Summary of the Conference Call on the China Auto Parts Sector Industry Overview - **Industry**: China Auto Parts Sector - **Key Event**: Shanghai's plan to establish a high-level autonomous driving zone by 2027 announced at the World Artificial Intelligence Conference 2025 [2][3] Core Points and Arguments - **Shanghai's Autonomous Driving Plan**: - Aim to launch level 4 autonomous driving vehicles to cover over 6 million passenger trips by 2027 [2] - Plans to open more than 5,000 km of roads for autonomous driving [2] - Over 90% of new vehicles in Shanghai to be equipped with level 2 and level 3 autonomous driving functions [2] - Eight companies have received permits for robotaxi services, including both traditional and robotaxi service providers [2] - **Impact on the Auto Parts Industry**: - Development of higher-level autonomous driving is expected to create incremental opportunities for Chinese auto parts suppliers [4] - Increased demand for intelligent auto parts, enhancing per-vehicle content value compared to conventional offerings [4] - Demand for products such as autonomous driving domain controllers, LiDARs, and wire control products will rise [4] - Enhanced cooperation between OEMs and parts makers is anticipated due to the deployment of high-level autonomous driving [4] Relevant Companies - **Key Players**: - Desay SV: Leading ADAS domain controller supplier (Rating: Buy) [5] - Hesai and Robosense: Top two global LiDAR suppliers (Not covered) [5] - Nexteer: Leading steer-by-wire supplier (Rating: Buy) [5] - Bethel: Leading brake-by-wire supplier (Not covered) [5] Risks to the Sector - **Potential Risks**: - Demand for auto parts may decline due to lower auto production [7] - Automakers may pass price pressures onto parts suppliers due to squeezed earnings from slowing car sales [7] - Increased competition may lead to price pressures [7] - Raw material cost inflation could raise auto part costs [7] - Sector consolidation may not meet expectations [7] - Product recalls due to quality issues could pose risks [7] Valuation and Risk Statements for Companies - **Desay SV**: - Valuation based on DCF methodology; risks include slower new product development and client acquisition [8] - **Nexteer**: - Valuation also based on DCF; downside risks include slower expansion in China and raw material price increases, while upside risks include gaining new customers and margin expansion [9] Conclusion - The establishment of a high-level autonomous driving zone in Shanghai is expected to significantly impact the auto parts sector, providing opportunities for growth while also presenting various risks that need to be managed. Key players in the sector are positioned to benefit from these developments, but they must navigate the challenges posed by market dynamics and competition.