According to a report from Ping An Securities, based on data from the Ministry of Commerce, in 2024, the number of scrapped and updated cars will exceed 2.9 million, and the number of replacement updates will exceed 3.7 million. The trade-in policy will significantly stimulate automotive consumption in 2024, especially with better effects from the replacement update subsidies. In July 2024, the scrapping and updating will be intensified, with local replacement policies being implemented on a large scale from September. The used car trade-in policy for 2025 has been clearly defined early, making the effective duration of the policy significantly longer than in 2024. Additionally, the policy has expanded the range of subsidy implementation and increased the subsidy amount for new energy buses. The impact of the 2025 policy on car sales will be stronger than that of 2024, combined with the new energy vehicle purchase tax policy, thus being Bullish on the stimulative effects of multiple policies together.

The main points of Ping An Securities are as follows:

Event: The National Development and Reform Commission and the Ministry of Finance published a notice entitled "Notice on Strengthening the Implementation of Large-scale Equipment Update and Consumer Replacement Policies in 2025" (hereinafter referred to as the "Notice").

Passenger Vehicles: The range of old cars covered by the scrapping subsidy will increase by about 10 million compared to 2024.

In 2025, the passenger vehicle scrapping and updating subsidy policy will include fuel passenger vehicles in the first year after the implementation of National IV standards in the range of scrapped subsidies. According to retail data from the Passenger Car Association, the retail sales of passenger vehicles in the first year of National IV standard implementation reached 14.09 million units. Ping An Securities estimates that the number of old passenger vehicles that meet the scrapping subsidy standards will be around 25 million in 2025, which is: the number of vehicles that met the scrapping and updating subsidy in 2024 minus the amount of scrapping and updating applications in 2024 plus the first-year passenger vehicle sales of National IV implementation. (According to motor vehicle insurance data statistics, as of the end of 2023, the number of old passenger vehicles that met the 2024 scrapping and updating subsidy policy is approximately 14.545 million, and according to data from the Ministry of Commerce, the scrapping and updating of cars exceeded 2.9 million in 2024.)

Commercial Vehicles: The subsidy range for operational trucks has expanded by more than double compared to 2024, and the subsidy for new energy buses has increased to boost the replacement rate.

In 2024, the effect of the replacement policy for Commercial Vehicles is weaker than for Passenger Vehicles. The subsidy for trucks remains unchanged, but the subsidy scope is expanded to diesel vehicles meeting National IV and below emissions standards (National III and below in 2024). According to data from Truck Home, the number of National IV heavy trucks exceeds 0.8 million units (with the actual effective number estimated at 0.5-0.6 million units), and the number of National III heavy trucks exceeds 0.4 million units (the actual effective number is estimated at 0.2-0.3 million units). The subsidy range for heavy trucks in 2025 will be doubled compared to 2024. Regarding New energy buses, the base of replaceable old New energy buses is quite large (according to China Bus Network, the total sales of New energy buses from 2016 to 2018 was approximately 0.26 million units, but only 0.035 million units were sold in 2023). This time, the subsidy amount for New energy buses has been raised from 0.06 million yuan in 2024 to 0.08 million yuan, and the enhanced policy is expected to increase the replacement rate of New energy buses.

The central support ratio remains the same as in 2024, while the funding scale has significantly increased compared to 2024.

"Notice" states that ultra-long special treasury bond funds will be directly allocated to localities to support the replacement of consumer goods, including Autos, household appliances, digital products, and home decoration products. The burden-sharing ratio between the central and local governments is consistent with 2024. In terms of funding scale, the funding for consumer goods replacement in 2024 is 150 billion yuan. The National Development and Reform Commission indicated that the total scale of ultra-long special treasury bond funds used to support 'two new' in 2025 will significantly increase compared to 2024, with specific amounts to be announced during the 2025 National Two Sessions.

