According to the Zhito Finance APP, China Merchants published a Research Report stating that due to regulatory policies, the domestic Electric Machine two-wheeler Industry will experience a reshuffle in 2024. In the future, the market capacity for high-end Electric Machines costing over 3,500 yuan will remain above 15 million units, with factors such as youthfulness, intelligence, playfulness, and government subsidies further boosting the structural upgrade in the Electric Machine two-wheeler Industry. Currently, regulation of supply and demand is promoting vertical integration across the Industry; the electrification of motorcycles is gaining momentum, and there is vast potential for breakthroughs overseas.

The main points of China Merchants Securities are as follows:

Review: The competition in the Electric Machine two-wheeler Industry in 2024 will show a K-shaped differentiation.

Due to regulatory policies, the domestic Electric Machine two-wheeler Industry will experience a reshuffle in 2024. The high-end two-wheeler representative, Ninebot, has performed excellently, with product structure adjustments increasing the proportion of lead-acid models, which has pushed prices downwards. Rapid penetration into channel stores and New Retail O2O marketing has empowered offline strategies, achieving a dimensionality reduction attack strategy for brand high momentum. Looking ahead, the market capacity for high-end Electric Machines costing over 3,500 yuan will remain above 15 million units (Frost & Sullivan), and factors such as youthfulness, intelligence, playfulness, and government subsidies will further stimulate structural upgrades in the Electric Machine two-wheeler Industry.

Supply Chain: Regulation of supply and demand is promoting vertical integration across the Industry.

The upstream components of electric bicycles, such as Battery, Electric Machine, controllers, and chargers, are relatively fragmented, while downstream brand concentration is high and substantial. This round of regulation focuses on product requirements, increases production thresholds, raises qualification for white lists, and mandates vehicle information, anti-tampering requirements, and production processes aimed at promoting vertical integration and improving the self-manufacturing rate of core components.

Leading companies like YADEA have the highest degree of integration in the Industry Chain; Aima, after completing Electric Machine self-production (in 2022), investing in Battery companies, and self-manufacturing controllers (in 2023), has seen the purchasing average price of important components decline year by year; more importantly, based on self-research and self-manufacturing of Hardware, it can increase product added value through smart systems. Ninebot Limited continues to iterate and release smart systems such as Ridey Go (released in 2019, upgraded in 2022) + smart control system RideyFUN (2021) + Ridey Long with extended range (2022) + smart lead-acid system Ridey POWER (2024), achieving vehicle OTA wireless upgrades for users through smart apps, continuously creating subscription value for users and significantly enhancing profit performance.

Growth point: The electrification of motorcycles is booming, and there is broad room for development overseas.

Global motorcycle sales reached 50 million units, with China and India tied for the first tier, annual sales fluctuating between 15-20 million units. The Southeast Asian market remains stable at around 15 million units, indicating a large market capacity. In terms of electrification, currently, only the Chinese market has surpassed 4.81 million units, with a penetration rate leading globally at nearly 28%; Vietnam and India have penetration rates of 10% and 5% respectively, while markets in Indonesia and Thailand are under 1%. Electric motorcycles are more economical and better suited for city and short-distance travel, while leisure motorcycles, due to the pursuit of speed and power in driving, are more suitable for gas motorcycles. Considering that domestic motorcycles with a small displacement of 150cc and below account for as much as 85%, there is ample room for replacement.

Investment recommendation:

1) Ninebot Limited (689009.SH): New businesses are beginning to scale up after several years of cultivation, entering an accelerated growth phase, and the company's various profit margins will also enter an acceleration phase, heralding an expansion period for valuations;

2) YADEA (01585): With a long-term strategic vision, it leads in the layout of core links in the upstream supply chain, and sodium batteries are leading the technological transformation in the Industry. Bullish outlook on the company benefiting from subsidy implementation and new regulations next year, along with greater resilience under this year's low base and extremely low inventory;

3) Aima Technology (603529.SH): New regulations in the Industry are optimizing the landscape, stimulating demand through trade-ins, and the company's production capacity is being supplemented with significant potential for channel expansion, likely forming α and β resonance;

4) Niu Technologies (NIU.US): Starting in 2024, the company will significantly increase its layout in lead-acid vehicles, remaining an industry leader in smart technology. The online conversion rate of the O2O model continues to improve, with rapid expansion of stores, which is expected to drive a turnaround in the company's operational difficulties.

Risk warning: The effect of national subsidies on consumer spending is less than expected; domestic policies are highly regulated; overseas expansion is below expectations.