**1. New Energy Vehicles Enter a Dual Policy and Market Phase**
What kind of news has sparked the current surge in the new energy vehicle market? Money Management Jun will briefly explain.
On September 9, during the 2017 China Automotive Industry Development (TEDA) International Forum held in Tianjin Binhai New Area, Vice Minister of Industry and Information Technology Xin Guobin revealed that China has started studying a timetable for banning fuel vehicles. This indicates that a domestic ban on fuel vehicles is now under consideration. In fact, developed countries have long expressed their positions on phasing out traditional vehicles.
At the same time, the "Dual Points Policy" is also being finalized. In June, the Legislative Affairs Office of the State Council issued the Interim Measures for the Parallel Management of Average Fuel Consumption and New Energy Points for Passenger Vehicle Enterprises (Draft for Comment). Xin Guobin also mentioned that the policy will be officially released soon.
This means that R&D and production of new energy vehicles will become mandatory for companies. It's expected that the future auto market will largely shift toward new energy vehicles.
With the potential ban on fuel vehicles and the transformation of new energy vehicles into policy requirements, it's no surprise that this year’s market has exploded!
In fact, some brokerages suggest that both policy and market are positive, and the new energy vehicle industry chain is entering a “Golden September†period.
Let’s first look at the policy side.
On September 6, the Ministry of Industry and Information Technology issued the “Preliminary Review Report on the Liquidation Review of the New Energy Vehicle Promotion and Application (Replenishment of Electricity) in 2016,†which was the second public announcement for the promotion of new energy vehicles this year. The frequency of updates has increased significantly.
On September 1, the Ministry of Industry and Information Technology released the “Recommended Models for Promotion and Application of New Energy Vehicles (8th Batch in 2017).†Since then, eight batches of recommended models have been released this year, including 2,538 models from 184 enterprises.
Now, let’s check the new energy vehicle market.
In August, sales of new energy passenger vehicles in China reached 54,000 units, up 80.6% year-on-year and 25% from the previous month. It is estimated that sales of new energy commercial vehicles in August were between 18,000 and 22,000 units, bringing total new energy vehicle sales to 72,000–76,000 units. This is close to the average monthly target of 90,000 units, reaching 89%–100%. The growth rate of the industry chain was between 29% and 36%.
CIC believes that with the arrival of the “Golden September and Silver October†season and the gradual realization of purchase orders, September’s sales are expected to exceed 90,000 units. The probability of achieving 700,000 annual sales is high. Production and sales of new energy vehicles have gradually strengthened, and the new energy commercial vehicle segment has seen substantial release. The turning point for new energy vehicle production and sales has basically arrived.
**2. Valuation Levels of New Energy Vehicle Stocks**
Since the positives are so clear, investors can’t wait to jump on the bandwagon. However, before that, Money Jun will help you understand the valuation levels of new energy vehicle concept stocks.
Since September, the new energy vehicle sector has been the most aggressive, with shares like Nanchuan rising over 56%, while Baotonglong, Hengdian East Magnetic, Dangsheng Technology, Yanfeng Lithium, and Tibet Holdings have all gained more than 30%.
Looking back at the year, the cobalt industry saw an increase of over 886%, while Yanfeng Lithium, Jinyinhe, Nebula Shares, and others rose over 200%. Hongte Precision, Yahua Group, Huayou Cobalt, Yingboer, and Tianqi Lithium also saw increases exceeding 150%.
For small investors, the valuation of new energy vehicle concept stocks is extremely high, with P/E ratios (TTM) reaching hundreds of times. Some companies are even trading at dozens of times. However, Lijun Jun found that some companies are still unprofitable or barely profitable. For example, Rongjie, Ankai Bus, and Western Resources were heavily sought after in September, but their semi-annual reports showed losses. Ankai Bus reported a loss of nearly 30 million yuan in the first half of the year, with net profit of only 627,300 yuan, down 39.4% compared to the same period last year. Western Resources had a net loss of 121 million yuan in the first half of the year.
Finally, looking at market capitalization, among new energy vehicle stocks, SAIC Group, Gree Electric Appliances, Great Wall Motors, Changan An Automobile, etc., are relatively large, but their P/E levels are acceptable. BYD has a P/E ratio of 31 times, while Tianqi Lithium and Haofeng Lithium, two leading lithium battery stocks, also have relatively high valuations.
**3. Sharp Rise in New Energy Vehicle Funds**
Money Junjun found that several new energy vehicle concept funds have risen sharply since September and over the past three months.
Let’s take a few pure new energy vehicle funds as examples. The New Energy B fund has a net worth growth rate of 10.43% since September, and a 47.32% growth over the past three months.
The Shenwan Lingxin New Energy Vehicle Fund has a net value growth rate of 4.66% since September, and a 17.5% increase over the past three months. Its top ten holdings include SAIC Group, Yutong Passenger Cars, Huichuan Technology, BYD, Hongfa Shares, and Shanshan Shares—relatively pure new energy vehicle stocks.
The Jinxin New Energy Automobile Fund has a net growth rate of 2.36% since September, and a 12.45% increase over the past three months. Its top ten holdings include Futian Auto, Tuopu Group, and Junsheng Electronics—companies with strong exposure to the new energy vehicle sector.
Additionally, several funds that have invested in new energy vehicle concept stocks have seen significant gains. For example, the China Sea Consumer Theme Selection fund increased by 24.77% over the past three months, Harvest Environmental Low Carbon by 18.98%, and Cinda’s Australian Silver Consumption fund by over 12.19%. Their top holdings include Gree Electric, Yanfeng Lithium, Tianqi Lithium, Pioneer Intelligence, Hongfa Shares, Guoxuan Hi-Tech, and other targets related to new energy vehicles.