The policy for 2025 is expected to be launched earlier, covering a broader scope, and the stimulating effect is anticipated to exceed that of 2024.

According to data from the Ministry of Commerce, in 2024, the number of scrapped and replaced Autos exceeds 2.9 million units (with a scrapping and replacement rate of about 20%, calculated as the amount of scrapping and replacement / the number of vehicles eligible for scrapping subsidies), with replacement updates exceeding 3.7 million units. The old-for-new policy is expected to stimulate significant demand for Autos in 2024, especially with better effects from the replacement and updating subsidies. The intensity of scrapping and updating was increased in July 2024, while local replacement policies will be fully implemented from September, and the 2025 policy will be launched earlier, with an expanded subsidy range, and the policy implementation duration is longer than that of 2024.

Elastic calculations for the replacement of Passenger Vehicles, heavy trucks, and New energy buses.

Regarding Passenger Vehicles, considering the longer policy stimulation period in 2025, if we assume that the scrapping and updating rate increases to 30% in 2025 (based on the above calculations, the scrapping and updating rate in 2024 is about 20%), then the scrapping and updating of Passenger Vehicles in 2025 is expected to reach 7.5 million units (i.e., the base of vehicles that meet the scrapping standards? Scrapping and updating rate). The local replacement updates in 2024 were comprehensively implemented in September (with a replacement update volume of 3.7 million units). Assuming that local replacement policies cover the entire year in 2025, the scale of auto demand benefiting from local replacement policies is expected to reach 10 million units, meaning that the total sales scale of Passenger Vehicles benefiting from 'two new' policies is estimated at 17.5 million units. Additionally, 2025 is the last year for the exemption of vehicle purchase tax for New energy Passenger Vehicles, and the overlap of multiple policies is favorable for the release of New energy vehicle sales in 2025.

According to Xu Changming from the National Information Center in his public speech "Changes in Total and Structural Automotive Market" in early December 2024, it is estimated that automotive consumption in 2024 will be driven by policy by 1.5 million units, which is equivalent to 23% of the vehicles benefiting from the subsidy policy given by the Ministry of Commerce (1.5 million units / 6.6 million units). Assuming that 20% of automotive consumption in 2025 is policy-driven, then the scrapping and replacement policies will stimulate automotive consumption by 3.5 million units.

In terms of heavy trucks, the effective retained quantity of National IV heavy trucks is about 0.5 million units. Assuming a scrapping and renewal rate of 30%, the heavy truck scrapping and renewal quantity could reach 0.15 million units by 2025. Regarding new energy buses, there is a substantial base of new energy buses eligible for subsidy policies. Theoretically, the elasticity brought by the scrapping and renewal of new energy buses is greater. However, since the procurers of buses are local governments, the willingness to renew buses currently remains low. In 2025, the policy has increased the subsidies for new energy buses by 20,000 yuan per unit, which is expected to boost local governments' bus scrapping and renewal rates.

Regarding Symbol.

Recommend Chongqing Sokon Industry Group Stock (601127.SH), Li Auto (02015), Great Wall Motor (601633.SH), Geely Auto (00175), Xpeng Motors (09868), Chongqing Changan Automobile (000625.SZ), BYD (01211), and suggest paying attention to Xiaomi Group (01810) and LEAPMOTOR (09863). In terms of commercial vehicles, bullish on the expansion of subsidy scope for operating freight trucks and the effects after increasing subsidies for new energy buses. Recommend Yutong Bus Co.,Ltd. (600066.SH) and Weichai Power (000338.SZ), and suggest paying attention to SINOTRUK (000951.SZ).

Risk Warning

1) After the policy is implemented, the stimulating effect does not meet expectations; 2) The uncertainty in the timing and coverage duration of local government replacement and renewal subsidies leads to uncertainty in policy strength; 3) Declining resident income expectations are unfavorable for the release of automotive consumer demand; 4) The ongoing price war in the automotive industry results in high hesitation among potential car buyers.