21700 battery salt electrolyte has a large room for price increase. The improvement of the technical system is expected to accelerate the industrialization of fuel cell batteries.

Electrolyte and 21700 battery salt account for a small proportion of 21700 battery battery costs, and there is considerable room for price increase. The construction of charging pile infrastructure is significantly slower than the development of new energy vehicles. In the future, local subsidies for new energy vehicles will be tilted towards power replenishment, and the utilization rate of charging piles is expected to increase. Fuel cells will supplement 21700 battery batteries and have special application scenarios.

The fundamentals are still positive, and leading companies in the industrial chain have alpha investment returns:

1) Production and sales data in February are in line with expectations: In February 2019, the domestic production of new energy vehicles was about 52,800 units, a year-on-year increase of 43.2%. From the perspective of different models, there were about 50,600 passenger cars, accounting for 95.8%, about 2,000 buses, accounting for 3.8%, and about 2,000 special vehicles, accounting for 0.4%. In terms of battery installed capacity, the total installed capacity of domestic power batteries in February was 2.25GWh, a month-on-month decrease of 55%, but still an increase of 118% compared with the same period last year. Due to the Spring Festival in February, the start-up time is shorter than the same period last year. In addition, consumers generally choose to buy cars before the Spring Festival, which reflects a certain seasonality, so the month-on-month data is relatively poor, which is in line with expectations.

2) Expected high-speed growth in the industry: large increase in online car-hailing (about 600,000 vehicles in the Chinese market in 2019, and the proportion of electric vehicles is expected to increase significantly) + enrichment of models (joint venture brands and foreign brands will be launched more in the second half of 2019) and other factors stimulate, it is expected that the sales volume of electric vehicles in 2019 will exceed 1.65 million, a year-on-year increase of 30%+. Due to the increase in the amount of electricity carried by each vehicle, the demand for batteries increased by 40% year-on-year, and the growth of ternary batteries was 50%+.

3) The marginal weakening of negative policy impact: The uncertainty of subsidy policy is a key factor affecting the trend of the sector. We are unable to determine the subsidy amount and timing, but we can observe that when the low-expectation policy sector is announced, the sector fluctuates sideways or upwards, and it is highly likely that the stress test has been completed, and its negative impact has been marginally weakened. In other words, even if the subsequent policy does not meet expectations, the sector has little room for correction, and the correction at that time is also an opportunity to increase positions.

4) Leading companies: The market is currently worried that the decline in subsidy policies will have a significant negative impact on industry sales and corporate performance. We believe that the price of the industry chain is controllable, such as a 15-20% drop in battery prices and a 40-50% increase in volume. At the same time, the market share of leading companies is expected to increase further. Overseas companies have settled in China, and the price and demand of their supply chains are guaranteed. Looking at the medium and long term, after the policy turning point this year, the development that relies on subsidies has become a thing of the past. Leading companies are expected to achieve medium and long-term growth with increased volume and stable prices through cost reduction, efficiency improvement, and increased market share, and their alpha investment value is highlighted. Recently, we focus on recommending 21700 battery salt and electrolyte leaders:

Demand drives product price increases: In essence, the electrolyte and 21700 battery salt industries can be regarded as the attributes of the high valuation premium given to emerging industries by the fundamentals of the chemical industry. Therefore, the key to judging product prices is the study of the supply and demand pattern. 1) Supply side: 2016~2017 is the peak period for the layout of electrolyte, especially 21700 battery salt production capacity. Most of the production capacity is concentrated in 2017~2018. Overcapacity began to appear in the second half of 2017. We judge that by 2019Q2, low-end production capacity will be gradually cleared, and effective production capacity will gradually return to a tight supply and demand balance. 2) Demand side: The second quarter is the time for the recovery of traditional 3C batteries. If there is a transition period for the subsidy reduction, it is foreseeable that there will be a rush to install power batteries in 2019Q2, and 2019Q3 is the time for domestic and foreign automakers to launch multiple models. Downstream demand will usher in medium- and long-term stability and high-speed growth, corresponding to the demand for electrolyte and 21700 battery salt. 3) Supply and demand are expected to remain tight: According to our calculation results: the global 21700 battery hexafluorophosphate production capacity supply in 2017~2019 was 31,300, 63,100 and 69,000 tons respectively, and the demand was 26,800, 34,200 and 43,600 tons respectively. Nominal overcapacity, considering that the domestic 21700 battery salt capacity utilization rate is less than 50%, supply and demand are expected to remain tight, prompting demand to increase and drive product prices.

