More than five years have passed since the 2019 new national standard “Electric Bicycle Safety Technical Specification” entered the formal implementation stage, and the electric two-wheeler industry has already entered a mature stage of development. Right now, the revision of the new national standard is already in the process of being carried out. Earlier, at the end of May, relevant departments issued Revision No. 1 of the “Electric Bicycle Electrical Safety Requirements” to tighten key safety indicators and strengthen coordination of relevant standards; last month, five departments including the Ministry of Commerce issued the “Implementation Plan to Promote Trade-In of Electric Bicycles”, which clearly supports lead-acid battery two-wheelers and encourages consumers to trade in and choose “white list” companies.

A series of new policies are coming, and a new national standard is about to be revised. This may indicate that the electric two-wheeler industry will usher in a new round of reshuffle.

At the end of the mid-reporting season for listed companies, the financial reports of electric two-wheeler companies have basically been disclosed. Combined with financial reports, we can get a glimpse of the business conditions and new development trends of representative companies in the industry. Take Luyuan Group (02451), which is about to reach its full year of listing. In the first half of the year, the company achieved revenue of 2.534 billion yuan (RMB, same unit value), a slight increase of 3.2% over the previous year; net profit was 65.988 million yuan, an increase of about 9.6% over the previous year. Although core financial data continues to grow, it is important to note that Luyuan's net interest rate is only 2.6%, and weak profitability can still be described as a constant problem.

As an old player in the electric two-wheeler industry, the history of the Luyuan brand can even be traced back to the end of the last century. However, despite its leading position in the market, Luyuan Group does not seem to be able to improve its profitability through scale effects. The “ceiling” is at its peak, and the performance is also inelastic. This may explain why Luyuan Group's stock price has always fluctuated mainly in weak markets since listing, and there are no opportunities for trending upward trends. As of the close of trading on September 10, Luyuan Group's cumulative decline during the year reached 11.68%.

Poor profitability and insufficient fundamentals

Since the incremental demand spawned by the new national standard in 2019 gradually dissipated, domestic electric two-wheelers have gradually transitioned back to the stage of stock competition. From a microscopic perspective, changes in Luyuan Group's performance growth rate over the past few years reflect this.

Data show that in 2020-2022, Luyuan Group's revenue increased from 2.378 billion yuan to 4.783 billion yuan, with a compound annual growth rate of about 41.81% during the corresponding period; net profit increased from 0.04 billion yuan to 0.118 billion yuan, and the compound annual growth rate for the corresponding period was about 71.18%. According to information, at this stage, Luyuan Group actively adjusted its product development strategy, actively developed high-end products, launched new product models such as INNO 5, INNO 7, INNO9, S10, and Polar Shadow one after another, and promoted sales of new products through emerging channels such as crowdfunding and live streaming marketing, promoting simultaneous growth in product sales volume and price.

However, when Luyuan Group successfully entered the Hong Kong stock market in 2023 and reached a major milestone in the company's development history, the company's annual report “report card” showed a serious slowdown in the company's growth: this year, Luyuan's revenue was 5.083 billion yuan and net profit was 0.146 billion yuan. The year-on-year increases were 6.3% and 23.4%, respectively. The growth rates were all significantly reduced from the previous year.

The clock is turning back to this year. Although Luyuan Group is still launching new products at a high frequency, and the company launched more than 20 new products, including S90, Moda8, and Cola10 in the first six months, Luyuan Group's revenue and net profit growth did not pick up in the first half of the year. Instead, they shrunk to 3.2% and 9.6%, respectively. In particular, the revenue scale seemed to have stagnated.

It can be seen that in the face of increasingly fierce market competition, Luyuan Group, which has already accumulated a strong market position and brand effect in the electric two-wheeler industry, is unable to secure a fishing boat. In particular, looking at profit indicators, Luyuan's gross margin and net profit margin are only 12% and 2.6% respectively, and its weak profitability is clearly difficult to satisfy investors.

Moreover, although Luyuan Group claims to the outside world that it has always focused on technological innovation, the company invested a total of 91.969 million yuan in R&D in the first half of the year, which is still less than 100 million yuan. The corresponding R&D expenses rate is about 3.6%, which is not outstanding in the industry.

The industry is in a hurry to find a new balance between supply and demand. How can Luyuan not be left behind?

Going back in history, the 2019 new national standard accelerated the major reshuffle of the electric two-wheeler industry and had a profound impact on the standardized development of the industry and supply-side optimization.

Referring to the broad impact of the previous round of industry policies, some industry insiders believe that this round of policies is expected to continue to spawn supply-side product innovation. In this context, stepping up the design of new compliant and popular models and quickly reaching the market is clearly a top priority for manufacturers.

The Zhitong Finance App noticed that to anchor potential market opportunities after the revision of the new national standard, major manufacturers have begun a new round of technology competitions. Over the past few months, people including Emma, TaiLing, and No. 9 have launched new products one after another. It is worth mentioning that most of the prices of new products introduced by major brands this year are over 3,000 yuan, and more emphasis is placed on iterative updates of intelligent product functions than before.

During their time, Luyuan Group naturally needed to continue to invest more in technology to ensure that it was not left behind. In July of this year, Luyuan claimed that the company had made a breakthrough in digital battery technology independently developed by the company. According to reports, the technology uses a digital management system to instantly monitor and optimize battery performance through high-precision sensors and intelligent algorithms.

In addition to this, Luyuan Group is also vigorously upgrading and expanding the production capacity of its production base. According to a research report by Tianfeng Securities, Luyuan will maintain the pace of rapid expansion of production capacity over the next 3 years, and production capacity is expected to expand 3 times in 3 years by 2026.

However, whether the ambitious expansion plan will lay hidden dangers for Luyuan Group may also be worth paying attention to. After all, judging from the total market volume, the electric two-wheeler industry has entered a new stage of steady development, and future incremental market demand is probably limited. Also, on the supply side, leading manufacturers have all continued to expand production capacity in the past two years. Relevant agencies predict that the entire industry is currently seriously overcapacity.

Against the backdrop of limited demand and uncontrolled supply growth, I'm afraid whether Luyuan Group's large-scale expansion plan will allow consumers to pay a question mark; and even if you take a step back, Luyuan's incremental production capacity will eventually be digested by the market as desired, but whether the company can maintain its already meager profits in this process will surely be another big test.