Source: Tian Tian Fund
The new energy vehicle industry chain has been in the spotlight recently. However, due to the high complexity of the industry's technology and the involvement of multiple sub-industries, there are significant differences in valuation levels. Therefore, it is necessary to understand the layout of the new energy vehicle industry chain before investing in order to have a deeper understanding of investment targets.
The main components of the new energy vehicle industry chain include upstream lithium battery and motor raw materials, midstream components such as motors, electronic controls, and batteries, as well as downstream vehicles, charging stations, and operations.
Currently, there are three main new energy vehicle indexes: the CSI New Energy Vehicles Index (CS New Energy Vehicle), the CSI New Energy Vehicle Industry Index (New Energy Vehicle), and the CSI New Energy Vehicle Index.
The CS New Energy Vehicle Index focuses on the upstream and midstream of the industry, selecting 25 leading companies in the new energy vehicle industry chain, with relatively balanced weight ratios. The following funds track the CS New Energy Vehicle Index: GF CSI New Energy Vehicle ETF (161028), Dongcai New Energy Vehicle Fund (Class A: 010805, Class C: 010806), and Guotai CSI New Energy Vehicle ETF (Class A: 009067, Class C: 009068).
The New Energy Vehicle Index has relatively balanced representation of the upstream, midstream, and downstream sectors. It consists of 54 component stocks, which are relatively diversified, with significant differences in weight ratios. The following fund tracks the New Energy Vehicle Index: Huatai CSI New Energy Vehicle ETF (Class A: 501057, Class C: 501058).
The Guotai New Energy Vehicle Index also has relatively balanced representation of the upstream, midstream, and downstream sectors. The following fund tracks the Guotai New Energy Vehicle Index: Guotai Guozi New Energy Vehicle Index Fund (160225).
If you are optimistic about the upstream and midstream of the new energy vehicle industry chain, it is recommended to choose the CS New Energy Vehicle Index. If you want to invest in the entire industry chain, you can choose the other two indexes.
The rapid growth of the new energy vehicle industry directly boosts the prosperity of related industry chains.
The new energy vehicle industry chain is long, with high technological complexity and barriers. For ordinary investors, even if they are optimistic about the new energy vehicle sector, it can be difficult to know where to start due to the numerous listed companies.
The CSI New Energy Industry Index covers various sectors from upstream materials and equipment to midstream batteries and automotive components, and downstream vehicles and charging stations, achieving full coverage of the new energy vehicle industry chain. The following sections will introduce the industry chain from downstream to upstream.
I. Downstream Vehicles and Services
1. New Energy Vehicle Manufacturers
Domestic companies related to new energy vehicle manufacturing can be divided into two categories: those primarily focused on new energy vehicles and those that are traditional fuel vehicle manufacturers with a certain proportion of new energy vehicles. From the perspective of market space and growth potential, companies primarily focused on new energy vehicles may have more investment value, and the overall prosperity is expected to continue to improve in the next 3-5 years. The component stocks of the CS New Energy Vehicle Index include BYD, Yutong Bus, BAIC BluePark, and other companies that are primarily engaged in pure electric vehicles. In particular, BYD is expected to have an upward trend in its vehicle cycle with the launch of its fourth-generation plug-in hybrid DM-i platform and new forward-looking e-platform in 2021.
2. Charging Stations
Currently, there are approximately 5 million new energy vehicles in China, with 1.5 million charging stations. The ratio of vehicles to charging stations is 3.5:1, with only 660,000 public charging stations. On one hand, the rapid increase in the number of new energy vehicles will stimulate the demand for charging stations. It is estimated that by 2025, the number of new energy vehicles in China will reach 23 million. On the other hand, there is still room for the ratio of vehicles to charging stations to decrease. To achieve a ratio of 1:1 by 2025, an additional 21.5 million charging stations need to be built, indicating a huge gap. The construction of public charging stations has been included in the scope of new infrastructure. TGOOD, a component stock of the CSI New Energy Vehicle Index, is a leading provider of public charging stations in China, with 150,000 stations, accounting for approximately 29% of the market. There is still significant room for growth in the next few years.
II. Midstream Components
1. Electric Vehicle Components
The core technology of new energy vehicles, which differentiates them from traditional vehicles, is the "three-electric system," which includes the motor, power battery, and electronic control. Both the motor and electronic control belong to the category of electric vehicle components. With the transition from fuel vehicles to electric vehicles, there has been a comprehensive transformation of automotive components. Currently, domestic new energy vehicles have a high degree of self-sufficiency, and the industry chain spans the upstream, midstream, and downstream sectors. Domestic manufacturers have the opportunity to surpass overseas automotive component suppliers and enter the supply chains of mainstream electric vehicle manufacturers, gradually occupying a larger share. Mainstream domestic manufacturers such as Huichuan Technology and Jusheng Electronics are leading companies in the fields of motor control and power management systems, and they are also component stocks of the CSI New Energy Vehicle Industry Index.
