According to the Zhitong Financial APP, Dongxing has released a Research Report stating that the Lithium Battery Sector has experienced a bottoming adjustment in 2023, with profits at all levels touching the bottom, and the situation continues to clear up. The midstream materials sector has also gone through the complete downward phase of the inventory cycle. Currently, the sector's prices, inventory, and expansion pace are all at multi-year lows. With the trend of demand growth recovering within the year and the continuous catalytic process of the industrialization of new technologies such as Solid State Batteries, certain parts of the sector are seeing a rebound. Under the robust growth backdrop of demand, the sector has passed its worst period and is expected to continue warming up, alleviating the previously pessimistic expectations for the fundamentals. At the current point in time, the sector's performance has stabilized and shows resilience, offering certain allocation value.

The main viewpoints of Dongxing Securities are as follows:

Opportunities for the return of fundamentals against the backdrop of improved patterns.

Battery Segment: Due to the high level of customization on the demand side, strong bargaining power arises. Under the current background of both raw materials and inventory running at low levels, the profitability of the battery segment remains robust. It is expected that profitability in the sector will continue to maintain an upward warming trend in 2025, and the trend of profitability polarization within the sector will persist. Leading enterprises, leveraging the premium from differentiated products and incremental contributions from overseas business, will enhance their profitability trajectory, continuously leading second-tier manufacturers. It is recommended to focus on Gotion High-tech (002074.SZ), which has a leading position in overseas layout and is about to enter a harvest period in European and American production capacity. Ningbo Ronbay New Energy Technology (300750.SZ), as an industry leader, will also benefit widely from its leading manufacturing capacity and expanding profitability advantage through differentiated product premiums.

Materials Segment: Although some enterprises in the lithium battery Industry Chain are facing profit margin declines and low capacity profit margins, the concentration of each segment of lithium battery materials is expected to further increase due to ongoing capacity clearance and new product iterations, with profit levels expected to recover. Positive Electrode: The market share gap among various ternary materials is not large, maintaining a certain profit margin due to low product homogeneity. At the same time, the difficulty of upstream integration in the ternary segment is high, and the bargaining power downward is weak. However, progress in advancing upstream raw material precursor layouts is smooth, and industry concentration is continually rising. Based on competition patterns and cost reduction progress, more Industry Chain profits are expected to be allocated in the future, with CNGR Advanced Material (300919.SZ) likely to benefit. Negative Electrode: Core competitiveness comes from the cost and self-supply rate of artificial graphite; low costs are a powerful weapon during the capacity clearance process, and companies like Shantou Technology (001301.SZ) are expected to benefit.

Opportunities for the accelerated industrialization of new technologies.

Solid State Battery: The industrialization process of Solid State Batteries has shown an accelerating trend. By 2025, Solid State Battery technology will still be one of the potential catalysts in the sector, with many performance advantages to potentially replace existing high-end application scenarios and expand application boundaries in the medium to long term. Battery companies that have a first-mover advantage in Solid State Battery technology and are ahead in application implementation will mainly benefit. It is recommended to focus on Gotion High-tech, which leads in all-solid-state battery technology reserves and has semi-solid-state batteries capable of industrialization, as well as Contemporary Amperex Technology, which has initiated the development of civil aviation projects and is capable of mass production for automotive applications.

In terms of battery materials, looking ahead, both the positive and negative electrodes will benefit from the entire Solid State Battery Industry Chain, excluding electrolytes. The positive electrode is shifting from high nickel to high voltage, or new systems such as nickel-manganese-cobalt oxide and lithium-rich manganese-based will evolve. Relevant beneficiaries include Ningbo Ronbay New Energy Technology (688005.SH) and Beijing Easpring Material Technology (300073.SZ). The negative electrode will evolve from graphite to lithium metal anodes, with relevant beneficiaries being BETTER RESEARCH (835185.BJ). On the electrolyte side, the solid electrolyte contacts the positive and negative electrodes at a solid-solid interface, which has a small contact area and poor compactness, so auxiliary materials that improve conductivity, such as carbon nanotubes, are expected to benefit. Relevant beneficiaries include Jiangsu Cnano Technology Co.,Ltd. (688116.SH) and Guangdong Dowstone Technology (300409.SZ).

High Voltage Fast Charging: Fast charging battery technology is relatively mature and meets the current pain points of energy replenishment needs. This year, high-voltage fast-charging models are gradually increasing, and some models with high-voltage fast charging capabilities have already seen their prices drop below 0.2 million yuan. The year 2024 is expected to be the year of high voltage fast charging volume increase. Products with high voltage fast charging performance are expected to gain excess profits due to differentiated competitive advantages, with the main beneficiary being Contemporary Amperex Technology, which fully covers high-quality clients with its two ultra-fast charging products, "Shenxing" and "Qilin."

In terms of battery materials, the continuous increase in demand for fast charging performance will bring about many upgrades and innovations in materials. The upgrade direction for negative electrodes includes multiple granulation and surface carbon coating, with the main beneficiary being Xinde New Material (301349.SZ). The increase in conductive agent usage can enhance the overall fast charging efficiency of batteries, and the new conductive agent carbon nanotubes have superior performance and are expected to replace traditional conductive agents, with the main beneficiary being Jiangsu Cnano Technology Co.,Ltd. (688116.SH). The new lithium salt LiFSI shows significant advantages in stability and chemical stability compared to the current mainstream lithium salt LiPF6, meeting the requirements for high conductivity and safety stability essential for fast charging performance, with the main beneficiary being Guangzhou Tinci Materials Technology (002709.SZ).

Investment Suggestion: The opportunities for the fundamentals to return under the continuous improvement of supply and demand patterns in the lithium battery sector by 2025, along with continuous developments in many new technologies for industrialization applications, will be the main driving forces for the sector's rise.

Risk Warning: Risks include lower than expected growth on the demand side, intensified competition exceeding expectations, lack of improvement in company costs/profitability, unexpected overseas policies/geopolitical impacts, and slower than anticipated industrialization of new technologies.