Today, Zhìtōng Cáijīn APP learned that Soochow Securities released a research report stating that the global share of overseas battery factories has slightly decreased, and their profitability is relatively low. In the future, they will mainly focus on the North American market. However, Contemporary Amperex Technology (300750.SZ) continues to increase its global market share, maintaining stable profitability while possessing strong innovative genes and capabilities. In the future, it will break through the North American market through a technology licensing model. The overall technological progress of domestic battery factories is significant. Its products have strong cost advantages and accelerate the layout of overseas markets. It is expected to enter a period of harvest in 2026.

LG Energy Solution (LGES): Q2 profits declined compared to the previous quarter, slowing down the construction pace of its North American production capacity. LG Energy Solution, which was derived from LG Chemical, lays out high-end lines of soft packs and cylinders, with Tesla and Volkswagen its main customers. From January to May 2024, LGES installed 35.9 GWh worldwide, an increase of 5.6% YoY, with a market share of 12.6%, down 2.1 percentage points YoY. In Q2 2024, LGES's operating profit margin was 3.2%, down by 2.1 points QoQ and up 0.6 points YoY. After deducting the IRA subsidy of RMB 2.3 billion, the operating profit margin was -4.1%, down 8.1 points QoQ and 3.6 points YoY, mainly due to the impact of raw material costs and utilization rate decline.

Samsung SDI: signs Korea's largest energy storage order, performance expected to improve in the second half of the year. Samsung SDI is backed by South Korea's largest consortium and lays out high-end rectangular and cylindrical lines, with BMW, Riva, Volkswagen, and Stellatis its main customers. From January to May 2024, Samsung SDI installed 13.7 GWh worldwide, with a market share of 4.8%, up 0.1 points YoY. In Q2 2024, its operating profit was RMB 1.1 billion, down 3% QoQ and 46% YoY, with an operating profit margin of 5.4%, down 2.0 points QoQ and up 0.7 points YoY. Its performance was lower than market expectations due to the slowdown in demand for its power business, but it is expected to improve after the launch of the P6 in the second half of the year.

Panasonic: battery profitability has partially recovered and is expected to further improve in Q3. Panasonic is backed by Japan's third-largest consortium and lays out high-end cylindrical lines, with Tesla its main customer. From January to May 2024, Panasonic installed 13.4 GWh worldwide, a decrease of 27.2% YoY, with a market share of 4.7%, a decrease of 3.2 percentage points YoY. In Q2 2024, its battery operating profit was RMB 1 billion, down 27% QoQ but up 71% YoY, with an operating profit margin of 10.2%, down 2.2 points QoQ but up 5.3 points YoY. After deducting the IRA subsidy of RMB 0.8 billion, the operating profit margin was 2.2%, down 1.6 points QoQ but up 2.6 points YoY. It has partially recovered its profitability. The increase of SUVs that comply with the IRA subsidy program in Q3 and an expected recovery of production in North America are expected to lead to continued improvement in performance.

SK innovation: continuous expansion of losses in Q2, aiming to achieve profit and loss balance in Q4. SK innovation, which is derived from SK Group, lays out a high-end line of soft packs, with Hyundai and Mercedes as its main customers. From January to May 2024, SK innovation installed 13.9 GWh worldwide, up 4.9% YoY, with a market share of 4.9%, down 0.8 points YoY. Its operating loss was RMB 2.39 billion, offset by an increase in QoQ losses of 249.9% and a QoQ increase in Q2 operating subsidy of 190.6%. Its operating profit margin was -29.6%, down 26.1 points QoQ and 9.9 points YoY. In Q2 2024, its operating profit and loss balance is expected to be achieved in Q4.

Contemporary Amperex Technology: unit profitability exceeds expectations, pulling away from overseas battery factories. Contemporary Amperex Technology had a global market share of 37.5% from January to May 2024, an increase of 2.4 points YoY, with an overseas market share of 26.9%, surpassing LG Energy Solution to become the global leader. Its domestic market share is expected to recover to over 45% with quantity rebates and mass production of Shénxíng batteries in 2024, with its European market share slightly increasing to over 35% and its US market share remaining at 15%. Its global market share is expected to be stable and rise. In terms of profitability, the average price of Contemporary Amperex Technology's batteries was RMB 0.77/wh in Q1 2024, with a gross profit margin of 26.5%, slightly up QoQ. The gross profit per wh was 0.19 yuan, with a net profit per wh close to 0.1 yuan, and a net profit margin of 14.2%, leading overseas battery factories by nearly 15 points on average, reflecting the company's strong cost, technical, and scale advantages. Domestic battery prices have bottomed out, and overseas pricing models can be maintained. With the expected decrease in new production capacity from the second half of 2024 to 2025, the supply and demand in the industry will improve, and the leading companies' profitability will be sustainable.

Investment advice: Global market share of overseas battery factories has slightly decreased with relatively low profitability. The main focus in the future will be on the North American market, while Contemporary Amperex Technology's global market share continues to increase and maintain stable profitability, backed by strong innovation genes and capabilities. Subsequently, it will break through the North American market through a technology licensing model. The overall technical progress of domestic battery factories is significant, with products having a strong cost advantage and accelerating their layout in overseas markets. It is expected that the harvest period will be entered in 2026. The overall demand for lithium batteries is expected to increase at a compound annual growth rate of 20-25%, with demand for 1.1TWh in 2024, a 24% increase, and an increase to nearly 4TWh in 2030. The battery industry is stable with steep cost curves. Domestic prices have already fallen to a bottom, and with the increase in capacity utilization, profit is expected to reach a turning point. Therefore, Soochow is bullish on investment opportunities in the lithium battery sector and is bullish on the growth of China's lithium battery companies, first promoting Contemporary Amperex Technology followed by Eve Energy Co., Ltd. and Sunwoda Electronic.

Risk warning: Price competition exceeds market expectations, fluctuations in raw material prices, and a decline in investment growth.