NEWS

Opportunity 1: New changes, new demands.

After more than 40 years of development from scratch, Chinese automotive parts companies have accumulated certain advantages in some fields today, such as automotive glass, interior, sunroof, aluminum die-casting, door panels, bumpers, etc. Due to the strong localization and demand for nearby services in these fields, there have been several mature local established enterprises in the era of gasoline vehicles.

We believe that if these established enterprises can keep up with the changes in the era of intelligent electrification and increase the proportion of new energy vehicle orders, their advantages will continue.

In another type of field with high technological barriers, such as engines, transmissions, automotive electronics, etc., Chinese enterprises generally start late and are always in a catching up state in terms of technology; Due to safety concerns, traditional car companies pursue stability, while new companies mostly lack opportunities. Therefore, in the era of fuel vehicles, these fields have always been dominated by international giants, and the process of domestic substitution is relatively slow.

However, in the era of smart electric vehicles, this situation is being broken due to changes in core components.

Taking the "three major components" of a fuel powered vehicle as an example, the engine, gearbox, and chassis have been replaced by electric motors, electronic controls, and reducers; The car chassis, which supports and installs the engine and other components, is also being redesigned.

Therefore, the advantages of traditional component giants have been weakened, and today, domestic and foreign enterprises are almost on the same starting line.

In addition, we judge that even in the parts field where some overseas giants once dominated, there may not be another dominant position in the future.

This is because in the era of fuel powered vehicles, the automotive industries of Germany and Japan have been developing and growing, and domestic component companies such as Bosch and Denso have been supported and cultivated by car companies. The competition in the same niche field is not fierce. Today, the competition in the automotive parts industry is even more intense. Especially for Chinese component companies, they have always been in a highly competitive environment, and the future industry landscape will be more diversified compared to the past.

Therefore, around the core components of the era of intelligent electric vehicles, we believe that Chinese enterprises have opportunities in areas with significant changes such as domain controllers, LiDAR, wiring harnesses, wire control, and chassis. Taking domain controllers and LiDAR as examples:

Domain controller: Due to the increasing number of functions in electric vehicles, distributed domain controllers are evolving towards centralized domain controllers in order to save the cost of vehicle electronic machine control and facilitate later expansion of functions. Taking the body domain controller as an example, its penetration rate in gasoline vehicles is less than 10%, but its penetration rate in new energy vehicles has reached 60%.

The evolution of architecture provides opportunities for Chinese enterprises to challenge established overseas enterprises. The reason is that Chinese companies have certain advantages over overseas giants in terms of supporting research and development capabilities (including response speed, cooperation degree, research and development technology), cost, product quality, and delivery ability.

Overall, factors such as increased sales of new energy vehicles, increased localization rate of automotive electronics, and increased market share of domestic automotive brands will drive the growth of Chinese enterprises in the field of domain controllers. According to our research, the market size of domestic body domain controllers in 2023 is about 2 billion yuan, and Chinese companies in the field of pan body control units, as Tier 1 participants, will have a market size of about 45 billion yuan, which will further grow in the future.

Lidar: Due to factors such as high cost and insufficient technological maturity, there is currently no consensus in the industry on whether lidar will be widely used in the short term.

But in fact, our research has found that Chinese car companies have already ushered in a wave of laser radar mass production and installation in the second half of 2022. At present, Chinese car companies have the most application of LiDAR in the world.

We believe that despite the large initial research and development investment in LiDAR, the technology has not yet been finalized and widely applied, resulting in many innovative enterprises in this field still not making a profit. But in recent years, its costs have begun to decline significantly. Considering the absolute advantages of LiDAR in technology and performance compared to pure visual routes, there is still an opportunity in the future to compensate for the shortcomings of visual technology by combining "millimeter wave radar+ultrasound+camera" equipment.

Moreover, the future market size of LiDAR is large enough, and once the product volume increases, there is still a chance for the current industry landscape to change.

However, being optimistic about its future value does not mean that there are investment opportunities right now. In actual investment, we focus on the time and scale of mass production and installation of LiDAR. Behind it, it is necessary to predict the implementation path of cost reduction, as well as combine the progress of relevant laws and regulations on autonomous driving and the maturity of the upstream and downstream of the LiDAR industry chain.

On the other hand, the number of real orders remains the key to determining the investment value of a company. In the future, there are still opportunities for laser radar enterprises that can deeply cooperate with large host factories and continuously obtain large orders.

In addition, we see that seemingly traditional elements such as seats and headlights are also undergoing changes. Taking seats as an example, new energy vehicle companies use functions such as seat heating, ventilation, massage, and electric adjustment as selling points to continuously increase the value of individual seats.

The concentration of the seat market has always been high, with the top five overseas giants accounting for about 75% of the global market share. Considering the stable customer relationships and long development cycles in this field, breaking the current situation is not easy. However, in the era of smart electric vehicles, with the development of Chinese automotive independent brands, if Chinese seat suppliers can leverage their advantages in supporting research and development, cost control, and stable quality, there are still opportunities in the future.

Opportunity 2: Reduce costs.

We can see that in some parts and components fields, Chinese companies have reduced production costs and increased market penetration through key technological breakthroughs, process and material innovations, and other means. Once the product application is popularized, new opportunities will emerge in the upstream and downstream of the relevant industry chain.

Air suspension and Head Up Display (HUD) are typical cases among them. Taking HUD as an example, there has been a downward trend in costs. If HUD's market share expands, upstream demand will also continue to increase.

For example, unlike ordinary car glass, in many new energy vehicles, in order to prevent HUD images from being projected onto the front windshield and causing ghosting, one approach is to add a wedge-shaped PVB film inside the windshield interlayer, making the glass appear thick on top and thin on the bottom. In addition, some front windshields are also coated with transparent nano films internally, which enhances the brightness of the main image and eliminates ghosting. The emerging demand for "membrane" products on these new energy vehicles means new investment opportunities.

Opportunity 3: Globalization.

Today, Chinese cars going global are experiencing breakthroughs in both quantity and quality.

According to data from the China Association of Automobile Manufacturers, China's automobile exports in the first half of 2023 were 2.341 million units, a year-on-year increase of 76.9%. China's automobile industry is no longer limited to the traditional model of exporting complete vehicles. More and more car companies are beginning to try to directly build factories overseas, integrate local resources, and complete the transition from "globalization" to "localization".

Therefore, automotive companies have further demand for component companies, hoping that they also have the ability to go global and provide local supporting services and responses to reduce supply chain uncertainty. We judge that if component companies can keep up with the pace of car companies going global, there is an opportunity to expand overseas markets and achieve new growth.

More importantly, in overseas markets, although Chinese component companies bear the same operating costs as local companies, their advantages in supporting services and communication with Chinese automotive companies are more obvious.