Core Viewpoint - The dynamic balance in the lithium battery supply chain is highlighted, with a focus on the evolving relationship between Tianqi Materials and CATL, indicating a shift towards reduced dependency and increased diversification in supply contracts [2][8]. Group 1: Cooperation with CATL - Tianqi Materials established a wholly-owned subsidiary, Ningde Kaixin, in 2015 to provide close services to CATL [4]. - Revenue from CATL reached 10 billion CNY in 2018, accounting for 35.7% of Tianqi's lithium battery material sales; this increased to 122 billion CNY in 2022, representing 58.4% of sales [5]. - In 2023, revenue from CATL decreased to 81 billion CNY, making up 57.6% of Tianqi's sales, and is projected to drop further to 50 billion CNY in 2024, which would be 45.6% of total sales [5][7]. Group 2: Reducing Dependency - The supply agreement between Tianqi Materials and CATL is set to expire at the end of 2025, with no news of renewal, indicating Tianqi's increasing options [8]. - Tianqi has disclosed significant supply contracts, including a partnership with Chuangneng New Energy to supply at least 550,000 tons of electrolyte products by 2030 [10]. - Additional contracts include an agreement with Ruipulan Jun for 800,000 tons and a framework agreement with AVIC New Energy for 725,000 tons, totaling 2.945 million tons across multiple contracts [12]. Group 3: Production Capacity and Market Dynamics - Tianqi's electrolyte production capacity is expected to reach 1 million tons by 2026, with 80% of this capacity already pre-sold, leaving little room for long-term contracts with CATL [13]. - The company anticipates a tripling of production over the next three years, with secured sales channels and potentially higher prices than those offered to CATL [14]. - CATL is also diversifying its supply sources, including a contract with Enchem for 350,000 tons of electrolyte from 2026 to 2030, indicating a shift in CATL's supply strategy [15][17]. Group 4: Financial Performance - Tianqi's lithium battery material shipments increased steadily, but gross profit fluctuated significantly, with a peak gross profit of 88 billion CNY in 2022 and a drop to 24 billion CNY in 2024 [22][24]. - The gross profit margin fell from 39.6% in 2022 to 18.9% in 2024, reflecting the impact of pricing pressures in the market [24]. - Despite the challenges, Tianqi's performance remains resilient compared to other cyclical stocks, with a gross profit margin of 20% considered acceptable in the manufacturing sector [29][30]. Group 5: Industry Positioning - Tianqi Materials has transitioned into a cyclical stock, a shift that was not initially intended, but reflects a strategic adaptation to market conditions [37]. - The company has broadened its customer base to reduce reliance on a single client, demonstrating an understanding of industry trends and the importance of flexibility in supply chains [37].

Investment Rating - The report maintains a "Positive" outlook for the automotive industry, expecting the industry index to outperform the market index by over 5% in the next six months [5]. Core Insights - The automotive industry has shown resilience with the Shanghai Composite Index rising by 1.12% and the Shenwan Automotive Industry Index increasing by 2.40%, outperforming the market by 1.29 percentage points, ranking third among 31 primary industries [1]. - The export of Chinese automobiles has been growing significantly, with a year-on-year increase of 6% in the first four months of 2025, and a remarkable 52.6% growth in new energy vehicle exports [4]. - The report highlights a shift in major automotive manufacturers towards exploring export markets due to intense domestic competition, with a notable increase in the export of fuel vehicles [4]. Market Performance - As of May 16, 2025, the Shenwan Automotive Sector's Price-to-Earnings (PE) ratio (TTM) stands at 26.74 times, which is at the 34.72 percentile of the past five years [1]. - Among 294 listed companies in the automotive sector, 192 experienced stock price increases, with the top three gainers being Chengfei Integration (+61.09%), Zhaofeng Co. (+34.78%), and New Coordinates (+26.17%) [1]. Industry Data - The report provides insights into the prices of key raw materials, noting that the price of lithium carbonate averaged 64,500 yuan per ton, with a weekly decline of 1.15% [3]. - The price of float glass (4.8/5mm) is reported at 13,183,000 yuan per ton, reflecting a slight increase of 0.10% [2]. Technological Collaboration - Many automotive companies are collaborating with third-party solution providers like Huawei and DJI for smart driving technology, adopting a "self-research + cooperation" model to enhance competitiveness and innovation [8].

Investment Rating - The report maintains a "Positive" outlook for the automotive industry, indicating expectations for the industry index to outperform the market index by 5% over the next six months [6]. Core Insights - The automotive sector saw a 1.59% increase in the Shanghai and Shenzhen 300 Index, while the Shenwan Automotive Industry Index rose by 0.75%, lagging behind the market by 0.83 percentage points, ranking 26th among 31 primary industries [1]. - In February, the retail sales of new energy passenger vehicles reached 690,000 units, with a retail penetration rate of 50%. The new policies and vehicle purchase tax exemptions are expected to support the new energy vehicle market [5]. - The report highlights a competitive landscape in the entry-level vehicle segment under 150,000 yuan, with companies like BYD and Geely intensifying their efforts [5]. Market Overview - The automotive industry index experienced varied performance across segments, with the passenger vehicle sector increasing by 3.30% and the commercial vehicle sector declining by 0.30% [1]. - Among the 294 listed automotive companies, 173 saw stock price increases, with notable gainers including Xinlong Health (+61.01%), Zhaofeng Co. (+44.21%), and Xiangyang Bearing (+36.61%) [1]. Valuation Metrics - As of March 16, 2025, the Shenwan Automotive Sector's Price-to-Earnings (PE) ratio (TTM) stands at 29.18 times, positioned at the 54.83 percentile over the past five years [2]. Industry Data Observations - The average price of lithium carbonate is 74,900 yuan per ton, showing a week-on-week decline of 0.32% [4]. - The price of zinc ingots increased by 0.67% compared to February 28, reaching 23,800 yuan per ton, while aluminum ingots rose by 1.94% to 20,700 yuan per ton [3].