2. Power Batteries
In 2020, the demand for power batteries corresponding to new energy vehicles was weak due to the impact of the pandemic. However, it is expected that the domestic and international demand will maintain high growth in 2021. It is estimated that the domestic and international sales of new energy vehicles in 2021 will reach 1.9 million and 2.6 million units, respectively, corresponding to a demand for power batteries of 95 GWh and 115 GWh, with year-on-year growth rates of 45% and 70%. Domestic companies have strong global competitiveness in the field of power batteries. Leading companies such as CATL provide batteries to domestic Tesla, new energy vehicle startups, and joint venture automakers. CATL has maintained a global market share of 23%-25% over the past three years, ranking among the top two globally. It is expected to remain the global leader in terms of shipment scale in 2021. The CSI New Energy Vehicle Industry Index includes component stocks such as CATL, Guoxuan High-Tech, and EVE Energy, which are involved in power batteries and are worth long-term attention.
3. Lithium Battery Equipment
Lithium battery equipment can be divided into three stages: front-end, midstream, and back-end. There are various types of equipment, and the main driving factors are the expansion and upgrading needs of power battery factories. Recently, companies such as CATL, BYD, and Guoxuan High-Tech have actively expanded their production capacity, significantly improving the demand for lithium battery equipment due to the increased prosperity of power batteries. With the continuous evolution of lithium battery technology, the elimination of outdated production capacity is accelerating, and the demand for equipment replacement should not be ignored. The pattern of the lithium battery equipment industry is becoming clearer, with large manufacturers basically establishing themselves as the main suppliers of the three-stage equipment, enjoying significant production capacity advantages. For example, Xinda Intelligent, a leading lithium battery equipment company, is a major supplier to CATL, and Hangke Technology's major customers include BYD and Guoxuan High-Tech. The orders for the next two years are gradually being released, and the performance is expected to accelerate growth. The CSI New Energy Vehicle Industry Index includes these two leading lithium battery equipment companies.
4. Battery Materials
From batteries to battery materials, power battery materials mainly include positive electrode materials, negative electrode materials, electrolytes, and separators. Among them, the positive electrode accounts for about 30% of the total cost of the battery. Domestic battery material companies have gradually entered the overseas supply chains over the past two years. The leading companies in each segment have gradually entered the supply chains of LG batteries, and this year, the SK supply chain will also see a gradual increase in volume. The CSI New Energy Vehicle Industry Index includes leading companies in various segments of battery materials: positive electrode materials - Do-Fluoride, Dehong Nano, and Rongbai Technology; negative electrode materials - Putailai and Jiayuan Technology; electrolytes - Tinci Materials and Xinzhoubang; separators - Enjie and Xingyuan Materials. These leading companies have the ability to supply the global industry chain.
III. Upstream Resources
The upstream resources of new energy vehicles include various categories, mainly lithium and cobalt mines. Lithium accounts for about 6% of the cost of battery modules, while cobalt accounts for about 3%-7%. The increased demand for lithium batteries further enhances the market space for upstream resource companies. The CSI New Energy Vehicle Industry Index includes several leading upstream resource companies: Ganfeng Lithium (lithium), GEM (upstream resource recycling and utilization), and Hanrui Cobalt (cobalt).
How to Capture Investment Opportunities in the Entire New Energy Vehicle Industry Chain?
The market space of the new energy vehicle and related industry chains is huge, and their growth prospects are certain. The overall industry prosperity is expected to continue to improve in the next 3-5 years. Currently, leading companies in various sub-industries in China have strong global competitiveness, especially in the midstream sector, such as the field of power batteries and materials, where they have the opportunity to surpass traditional automotive component suppliers and gradually enter the supply chains of mainstream electric vehicle manufacturers. The main investment logic in this field is to select leading companies in the industry chain, especially in the field of power batteries.
The static valuation of the new energy vehicle sector is currently high, which may cause concerns among investors. The high valuation is due to the scarcity of high-quality assets in this prosperous sector and the clear growth potential, which leads to a certain valuation premium in the market. In the future, based on the growth expectations of leading companies in the sector, the performance in 2021 is expected to continue to improve, and the stock prices will be driven by performance. The outlook for the new energy vehicle sector and related industry chains in 2021 remains positive. Investors can consider using index funds to allocate their investments.
Author's note: The New Energy Vehicle ETF (515030) can also be a good investment target.