Nowadays, the global automotive industry has shifted from the era of fuel to the era of electric intelligence. The automobile industry, as a pillar industry of the national economy, is an important support for China to accelerate the promotion of new industrialization and achieve high-quality economic development. As one of the most representative industries in China, the automotive industry has a high degree of marketization, close global connections, and huge opportunities, making it the main battlefield of Industry 4.0. At present, the automotive industry is in a period of deep transformation, and the rapid evolution of new energy and intelligent networking has promoted the upgrading of the global automotive industry. New energy vehicles will enter a state of more intense competition and more obvious survival of the fittest.

01 | Industry background: The penetration rate of new energy vehicles continues to rise, and is expected to exceed 40% in 24 years. In November 2023, the penetration rate of new energy vehicles exceeded 40% for the first time, and according to past patterns, the penetration rate for the whole year of 2024 is expected to exceed 40%. In 2022, the penetration rate of new energy vehicles in rural areas is only about 4%. With strong policy support, it is expected that the penetration rate of new energy vehicles in China will exceed 60% within 3-5 years. From January to October, the domestic sales of PHEVs for passenger cars reached 1.77 million units, accounting for a year-on-year increase of 91.6%, far exceeding the year-on-year growth rate of BEV24.4%, and is expected to occupy half of the new energy market. Pull: Policy inclination towards rural markets (bringing cars to rural areas); Competition among car companies and technological upgrades have driven up the cost-effectiveness of products, resulting in equal prices for oil and electricity. Thrust: BYD, Huawei, Ideal and others have launched a large number of new models in 24 years; The infrastructure such as charging stations is gradually improving. Domestic brands occupy a strong position and localization has become an important driving force. In 2023, for the first time, the sales market share of domestic brand passenger cars exceeded 50%, reaching 52%, an increase of 4.6% compared to 2022. Among them, in December 2023, the wholesale sales of domestic brand passenger cars accounted for 58.2% of the market share, just one step away from 60%. Analogous to Japan, the long-term market share of domestic brands can reach around 80%. Korean and French brands have basically withdrawn from the market, while Japanese and American brands have suffered severe market share compression. The German market share is relatively strong, mainly relying on luxury brands for support. With the continuous promotion of high-end domestic brands, especially new forces such as Huawei, Xiaomi, and Ideal, the high-end domestic brands are expected to rapidly increase in volume. The export volume surpassed Japan to become the world's largest, and the automobile industry chain became a new growth point. From January to October 2023, the export sales volume was 3.922 million vehicles, a year-on-year increase of 59.7%. The annual export sales volume is expected to be 4.75 million vehicles, a year-on-year increase of 52.8%. Fuel powered vehicles are still the main force in exports, accounting for 75%. The export of new energy has grown rapidly, with 1.191 million vehicles exported throughout the year, a year-on-year increase of 76%. Strong product strength: The huge gap in product strength between domestic brands and foreign investment is essentially due to the different stages they are in (domestic market share is cleared, while overseas supply and demand patterns are stable). Southeast Asian and other non trade restricted countries have laid the foundation: product strength+overseas production capacity release drives rapid increase in export volume. Automobile companies are accelerating their overseas production capacity layout and entering the stage of "global car manufacturing and global sales". Taking BYD as an example, the company's overseas production capacity has accelerated since 2024. The automotive industry has officially entered the knockout stage, and the industry pattern has preliminarily clarified that the market share of the top 10 new energy vehicle brands in 2020 is 68%, which will rise to 78% from January to October 2023, accelerating the industry's agglomeration towards the top. On the consumer side, new energy vehicles will become mainstream, and the audience will completely shift from the innovative and innovative crowd to the general public. Customers will gather towards top brands, and the Matthew effect is obvious. On the supply side, there is severe internal competition in car manufacturing, a fierce price war, a lack of scale advantage, and many new forces in the hematopoietic sector continue to suffer huge losses. As the industry clears, capital injection behind it is becoming increasingly cautious. BYD, Tesla, and Huawei have basically secured three final seats, confirming the importance of ecological construction in the competition among automotive companies. The path for industrial clearance is the bankruptcy of new forces → a simultaneous decrease in the volume and profits of joint venture car companies → a wave of mergers and acquisitions.

