Summary of Key Points from the Conference Call Industry Overview - The European electric vehicle (EV) market is becoming a critical battleground for battery cell manufacturers as the Chinese market matures, surpassing a 50% penetration rate. By 2030, Europe's battery demand is expected to reach 975GWh, reflecting a compound annual growth rate (CAGR) of 26%, accounting for 23% of total global demand [1][9][30]. Market Dynamics - Currently, Europe has a 20% EV penetration rate with supportive policies, despite some delays in emissions targets. Year-to-date EV sales in Europe have surged, showing a year-on-year growth of 25% [1][9]. - Chinese battery cell manufacturers have significantly increased their market share in Europe, rising from under 10% in 2020 to 65% today. CATL's market share has grown from 0% in 2019 to 45% currently, while LGES and Samsung SDI have seen declines [2][10][12]. Competitive Landscape - CATL maintains a dominant position in the European EV battery market, supported by a diverse customer base including Volkswagen, BMW, and Stellantis. CATL's batteries are expected to be incorporated in 50% of all new EV models in Europe [3][27]. - CATL's European production capacity is fully contracted with OEMs, and the company is expanding its manufacturing capabilities with new plants in Hungary (100GWh) and Spain (50GWh) [4][35]. Financial Insights - Profitability for CATL's Hungary plant is projected to be lower than its domestic operations due to higher costs, with a 46% premium over China average selling prices (ASP) and a 25% higher cost of goods sold (COGS) compared to its Chinese plants [5]. - CATL's growth strategy includes aggressive capital expenditures, with plans to triple its total production capacity to 2,000GWh by 2030, surpassing previous expectations [30]. Investment Implications - Europe is expected to become increasingly important for CATL as the Chinese market slows. The company is projected to increase its market share in Europe to 50%, driven by local capacity expansion and the adoption of LFP technology critical for affordable mass-market EVs [7][28]. - CATL's strategic localization of production in Europe is seen as a key factor in maintaining its market-leading position, despite anticipated lower margins compared to exports from China [7][28]. Customer Relationships - CATL has established significant partnerships with major automakers, with Volkswagen being a key customer. The company has also seen increased orders from BMW and Mercedes-Benz, indicating strong OEM relationships [18][27][29]. Conclusion - CATL's rapid expansion and strategic partnerships position it well to capitalize on the growing European EV market. The company's ability to localize production and adapt to market demands will be crucial for sustaining its competitive edge in the evolving landscape of battery manufacturing [30][35].

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **Chinese economy**, particularly addressing the **deflation challenge** and the **anti-involution program** aimed at tackling excess capacity and stimulating demand [3][7][12]. Core Insights and Arguments 1. **Policy Intent and Action**: Policymakers are reaffirming support for the anti-involution effort, indicating that new policy actions are likely to emerge in response to the deflation challenge [7][10]. 2. **Historical Context**: The current situation is being compared to the **2015-16 supply-side reforms**, which helped the economy exit deflation in September 2016. However, the current cycle is expected to be more prolonged due to structural issues in the property market and trade tensions [7][11]. 3. **Deflation Metrics**: The GDP deflator has been negative for the past nine quarters, and producer prices have been in deflation for 33 months, indicating a significant deflationary environment [8][11]. 4. **Excess Capacity**: A substantial portion of excess capacity (50-90%) is located in the private sector, complicating efforts to boost demand [7][11]. 5. **Demand Challenges**: The structural downturn in the property market and trade tensions are significant barriers to boosting demand, making it more challenging to combat deflation [11][12]. 6. **Consumption Focus**: A sustainable solution to the deflation problem requires a shift towards supporting consumption, particularly through increased social welfare spending aimed at urban migrant workers and the rural poor [12][47]. 7. **Investment Dynamics**: Non-real estate fixed asset investment (FAI) has grown by 26% since 2Q21, with gross investment to GDP remaining elevated at 41%, contrasting with Japan's experience post-bubble [20][27]. 8. **Diminishing Returns**: The current investment push has led to diminishing returns, with the incremental capital output ratio (ICOR) rising to 7.9 in 2025 from 7.3 in 2023 [27][30]. 9. **Demographic Challenges**: Declining population and weaker demographics are expected to hinder property sales and overall economic growth, complicating the deflation battle [27][31]. Important but Overlooked Content 1. **Private Sector Dominance**: Unlike previous cycles where state-owned enterprises (SOEs) dominated, the current overcapacity issues are primarily in private sectors such as solar, EVs, and batteries, complicating coordination for supply-side consolidation [49][50]. 2. **Excess Supply in Key Sectors**: In solar, China's supply is over twice the global demand, and in EV batteries, it is 1.3 times the global demand, indicating severe overcapacity [51][54]. 3. **Historical Lessons**: The report draws parallels with past deflation cycles, emphasizing that both demand recovery and supply-side reforms are necessary to exit deflation sustainably [33][34]. 4. **Global Economic Context**: The report notes that global growth is expected to slow below trend due to trade tensions, which will further impact China's economic recovery [44]. This summary encapsulates the critical insights and arguments presented in the conference call, highlighting the complexities of China's current economic challenges and the multifaceted approach required to address them.

