According to the smart finance APP, CITIC SEC released a Research Report stating that there is a high probability that the stimulus policies for the auto industry will continue next year, with signs of emerging from internal competition. The sustained growth of exports, accelerated penetration of autonomous driving, and humanoid robots are expected to be the most notable industry trends for next year, providing dual drivers of performance and valuation for the auto industry. The bank focuses its recommendations on: 1) Whole vehicle and dealer sector: a) Mainstream market model cycle is strong; b) Model cycle is pushing upwards for high-end and ultra-high-end Huawei smart selected manufacturers; c) Undervalued symbols that are reversing from difficulties; 2) Parts sector: a) Parts going overseas; b) Robot industry chain; c) Auto intelligence industry chain; 3) Leading companies in the commercial vehicle sector with upward cycles and long-term profit potential; 4) Two-wheeler leaders accelerating product upgrades and market expansion.

The main points of the Citic Securities research report are as follows:

The probability of continued stimulus policies is high, and signs of emerging from internal competition have appeared.

According to data from the China Association of Automobile Manufacturers, from January to November 2024, the sales volume of the auto industry in China reached 27.94 million vehicles (up 3.7% year-on-year); among these, the sales volume of the passenger vehicle industry was 24.43 million vehicles (up 5.2%), with sales of New energy passenger vehicles at 10.73 million vehicles (up 36.2%), and a penetration rate of 43.9%. So far in 2024, the auto industry has performed well among various consumer goods, primarily due to strong exports and the "old-for-new" subsidy policy starting from July 2024. The bank expects that this year the fiscal support for the "old-for-new" program will total approximately 89 billion yuan, corresponding to 6.2 million applications for central and local subsidies. 2025 is likely to be a year of strong stimulus policies, and the current "old-for-new" policy is expected to continue next year. Under this assumption, the bank estimates that total automobile sales in China will reach 33.44 million vehicles in 2025 (up 6.4% year-on-year), with New energy passenger vehicles sales reaching 15.86 million vehicles.

In addition, the bank continues to be bullish on the overseas opportunities for the auto industry, expecting overseas sales to reach 6.75 million vehicles in 2025 (up 15.3% year-on-year). The pressure from internal competition in the auto industry remains significant; the average gross margin of the sector based on the National Bureau of Statistics in Q3 2024 is 12.2%, the lowest historical value since records began. However, the bank believes that the internal competition is not a long-term trend, and the most intense fighting among independent car companies will likely coincide with the disappearance of profits from leading joint venture brands, a phenomenon that has already begun to surface in 2024, showing signs of emerging from internal competition.

Autonomous driving: Accelerating intelligent driving development end-to-end, with explosive growth expected in intelligent driving demand by 2025.

Starting from March 2024, Tesla will gradually begin a large-scale PUSH of the end-to-end FSD V12 to users in North America. This version has higher performance limits, a more human-like driving style, and faster model convergence speeds, further enhancing performance. The firm believes that the application of the end-to-end model signifies that technological development has entered deep waters, and the future development logic of the industry will increasingly resemble that of the AI Industry. Currently, domestic companies led by Huawei, Xiaopeng, and Li Xiang are actively following up on end-to-end intelligent driving solutions. The firm expects the penetration rate of domestic L2+ level intelligent driving to rapidly increase to 26% by 2025, with Tesla's FSD entry into China next year becoming another significant moment for the industry. With the gradual application of technologies such as end-to-end and large models, the firm anticipates a substantial increase in the parameter count of intelligent driving algorithms and demand for computing power. The upgrade of intelligent driving chip computing power in 2025 will become an important driving force for the industry, and leading domestic intelligent driving manufacturers will also engage in independent chip research and development to ensure supply chain security.

Parts: The acceleration of intelligent evolution continues, with innovations like humanoid robots and eVTOLs emerging continuously.

Over the past year, the penetration rates of high-level autonomous driving, intelligent cockpits, and intelligent chassis have continued to rise, driving high growth in revenue for the intelligent Industry Chain. Intelligent configurations are an important representation of the product strength of independent brands and a sign of the increased global competitiveness of the industry chain. Additionally, since Tesla entered the robot industry chain, many excellent companies in the auto parts industry chain have extended their business to the field of humanoid robots, such as frame-less torque motors, Harmonic/planetary reducers, and planetary roller lead screws, which all originate from the auto parts industry but have seen a clear upgrade in their functionality and value in the robot sector. The firm is Bullish on the key role that Chinese auto parts companies will play in the humanoid robot field. The same industrial logic also applies to sectors like low-altitude economy, and the firm expects that these new productive forces will provide broader growth opportunities for Tier-1 suppliers that master key technologies.

Commercial Vehicles: High dividends + overseas expansion, a combination of value growth and defensive strategies, Bullish on the commercial vehicle sector achieving excess returns throughout 2025.

According to the China Association of Automobile Manufacturers, the cumulative sales of the commercial vehicle industry from January to November 2024 reached 3.505 million units, down 4.4% year-on-year, with heavy truck sales down 4.8% year-on-year. Since 2024, bus data has continued to recover, but the recovery of truck domestic demand has not met expectations. The firm believes that the lackluster results of the old-for-new truck policy are mainly related to the currently depressed freight rates and poor working hours. Although domestic demand is weak, exports are strong: according to the General Administration of Customs, from January to October 2024, China's heavy truck export sales reached 0.244 million units, up 4% year-on-year; exports of China's medium and large buses totaled 0.036 million units, up 40% year-on-year. The firm believes that Chinese commercial vehicle companies have begun to see initial results from their overseas layouts, as their strengths in manufacturing, quality control, and after-sales service are gradually becoming evident, and they already possess a leading advantage in the new energy vehicle sector. Chinese commercial vehicle companies possess global competitiveness, with vast growth potential in exports, and the profit elasticity potential of leading companies is immense due to significantly higher export profitability compared to domestic sales.

Two-wheeled Vehicles and Motorcycles: Electric two-wheelers benefit from new national standards, and the buoyancy of the motorcycle market is sustainable.

In the early stages before the implementation of the new national standards, industry sales were affected, but the resilience of leading companies' profitability remains. The trend of increasing single-vehicle Net income for leading companies has not changed. The firm expects the new national standards to be implemented by the end of 2024, with old standard models expected to stop production by June 2025 and sales by September 2025, benefiting leading companies significantly after the new standards are enforced. Benefiting from the clearance of foreign brands and product upgrades, according to the China Motorcycle Chamber of Commerce, from January to October 2024, the domestic market growth rate for large-displacement motorcycles approached 40%. The firm expects the industry to continue to push for displacement upgrades next year. It is anticipated that over the next 3-5 years, motorcycle sales in overseas markets will continue to grow, while the domestic market for motorcycles is expected to double alongside ongoing displacement upgrades.

Risk factors:

The risks of escalating international trade frictions; potential supply risks in the Industry Chain due to de-globalization trends; risks of domestic macroeconomic performance falling short of expectations; risks from insufficient overseas demand, inadequate domestic Consumer spending, or government investment below expectations; risks related to industry policies not meeting expectations; risks of chip supply leading to vehicle shipment volumes falling short of expectations; risks of significant price increases in key raw materials; risks of automatic driving accidents causing substantial declines in valuations of related enterprises; risks of insufficient management of data privacy in Smart Automobiles; and risks of declining market confidence in the development prospects of the New energy Fund or Asia Vets.