The Zhitong Finance App learned that Dongwu Securities released a research report stating that it continues to be optimistic about the main investment opportunities in the automotive sector under policy catalyst. Dongwu Securities pointed out that on March 13, 2024, the State Council officially issued the “Action Plan to Promote Large-scale Equipment Renewal and Consumer Goods Trade-In”, once again clarifying the quantitative goals of trade-in. In terms of passenger cars, the central government and local authorities are cooperating to support the trade-in of eligible cars through energy saving and emission reduction subsidy funds arranged by the central financial administration (the size of the energy saving and emission reduction subsidy fund for 23 years was 19.03 billion yuan, not yet clear in 2024). In terms of buses, support for bus policies has exceeded expectations. In particular, the use of “urban transportation development incentive funds” is expected to accelerate the implementation of new energy bus operation subsidies. It is recommended to focus on: top-down beta opportunities for commercial vehicles; finding structural opportunities in electrification logic, etc.

Passenger cars: Trade-in subsidies are expected to increase demand for swaps

1) Clarify quantification targets for scrap: The amount of scrapped cars recycled in '27 doubled compared to '23. According to data from the Ministry of Public Security, the number of vehicles scrapped in 2023 was 7.56 million, and the target number of scrapped vehicles by 2027 was 15.12 million. Encourage scrapping, leading to early scrapping of some temporary models, increasing demand for replacement and driving sales growth (30.8% of cars scrapped in 2023/number of newly registered cars).

2) Clarify financial support once again: The central government and local authorities will support the trade-in of eligible cars through energy saving and emission reduction subsidy funds arranged by the central financial administration (the size of the energy saving and emission reduction subsidy fund in 23 was 19.03 billion yuan, not yet clear in 2024).

3) Lowering the car purchase threshold: The State Financial Supervisory Authority said on March 11 that it is studying ways to reduce the down payment ratio for passenger car loans and lower the car purchase threshold.

Buses: It is expected to accelerate the implementation of new energy bus operating subsidies

Support for the bus policy has exceeded expectations. In particular, the use of “urban transportation development incentive funds” is expected to accelerate the implementation of new energy bus operation subsidies. According to estimates by Dongwu Securities, China and China Energy's bus stock market is about 700,000 vehicles, of which the electrification rate exceeds 80%, and there is still room for about 100,000 buses to be replaced; in 2016, the annual sales volume of Da-China and Sino-Singapore energy buses was only 20,000 units (down from 2022). Referring to the 8-year bus replacement cycle, it is theoretically estimated that the number of buses that will need to be replaced in 2024 from the perspective of vehicle renewal is close to 100,000 (but factors such as financial support still need to be taken into account). Considering that policy support exceeded expectations, Dongwu Securities raised its bus sales forecast to 38,000 vehicles this year (+80% over the same period last year).

Heavy trucks: Accelerated scrapping of diesel trucks has brought greater flexibility to heavy truck sales. From 2024 to 2025, heavy truck sales will reach 112/1.3 million vehicles, further strengthening confidence

1) Diesel trucks have been around for more than 10 years. According to the China Automobile Center's March 2024 analysis, the number of commercial vehicles in China 4 and below is close to 12 million, and 3.5 million vehicles are over 10 years old. If 3 million of these are treated as diesel trucks of the country 3 or below, it is estimated that the number of heavy trucks owned by China 3 and below accounts for 1/4 of the total number of trucks owned in 2023. The accelerated elimination of diesel trucks will bring great elasticity to heavy truck sales.

2) According to Dongwu Securities estimates, about 720,000 heavy trucks will be scrapped in 2023, and will double to about 1.44 million by 2027. According to a stable linear trend, 900,000 vehicles will be scrapped in 2024. Heavy truck sales in 2016-2017 were 66.6/1,028,000 units, respectively. Judging from the average scrapping cycle of about 8 years for heavy trucks, these heavy trucks will be scrapped centrally in 2024-2025. Coupled with subsidies to upgrade old vehicles and ships, financial policy support will increase, which is expected to further support the high increase in domestic heavy truck sales in 2024-2025.

Investment advice:

Continue to be optimistic about the main line investment opportunities in the automotive sector under policy catalyst. 1) Seize top-down beta opportunities for commercial vehicles. The current commercial vehicle sector cycle continued upward or better than market expectations. Unlike the historical cycle, this round of commercial vehicles is “external and domestic demand resonance+asset revaluation of state-owned enterprises”. In 2023, leading companies began to cash out their results, and in 2024, Dragon Erlong and Third will closely follow up with the results. Heavy truck sector: Weichai Power (000338.SZ) /Sinotruk (000951.SZ) +FAW Jiefang (000800.SZ) /Foton Motor (600166.SH). Bus segment: Yutong Bus (600066.SH) +Jinlong Auto (600686.SH).

2) Continue to look for structural opportunities in electrification logic. There is still considerable room for improvement in the penetration rate/market share of independent brands in the domestic luxury car market. Vehicle level selection: Ideal Car+Huawei (Cyrus (601127.SH) /Changan (000625.SZ) /BAIC Blue Valley (600733.SH) /JAC (600418.SH)). In terms of components, select the Huawei industrial chain: Huguang Co., Ltd. (605333.SH) /Wencan (603348.SH) /Huayang Group (002906.SZ), etc., and the ideal industrial chain: Desai Xiwei (002920.SZ) +Baolong Technology (603197.SH) +Xinquan (), etc. 603179.SH

3) Strategic layout L3 intelligent Xiaopeng Motors (09868), global components Junsheng Electronics (600699.SH), etc.

Risk warning:

Intelligent technological innovation fell short of expectations, global penetration of new energy sources was lower than expected, etc.