According to the Zhitong Finance APP, China Merchants has released Research Reports stating that due to regulatory policies, the domestic Electric Machine two-wheeler Industry will undergo a reshuffle in 2024. In the future, the market capacity for high-end Electric Machine two-wheelers priced above 3,500 yuan will remain over 15 million units, with youthfulness, intelligence, recreational attributes, and national subsidies further promoting structural upgrades in the Electric Machine two-wheeler Industry. Currently, the regulation of two-wheeled Electric Machine vehicles is working simultaneously on supply and demand, driving vertical integration in the Industry; the electrification of motorcycles is just beginning, with broad opportunities overseas.

The main points of China Merchants Securities are as follows:

Recap: The competition in the Electric Machine two-wheeler Industry in 2024 shows a K-type differentiation.

Due to regulatory policies, the domestic Electric Machine two-wheeler Industry will undergo a reshuffle in 2024. High-end two-wheeler representative Ninebot Limited has performed exceptionally well, with adjustments in product structure increasing the proportion of lead-acid models pushing prices lower, rapid expansion of distribution channels, and New Retail O2O marketing empowering offline strategies, achieving a brand high-energy dimensional reduction strategy. Looking forward, the market capacity for high-end Electric Machine two-wheelers priced above 3,500 yuan will remain over 15 million units (Frost & Sullivan), with youthfulness, intelligence, recreational attributes, and national subsidies further promoting structural upgrades in the Electric Machine two-wheeler Industry.

Supply Chain: Regulatory policies simultaneously addressing supply and demand are driving vertical integration in the Industry.

In the upstream of electric bicycles, the Battery, Electric Machine, controllers, and chargers are relatively scattered, while downstream brand concentration is high. The current round of regulation focuses on product requirements, production thresholds, and increasing entry barriers through white list qualifications, as well as vehicle informatization, anti-tampering requirements, and production processes, all pointing to vertical integration and improving the self-sufficiency rate of core components.

The leading company YADEA has the highest level of integration in the Industry Chain; AIMA, after completing in-house production of Electric Machine (2022), investing in Battery companies, and in-house production of controllers (2023), has seen the average purchase price of important components decline year by year; more importantly, based on self-researched and self-manufactured Hardware, it can enhance product added value through intelligent systems; Ninebot has continuously iterated and released the intelligent system Ridey Go (released in 2019, upgraded in 2022) + intelligent control system RideyFUN (2021) + Ridey Long long-lasting battery (2022) + intelligent lead-acid system Ridey POWER (2024), achieving whole-vehicle OTA wireless upgrades for users through a smart APP, continually creating user subscription fee value, significantly improving profitability.

Growth point: The electrification of motorcycles is rising rapidly, with broad prospects for overseas expansion.

Global motorcycle sales are 50 million units, with China and India ranking first in the top tier, with annual sales fluctuating between 15-20 million units; the Southeast Asian market stabilizes at around 15 million units, indicating a large market capacity. In terms of electrification, the Chinese market has currently exceeded 4.81 million units, with a penetration rate leading globally at nearly 28%; Vietnam and India have penetration rates of 10% and 5% respectively, while the Indonesian and Thai markets are below 1%. Electric motorcycles have economic advantages, making them more suitable for replacing urban and short-distance travel; leisure and entertainment motorcycles are more suited for fuel motorcycles due to the pursuit of speed and power in driving. Considering that domestic motorcycles with engine displacements below 150cc account for as much as 85%, the replacement space is vast.

Investment recommendation:

1) Ninebot Limited (689009.SH): New businesses in 2024 have begun to ramp up after years of cultivation, with growth entering an acceleration phase; additionally, the company's various profit margins will enter a period of accelerated improvement, and valuation will enter an expansion phase.

2) YADEA (01585): The strategic outlook is long-term, with leading layouts in the core links of the upstream supply chain, sodium batteries leading the technological transformation of the Industry, and the company is expected to benefit from the implementation of subsidies and new regulations next year, achieving operational recovery, showing greater elasticity this year on a low base and extremely low inventory.

3) AIMA Technology (603529.SH): The new regulations on the industry side optimize the pattern, stimulating demand through trade-ins; with the company's production capacity being supplemented and a large potential space for channel expansion, it is expected to form α and β resonance.

4) Niu Technologies (NIU.US): Starting in 2024, the company's layout for lead-acid vehicles has significantly increased, remaining an industry leader in the field of intelligence; the online conversion rate of the O2O model continues to improve, and the acceleration of store expansion is expected to reverse the company's operational difficulties.

Risk warning: The domestic subsidy Consumer stimulation effect is weaker than expected; domestic policies are strongly regulated; overseas expansion is not as expected.