According to the report by Dongwu Securities, domestic demand is strong, and China is still the most certain market for electric vehicles, and overseas demand is expected to accelerate by 2025. The capital expenditure of the main industry chain has begun to reduce. From the second half of 2024, the strong will become stronger, and small factories will gradually withdraw. The supply-demand pattern is improving, and the bottom of the industry's big cycle is clear. The industry chain has regained its growth potential. The team is optimistic about the Q3 peak season production is expected to continue to rise, Q1 profit has touched the bottom, Q2 prices are stable and some low-priced orders have recovered. Further, with improving utilization rate of production capacity and the reform of supply-side, slow production expansion, 25H2 price is expected to reverse.

In 2024, global electric vehicle sales increased by 20%, and lithium battery demand increased by 25-30% year-on-year. China is still the most certain market, and overseas demand is expected to accelerate by 2025. In 2024, domestic demand in China was strong, benefiting from the delivery of new models. It is expected that domestic (including exports) sales growth will reach 25% year-on-year to 11.8 million vehicles, slightly higher than the early expectation. In 2025, it is expected to maintain a growth rate of nearly 20%, reaching 14 million vehicles. In Europe, demand increased slightly by 5% to 3 million vehicles due to subsidy rollback. However, new vehicle cycle and carbon emissions assessment toughening in 2025 may significantly rebound the growth rate to 15%, almost 3.5 million vehicles. In the short term, the US is still affected by high interest rates, and the delivery of new vehicles from domestic automakers has been postponed. The growth rate in 2024 has been lowered to nearly 25%, with sales of 1.75 million vehicles. In the future, introducing the China supply chain may accelerate growth. Dongwu Securities expects that global electric vehicle sales will increase by 20% to nearly 16 million vehicles in 2024, and slightly accelerate to 23% to nearly 20 million vehicles in 2025. The corresponding demand for power-storage batteries in 2024-25 is estimated to increase by 31% and 23% respectively.

The capital expenditure of the main industry chain has begun to reduce. From the second half of 2024, the supply-demand pattern is expected to improve, and the bottom of the industry's big cycle will be clear. From Q2, the capital expenditure of the industry chain has tightened. Although the scale of ongoing projects is high, the growth has slowed down. At present, the reasonable profit level of second-tier manufacturers has basically fallen. The capacity utilization rate in the industry chain is divided, and due to the energy storage depletion and lithium carbonate stacking in June, the production volume has declined slightly, but the utilization rate of leading production capacity has basically reached 80%+. Among them, Yunnan Energy, Shangtai Technology, Beteray, and Zhongke are basically running at full capacity. The utilization rate of second and third-line production capacity has recovered to 60-70%. It is expected that the strong will become stronger in the second half of the year, and small factories will gradually withdraw. Considering the financing limitation and profitability bottom of the industry, the actual expansion of the industry is lower than expected. Effective production capacity in the industry is expected to increase by more than 10% in 2025, while the expected growth rate of production demand is still 20%, and the supply-demand status will be significantly improved.

Bullish on the Q3 peak season production, low-priced orders have recovered in Q2, and it is expected that the price will reverse with certainty by 2025. Q3 is a traditional peak season for lithium batteries, and domestic sales are still strong. In addition, industry inventory is at a reasonable level. Therefore, the industry chain of Q3 peak season production is expected to continue to rise. From the perspective of profitability, most of the material links fell to the bottom in Q1. Prices stabilized in Q2, and some low-priced orders have recovered. However, as the industry is still in the process of clearing inventory, prices are still at the bottom. With the improvement of the supply-demand pattern, it is expected that the price of 25H2 will reverse, and the industry's profit inflection point will be clear.

Investment advice: Bullish on the Q3 peak season production, low-priced orders have recovered in Q2, and further, with improving utilization rate of production capacity and the reform of supply-side, slow production expansion, 25H2 price is expected to reverse with certainty by 2025. The supply-demand pattern is expected to improve, and the bottom of the industry's big cycle is clear. From Q2, the capital expenditure of the industry chain has tightened. Although the scale of ongoing projects is high, the growth has slowed down. However, with the effective production capacity expected to increase by more than 10%, and the production demand expected growth rate still 20%, the supply-demand pattern will be significantly improved. The top picks are: Contemporary Amperex Technology, BYD Company Limited, EVE Energy Co., Ltd., Shenzhen Kedali Industry, Hunan Yunnan Energy, Shangtai Technology. At the same time, Sinomine Resource Group, Guangzhou Tinci Materials Technology, Jiangsu CNANO Technology Co., Ltd., Shanghai Putailai new energy technology, Weimai, Zhejiang Huayou Cobalt, Ningbo Ronbay new energy technology, Yongxing Special Materials Technology, Tianqi Lithium Corporation, Ganfenglithium, Yunnan Energy New Material, Shenzhen Senior Technology Material.

Risk reminder: Electric vehicle sales may not meet expectations, and competition may intensify.