcement falls short of expectations; Industry competition intensifies; Sub-sector prices fluctuate significantly; Global industry chain supply chain is uncertain.