Investment Rating - The report assigns a "Buy" rating to BYD (1211 HK), Desay SV (002920 CH), and Contemporary Amperex Technology (300750 CH) [54][60][65]. Core Insights - The China auto market has shown another double-digit year-on-year growth, with wholesale unit deliveries reaching 2.5 million units in June, marking a 14.5% increase year-on-year and a 7.8% increase month-on-month [1][7]. - The electric vehicle (EV) market is experiencing suboptimal growth, with EV penetration at 52.7% in June, which is below expectations and historical highs [1][7]. - Concerns are raised regarding the slowing growth of EV penetration, potentially due to aggressive pricing strategies from internal combustion engine (ICE) car manufacturers and the upcoming 50% cut to EV purchase tax exemptions starting next year [2][7]. Summary by Sections China Auto Market Performance - In 1H25, the China auto market reported a total of 13.5 million wholesale shipments, reflecting a 12.9% year-on-year growth, while retail sales (excluding minivans) reached 10.9 million units, up 10.8% year-on-year [8]. - The overall growth momentum in 1H25 was slightly above expectations, supported by government subsidies for scrapping and trade-in programs [8]. Electric Vehicle Market - Monthly retail sales of PV EVs reached 1.1 million units in June, representing a 30.2% year-on-year increase [1][9]. - The report highlights that BEVs outperformed PHEVs/EREVs in terms of growth, with BEVs showing 45% year-on-year growth in wholesale shipments during 1H25 [9]. OEM Strategies and Market Dynamics - OEMs are currently preparing their strategies for 2H25, with expectations of model launches and adjustments in response to government policies against over-competition [3]. - BYD remains a top pick due to its strategies aimed at regaining market share, including reducing SKUs and improving model features without price increases [4]. Battery Market Insights - EV battery installations grew by 35.9% year-on-year to 58.2 GWh in June, with total installations for 1H25 reaching 300 GWh, a 47.3% increase year-on-year [5]. - CATL and BYD maintained their market leadership in the battery sector, holding 43.7% and 21.5% market shares, respectively [5]. Lithium Market Trends - The price of lithium carbonate in China rebounded from a low of CNY 60,000 per tonne in late June to CNY 63,000 per tonne in early July [5][48]. - The report anticipates potential downside risks to lithium production in July due to weakened demand and government interventions [5][48].

Battery Supply Chain & Localization - Lucid initially sourced battery supplies from Japan and Korea, but has since invested in localizing production with Panasonic in the US [1] - The collaboration with Panasonic involves co-engineering to optimize battery cell performance based on Lucid's real-world experience and Panasonic's chemistry expertise [2] - Localizing the supply chain, including raw materials like graphite, is crucial to mitigate the impact of tariffs [6][7] - The company is working on further localizing the supply chain for battery cells to avoid tariffs on imported raw materials [6] Production & Scaling - Lucid is ramping up production of the Gravity model and expects significantly higher numbers than in the past [9] - The company aims to reach 20,000 vehicles this year, with efforts focused on resolving supply chain bottlenecks and optimizing plant operations [9][14][16] - The mid-size platform, targeting a $50,000 price range, is on track for next year and is expected to be a key inflection point for volume scaling [8][9][16] - The de plant will supply cells for vehicles sold or delivered starting next year [10] Market Position & Strategy - Lucid Air is the best-selling EV in its segment in the United States, even outperforming ICE vehicles at the beginning of the year [12] - The company is primarily appealing to the higher price segment, as achieving economies of scale in automotive manufacturing is a long-term process [14][15] - Lucid is experiencing increased interest from potential partners motivated by the effort to onshore industry in the US [19] - Lucid is seeing increased interest from Tesla owners [23] External Factors & Challenges - Tariffs increase costs and necessitate rethinking the supply chain, prompting localization efforts [5][25] - The company is less impacted by cost increases compared to other players because it builds everything in the United States [26] - The company believes that vehicles will become more expensive for American consumers under the tariff regime [28]