According to Zhitong Finance APP, Soochow has released Research Reports stating that the high customer concentration of lithium battery equipment manufacturers gives downstream customers greater bargaining power and influence when cooperating with equipment manufacturers, raising the entry threshold for the lithium battery Industry. Past commercial performance of equipment is under short-term pressure, but the stimulation of domestic Electric Vehicles and overseas expansion is expected to support future Order growth, and the bidding from leading domestic clients is likely to restart, with a focus on the expansion of overseas automakers. Attention should be paid to the industrialization progress of new technologies such as Solid State Battery & composite conductors 4680.

The main viewpoints of soochow securities are as follows:

There are various types of equipment for lithium batteries in the front, middle, and back sections, with high customer concentration in the downstream.

The manufacturing process is divided into the front section (electrode manufacturing), middle section (Cell assembly), and back section (Cell packaging and testing), where strict requirements for precision and stability are needed. A slight deviation may lead to substandard product performance or safety. The high customer concentration of lithium battery equipment manufacturers allows downstream customers to have greater bargaining power and influence when cooperating with equipment manufacturers. However, the high customer concentration also has its positive aspects for lithium battery equipment manufacturers, which helps establish long-term cooperative relationships with customers and subsequently raises the entry threshold for the lithium battery Industry.

The commercial performance of equipment is under short-term pressure, but new signed Orders are expected to rebound from the bottom.

From the perspective of gross margin, the average gross margin of the Industry from Q1 to Q3 of 2024 is around 31%, and the net margin attributed to the parent company is mainly affected by inventory impairment losses and credit impairment losses, with the average around 4% from Q1 to Q3 of 2024. The period from 2019 to 2021 was a peak for the expansion of the lithium battery Industry, but since 2022, especially with the domestic power battery capacity surplus and low capacity utilization, orders for lithium battery equipment manufacturers have come under pressure. Although the growth rate of new signed orders for lithium battery equipment manufacturers continues to decline from Q1 to Q3 of 2024, the stimulation of domestic Electric Vehicles and overseas expansion is expected to support future Order growth.

Domestic top clients' bidding is expected to restart, with overseas focus on the expansion of automakers.

(1) Overseas: A major highlight for the future is the large-scale expansion of overseas battery manufacturers. In the past, overseas battery manufacturers experienced delays in expansion due to the impact of the pandemic. As the pandemic gradually improves, these battery manufacturers have begun to restart their expansions, and automakers such as Volkswagen and Tata in India are also starting to build their own capacities, so lithium battery equipment providers are expected to fully benefit from overseas deployment.

(2) Domestic: Leading companies like Contemporary Amperex Technology and BYD are actively expanding, and second-tier emerging battery manufacturers such as Eve Energy Co.,Ltd. are also in the process of expansion.

Focus on Solid State Batteries & Composite Conductors & 4680 and other new technologies.

(1) Solid State Batteries: The main demand from automakers for solid state batteries has shifted from safety to energy density. Currently, the mass-produced semi-solid state battery is a transitional form of oxide solid electrolytes. Before 2028, the mainstream route for solid state battery iteration is oxide, while after 2030, the outlook is positive for all-solid sulfides. Semi-solid battery equipment is not significantly different from traditional liquid batteries, while all-solid battery processes are still in early development and have not yet been standardized.

(2) Composite Conductors: Composite conductors have advantages in both performance and cost; composite aluminum foil uses a one-step vapor deposition method, and progress has been made in both two-step and one-step methods for composite copper foil.

(3) 4680: Compared to previous cylindrical batteries, the biggest structural innovation of the 4680 battery is the full tab design. After Tesla released the 4680 large cylindrical battery, companies like BMW, Contemporary Amperex Technology, and Eve Energy Co.,Ltd. have all started to layout large cylindrical batteries. Samsung and LG have already begun mass production of the 4680 large cylindrical battery, while domestically, Eve Energy Co.,Ltd. has already established 20GWh capacity for large cylindrical batteries.

Investment recommendations: Key recommendations include Wuxi Lead Intelligent Equipment (300450.SZ), Zhejiang HangKe Technology Incorporated (688006.SH), Soochow (688700.SH), and Hongtian Co., Ltd. (603800.SH).

Risk warning: Sales of Electric Vehicles are lower than expected, and downstream Battery manufacturers' capacity expansion is lower than expected.