**4. The New Energy Vehicle Market Enters a Comprehensive Acceleration Stage**
The global trend toward automotive electrification, intelligence, and lightweighting is irreversible, with all car manufacturers joining the new energy vehicle manufacturing wave. To date, six countries worldwide have publicly announced plans to completely phase out gasoline and diesel vehicles. In China, new energy passenger car sales in August were impressive, and the dual-point policy for new energy vehicles has come into effect. Analysts believe that the combination of policy and market will lead to a double improvement in performance and valuation in September. With the gradual strengthening of production and sales, the performance of industry chain companies in the second half of the year is guaranteed, and a double boost in performance and valuation is expected.
**Alternate Process Startup**
Statistics show that in August 2017, China’s new energy passenger vehicle sales reached 54,000 units, a year-on-year increase of 80.6% and a 25% rise from the previous month, slightly exceeding market expectations. Additionally, new energy commercial vehicle sales in August are expected to reach 18,000–22,000 units, with total new energy vehicle sales reaching 72,000–76,000 units.
CIC Securities’ Zhang Lei expects that with the arrival of the “Golden September and Silver October†season and the gradual implementation of passenger car purchase orders, September’s monthly sales are expected to exceed 90,000 units, making the annual target of 700,000 units achievable. Production and sales of new energy vehicles have gradually strengthened, and new energy commercial vehicles have seen substantial releases. The turning point in new energy vehicle production and sales has basically arrived.
Currently, many countries are adjusting their development strategies, accelerating industrial layouts in the new energy and intelligent network industries, and aiming to occupy a new commanding height. In response to the timetable for some countries to stop the production and sale of traditional energy vehicles, Xin Guobin, vice minister of the Ministry of Industry and Information Technology, recently revealed that the ministry has initiated research to formulate China’s own timetable for the ban on the sale of traditional fuel vehicles.
Pacific Securities analyst Zhang Xue said that China was originally the country with the strongest promotion of new energy vehicles. The study of a comprehensive ban on traditional fuel vehicles indicates that support is further upgraded, and the strategy for developing new energy vehicles is more determined. “Overall, the economy has entered medium-speed growth, and the L-shaped trend has been shown for a long time. The new energy automobile industry has just begun and will maintain a compound growth rate of 30% in the next few years, which is the industry with the most certain growth.â€
In particular, since 2017, China has launched 8 batches of “Recommended Models for Promotion and Application of New Energy Vehicles,†accumulating 2,538 models from 188 enterprises, accounting for more than 70% of pure electric vehicles. In addition, 12 batches of “New Energy-Free Vehicles†have been introduced in the Catalogue of Purchase Taxes, with three batches released in 2017. The pace is faster than ever. According to relevant reports, the “Parallel Management Measures for the Average Fuel Consumption of Passenger Vehicle Enterprises and New Energy Vehicles†will also be introduced soon. This will be the key to the post-subsidy era of new energy vehicles, and it will promote the development of the industry.
“The determination of the state to support the development of the new energy automobile industry has been very clear. The follow-up of the double-point policy or the subsidy adjustment policy will be based on this principle,†said Liu Rui, an analyst at Everbright Securities. He expects that this year’s subsidies have declined, affecting the sales of new energy vehicles, but the 2020 target of 2 million units remains unchanged, and sales will still maintain a compound growth rate of nearly 40%.
**High Growth and High Sustainability**
Following Volkswagen and Jianghuai, Daimler and BAIC, Zotye and Ford, Renault Nissan recently announced the establishment of a joint venture with Dongfeng Motor Group Co., Ltd.—Yijiete New Energy Automobile Co., Ltd.—to jointly develop electric and new energy vehicles. Another case of “marriage†was born. In addition, the Ministry of Transport issued a document stating that it is necessary to upgrade the professionalization level of cold chain logistics equipment and encourage the promotion and use of energy-saving and environmentally-friendly refrigerated and heat-insulated vehicles such as new energy.
In the long run, policy support is good and has a long-term mechanism. Industry leaders accelerate their binding and achieve common growth. Traditional vehicle leaders have turned to new energy vehicles, and the industry has large space and big opportunities. In the short term, the pressure on the entire industry chain is not small. It is necessary to quickly reduce prices to make up for the economy in the new country, and to improve technical level and product performance to compete with fuel trucks. Under the pressure, the industry is still accelerating, and the leading footsteps at home and abroad continue to move forward. The price reduction rate in all links exceeds expectations, and new products have opened up real market demand. Zhongtai Securities firmly believes that new energy vehicles must be industries that are scarce in recent years and have high sustainability and growth.
In terms of layout direction, Bohai Securities believes that the development of new energy vehicles will continue to improve in the second half of the year, and production and sales are expected to gradually increase. It is recommended to focus on investment opportunities in new energy passenger vehicles and operations, logistics special vehicles, and new energy buses. In addition, with the efforts of major domestic and foreign manufacturers to increase product development and promotion, cost-effective “explosion models†are expected to continue to be launched, thus promoting the popularity of intelligent networked vehicles. It is recommended to focus on the investment opportunities brought by the impact of major industry events and the order volume of “explosion models†that exceed expectations.
“New energy vehicles replace ‘mechanical’ with ‘electricity.’ Power batteries are the core component of new energy vehicles. They have high technical content, large capital investment, and strong resource endowment, making them the focus of competition in the industry. In addition, resource products such as lithium carbonate, cobalt, wet-membrane, lithium-ion copper foil, and cathode materials have higher thresholds and are the top priority for investors,†said Zhang.
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