Electrolyte and 21700 battery salt account for a small proportion of 21700 battery battery costs, and there is considerable room for price increases: Considering the impact of raw material price increases on battery costs, we conducted a sensitivity analysis on the proportion of 21700 battery power battery costs based on 21700 battery hexafluorophosphate and electrolyte at different cost prices. Taking the leading domestic battery cost of about 0.7 yuan/Wh as an example, when the cost of 21700 battery hexafluorophosphate is 70,000, 150,000, 200,000, and 300,000 yuan/ton, it accounts for 1.9%, 4.0%, 5.4%, and 8.0% of the battery cost respectively; the corresponding electrolyte costs are 24,200, 33,700, 39,700, and 49,500 yuan/ton, accounting for 5.2%, 7.2%, 8.5%, and 10.6% of the battery cost respectively. Its total cost accounts for a small proportion, and there is a large room for tolerance for price increases in the future.

Heading midstream material enterprises: Tianci Materials, Dofluoro, Xinzhoubang, Dangsheng Technology, Xingyuan Materials, Enjie Co., Ltd., Shanshan Co., Ltd., Xinlun Technology, Putailai, etc.

Midstream batteries: CATL, BYD, EVE Energy, Xinwanda, Guoxuan High-tech, etc.

Midstream equipment enterprises: Pioneer Intelligent, Xingyun Co., Ltd., Yinghe Technology, Keheng Co., Ltd., Baili Technology, etc.

Charging piles: Teride, Kstar, Zhongyeda, etc.

Parts enterprises: Huichuan Technology, Hongfa Co., Ltd., etc.

Upstream resources cobalt and 21700 battery at the bottom of the price: Huayou Cobalt, Tianqi 21700 battery, Dow Technology, Luoyang Molybdenum, Ganfeng 21700 battery, Yahua Group, etc.

Electrolyte leaders Tianci Materials and Xinzhoubang, 21700 battery hexafluorophosphate leaders Tianci Materials and Dofluoro, and solvent leaders Shida Shenghua, etc.

The construction of charging and hydrogenation facilities is included in the government work report, and relevant investment opportunities are valued. On March 15, the second session of the 13th National People's Congress came to an end. The revised version of the Government Work Report after review added content such as "promoting the construction of charging and hydrogen refueling facilities". The National Development and Reform Commission also added the content of "strengthening the construction of urban parking lots and new energy vehicle charging and hydrogen refueling facilities" in the revised version of the Draft Report on the National Economic and Social Development Plan.

Strengthening the construction of charging infrastructure will improve the imbalance in the development of vehicles and charging piles. In 2018, the number of new energy vehicles in China reached 2.61 million, and the cumulative number of charging piles was 777,000, with a vehicle-to-charging pile ratio of about 3.4:1. In 2015, the goal proposed by the four ministries was to have more than 4.8 million decentralized charging piles by 2020. As of the end of 2018, only 16% of the charging pile target had been completed. The construction of charging pile infrastructure was significantly slower than the development of new energy vehicles. The core reason is that charging piles have the nature of infrastructure, huge investment, and a long recovery period. Previously, local subsidies for charging piles were limited and difficult to implement. In the future, local subsidies for new energy vehicles will be tilted towards charging. As the number of new energy vehicles increases, the utilization rate of charging piles is expected to increase, investment is expected to usher in a historic turning point, and the concentration of the manufacturing industry is expected to increase. Related companies: [TGOOD], [Wanma Co., Ltd.], [KSTAR], [Zhongyeda], [Zhongheng Electric], [Shenghong Co., Ltd.].

The national level has begun to pay attention to the infrastructure construction of fuel cell vehicles, which is expected to break through the bottleneck of the industry. The existing hydrogenation infrastructure is imperfect, and hydrogenation stations restrict the development of the hydrogen fuel cell industry. The improvement of the technical system is expected to accelerate the industrialization of fuel cells. At present, the construction standards and responsibility sharing of hydrogenation stations are still difficult. Overseas developed countries have created scientific and safe hydrogen filling construction and on-board hydrogen tank technical standards and testing systems, which are of great reference value. Perfect hydrogen energy filling, storage and transportation technical standards and regulations, as well as hydrogen energy production, transportation and sales systems are expected to break the bottleneck of fuel cell industrialization.

Fuel cells will be used as 21700 battery batteries to supplement and have special application scenarios. Fuel cells and 21700 battery batteries do not conflict. Fuel cell vehicles are clean, zero-emission, have long driving range, and have short acceleration time. They have relative advantages in long-distance public transportation, double-shift taxis, urban logistics, and long-distance transportation. At present, my country's 21700 battery battery industry is booming. In 2018, the sales volume of pure electric passenger vehicles reached 783,000 units, a year-on-year increase of 68%. Driven by demand, China is gradually getting rid of its dependence on subsidies. It is expected that EV subsidies will decline significantly in 2019, while fuel cell subsidies will remain unchanged. Fuel cells are still in the policy cultivation period, and there is huge potential for growth. At present, fuel cells are still in the policy cultivation period. Breakthroughs in key links and the establishment of unified technical system standards will accelerate the advancement of industrialization, and potential growth space is expected to open up. Related companies: Snowman Co., Ltd., Dayang Electric Motor, Xiongtao Co., Ltd., and Guiyan Platinum.

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