Downstream demand is strong, and new trends in the industry are creating a new atmosphere for the sector

1.1 Requirement: Exchange old for new to stimulate domestic demand and strengthen the independent pattern

Global sales: Accumulated sales of nearly 80 million vehicles in November 2024, approaching the historical steady state range. According to Marklines data, global light vehicle sales in November 2024 were 8.18 million units, a year-on-year increase of 6.1%, with a cumulative total of 79.96 million units in the first 11 months, a year-on-year increase of 1.6%. Global sales have gradually recovered since 2022, and the current sales scale is close to 2021, returning to the historical steady state range.

Domestic sales: Low before 2024 and then high, with domestic demand contributing the main increase in the fourth quarter. According to data from the China Association of Automobile Manufacturers, the wholesale sales of passenger cars in November 2024 were 3.001 million units, a year-on-year increase of 15%. The cumulative sales in the first 11 months were 24.43 million units, a year-on-year increase of 5.2%. Among them, the sales growth in the first half of the year mainly benefited from the rapid growth of export scale, coupled with the successive launch of popular car models such as Wanjie, Xiaomi, BYD, etc. Starting from the second half of the year, with the gradual implementation of the trade in policy, domestic demand sales continued to exceed expectations, contributing to the main increase in industry sales.

In terms of new energy, the contribution of hybrid vehicles is mainly incremental throughout the year, with a rapid increase in penetration rate. In November 2024, the sales of new energy passenger cars reached 1.45 million units, with a year-on-year increase of 49% and a month on month increase of 6%. The penetration rate of new energy was 48%, with a year-on-year increase of 11 PCT and a month on month decrease of 1 PCT. Accumulated 10.76 million vehicles in the first 11 months, with a year-on-year increase of 37%, a penetration rate of 44%, and a year-on-year increase of 10 CPT. Among them: Pure electric: Sales in November reached 850000 units, with a year-on-year increase of 30% and a month on month increase of 8%. Pure electric penetration rate was 28%, with a year-on-year increase of 3 PCTs and a month on month balance. Accumulated 6.27 million vehicles in the first 11 months, a year-on-year increase of 15%, a penetration rate of 26%, and a year-on-year increase of 2 CPT. Hybrid: Sales of 600000 vehicles in November,+88% YoY,+3% MoM, hybrid penetration rate of 20%,+8 PCT YoY, -1 PCT MoM. Accumulated 4.49 million vehicles in the first 11 months, a year-on-year increase of 86%, a penetration rate of 18%, and a year-on-year increase of 8 CPT.

In July 2024, the National Development and Reform Commission and the Ministry of Finance jointly issued the 'Several Measures on Strengthening Support for Large scale Equipment Renewal and Consumer Goods Trade in', which significantly increased the amount of subsidies, and defined the arrangement of ultra long term treasury bond funds to support local passenger vehicle replacement and renewal. Later, local governments successively issued detailed rules, and the center of subsidies was generally around 10000 yuan (oil vehicles) and 15000 yuan (new energy), which had a strong incentive effect. According to data from the Ministry of Commerce, as of December 19th, there were nearly 2.7 million scrapped cars and over 3.1 million car replacements in China, totaling 5.8 million cars. With the implementation of the trade in policy, the industry's domestic demand and sales in Q4 2024 continue to exceed expectations, and both gasoline vehicles and new energy have significantly improved compared to the previous quarter. With the release of the new subsidy policy in July, the year-on-year growth rate of domestic demand in the industry peaked in July and continued to recover thereafter. According to the China Association of Automobile Manufacturers, domestic sales in October and November were+11%/+17% year-on-year and+11%/+13% month on month, respectively. Among them, oil vehicles were+18%/-8% year-on-year and+11%/+16% month on month, while new energy vehicles were+58%/+56% year-on-year and+11%/+10% month on month.

The independent market share in the domestic market is rapidly increasing. As of November 2024, the retail share of domestic brands has reached 64%, an increase of nearly 19 PCT compared to January 2022. The corresponding retail share of mainstream joint ventures has decreased from 41% at the beginning of 2022 to the current 25%. The market share of luxury brands can still be maintained in the 12-15% range before Q3 2024. With the new round of hot sales of domestic models in the second half of the year, the current market share has dropped to the 9-11% range. In the domestic market, as of H1 2024, the profitability of independent, new forces, and joint venture brands has begun to significantly differentiate: top independent, BYD, Geely, Great Wall and other car companies, with the accumulation of early electrification technology, are currently leading in sales scale. Against the backdrop of industry price wars, relying on strong economies of scale, they still achieve a profit margin level of 3-6%, which is comparable to the level of joint venture brands in 2021-2022; New energy brands such as Ideal Automobile and Sailis have successively crossed the breakeven line, while Xiaopeng Motors has reduced losses in the first three quarters; Joint venture brands, affected by a significant decline in sales share, coupled with rigid investment in electrification and intelligence, have significantly increased operational pressure. Among them, SAIC General Motors' 2024H1 has turned from profit to loss, while SAIC Volkswagen's 2024H1 profit margin is only 1.3%.

By car model: The main incremental models of domestic brands in 2024 are Xiaomi SU7, Xiaopeng MONA M03 P7+、 The BYD DM5 hybrid model, related models of Wanjie and Zhijie, and Ideal L6 have significantly driven the growth of the related supply chain. At present, the competitive landscape is dominated by domestic brands in the cost-effective market below 150000 yuan, with BYD having a clear advantage; The main market of 150000 to 350000 yuan is currently the most fiercely competitive price range. Independent brands and new forces are gradually eroding the share of joint ventures with their leading advantages in new energy and intelligent driving; With a price range of over 350000 yuan, the competitive landscape is relatively good, with joint ventures and BBAs still occupying the majority of the market share, while Huawei, Ideal, and BYD are also gradually increasing their market share.

1.2 Cost: Raw material and freight prices have decreased, resulting in exchange losses

Since 2024, the industry average discount rate has remained in the high range of 17.2% -18.6%, but there is a significant differentiation between gasoline vehicles and new energy vehicles: 1) Starting from Q3 2024, with the successive launch of key new cars and the continued exceeding of domestic demand sales driven by trade in programs, the discount rate has shown a trend of consolidation. 2) Oil vehicle models are affected by competition pressure from joint venture brands, Starting from Q2 2024, the discount rate has significantly increased from the 19-20% range in Q1 2024 to the current 23-25% range.

Cost: The fluctuation range of raw material and freight prices in 2024 is relatively small, and component companies can better digest it through price linkage mechanisms.

1) Raw materials: From 2020 to 2022, there was a significant increase in raw material prices, and at that time, enterprises had not yet established an effective price linkage mechanism, passively bearing the cost increase. In 2023, aluminum prices will increase by 7%, plastic city price index will decrease by 3%, and steel prices will decrease by 1%; In 2024, aluminum prices will increase by 2%, the Plastic City Price Index will increase by 7%, and steel prices will decrease by 18%. 2) Freight: The settlement price of INE consolidation index (European line) futures has increased by 79% from 2023/8/18 to 2023/12/29, and by 17% during 2024.

Exchange rate: In 2024, the euro to US dollar exchange rate is relatively flat, with the US dollar to Chinese yuan changing from 7.1 to 7.3 and the US dollar to peso changing from 17.0 to 20.8. The depreciation of the Mexican peso has a certain impact on the performance of overseas layout enterprises.