02 | First half electrification. The first half electrification is basically completed, and in the short term, based on the existing pattern of iterative innovation, cost reduction is the main path. As the penetration rate of new energy vehicles gradually increases, China has basically successfully achieved overtaking on curves in the first half electrification of new energy vehicles, and the industry β The attributes are gradually weakening. A large number of top companies in the industry have already achieved IPOs, and the investment risk in the primary market is gradually increasing. The remaining tracks and top targets are also facing unprofitable or upside down. The third generation of semiconductors reshapes automotive power devices, and there are innovative opportunities for electric drive and electronic control. Power semiconductors are the core of energy conversion and circuit control in electronic devices. Currently, silicon-based IGBT and MOSFET are still the main power semiconductors for new energy vehicles. Vehicles equipped with SiC will reduce losses by 80%, and charging speeds can be doubled. The main application scenarios of silicon carbide in new energy vehicles are inverters, on-board chargers and DC/DC converters, non on-board charging stations, and other core electronic control fields. The 800V platform architecture has become an important solution for high-voltage fast charging and a flagship standard configuration for mainstream automotive companies. To achieve a charging time of 5 minutes and a range of 200km, high-voltage fast charging must be used. The original silicon-based IGBT chip has reached the material limit, which can only be supported by SIC. BYD looks forward to launching a disruptive four-wheel drive solution. There are two types of electric vehicles: centralized and distributed. Centralized means that one motor controls two or even four wheels, while distributed motors are equipped with one motor for each of the four wheels, and each wheel can be individually driven and controlled. The advantages of distributed drive are short transmission distance, high efficiency, relatively compact structure, and the ability to control various vehicle dynamics. The "dual carbon" goal and electric vehicle lightweight are the most direct solutions for energy conservation and emission reduction, as well as one of the effective means to increase the range of electric vehicles. Lightweight structure: It is the use of CAE simulation software to analyze the load-bearing state and process characteristics of the simulated object on the basis of the original design, and further optimize the original structure. Common structural optimization methods include topology optimization, size optimization, shape optimization, and morphology optimization. Material lightweighting: Among various lightweight materials, the cost of aluminum alloy is only higher than that of high-strength steel, but far lower than that of magnesium alloy, plastic, and carbon fiber. Considering comprehensive factors such as cost, weight reduction cost-effectiveness, and safety performance, aluminum alloy material has become one of the most widely used and fastest penetrating materials currently. Lightweight process: Integrated die-casting body is an upgrade of lightweight technology, which can reduce the number of body parts, simplify supply chain links, improve raw material utilization, and greatly improve the efficiency of automobile assembly. Tesla's Xiaopeng, Xiaomi, and Wenjie have all launched integrated die-casting. Domestic brands overtake on curves, and domestic components face incremental opportunities. Traditional overseas component giants rise through supporting foreign mainstream car companies, and independent parts in the era of intelligent electric vehicles

Suppliers are expected to achieve domestic substitution through the rise of independent brands. In the traditional automotive era, the European automotive industry has achieved success in Bosch and mainland China, while the Japanese automotive industry has driven the rapid development of Japanese component giants such as electric vehicles. The development of leading fuel car companies is closely related to the development of Tier 1 components. From the perspective of the globalization path of German and Japanese component suppliers, the rise of component suppliers is often accompanied by the achievement of the following two conditions: 1) Local automotive industry technology is competitive on a global scale. 2) Local leading car companies have emerged and risen first, seeking new overseas markets for growth. At present, China's automobile market has preliminarily achieved these two prerequisites.

03 | Jingtai Investment Suggestion [Industry Characteristics] The total sales volume of automobiles is stabilizing, but there is a revolutionary change in the sales structure. 1) In November 2023, the penetration rate of new energy vehicles exceeded 40% for the first time in a single month. It is highly likely that new energy vehicles will become dominant within 3-5 years. 2) In 2023, the market share of domestic brands exceeded 50% for the first time. The market share of domestic brands is expected to further increase to 70% -80%, driving the localization of components. 3) In 2023, China's automobile exports ranked first in the world for the first time. Going abroad will become a new increment in the future automotive industry. From the perspective of competitive landscape, the industry is accelerating its clearance, and bankruptcy, mergers and acquisitions, and restructuring will become the norm in 2024. 1) Internal competition upgrade: Unlike the past when inventory clearance led to price reductions, the competition between independent and joint ventures, as well as the competition between electric and fuel, intensified the price war. 2) Accelerated clearance: In 2018, there were only about 50 out of 487 electric vehicle companies left, and the tail end companies are facing operational difficulties. In 2023, there were over 100 loss making car companies. 【 Investment Logic 】 Whether it is electrification or intelligence, the main track is already very crowded, and the competitive landscape is basically determined or the entry threshold is extremely high. Based on the industrial characteristics of the strong rise of domestic brands under electrification, coupled with the huge increment brought by the trend of intelligent development, the upstream components of the automotive industry have three main logics: market growth logic brought by going abroad, penetration rate increase logic, and localization rate increase logic. Among them, the increment of going abroad is basically applicable to all components, and some segmented tracks are applicable to low penetration or low localization logic. 1) Upstream investment: The competition between giants and listed companies is mainly focused on the whole vehicle and even Tier 1, while Tier 2 and even Tier

Focus on exploring opportunities in 3 segmented tracks. Under the vast market size base, a large number of Tier3 segmented tracks also have sufficient ceilings. 2) Low penetration rate and low localization rate: mainly focused on new components brought about by electrification and intelligence, such as lightweight materials, air suspension, etc; As well as traditional overseas dominant fields such as intelligent chassis and automotive semiconductors, in addition to hard technological attributes, areas with high labor and manufacturing costs for domestic strengths are also worth paying attention to. 3) Investment in leading strong binding projects: The automotive industry has entered the knockout stage, and binding with leading companies ensures performance stability. Huawei's industrial chain is greater than BYD's industrial chain