Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Battery Materials, specifically focusing on Electric Vehicle (EV) batteries - **Date**: August 31, 2025 Core Insights - **Battery Installation Data**: In July 2025, China’s EV battery installation was 63.7 GWh, reflecting a decrease of 3% month-over-month (MoM) but an increase of 43% year-over-year (YoY) [1][2] - **Year-to-Date Performance**: Cumulative EV battery installations for the first seven months of 2025 reached 402.8 GWh, representing a 49% increase YoY [1][2] - **Commercial Vehicle Segment**: Commercial vehicles accounted for 16% of battery installations in the first seven months of 2025, up from 10% in 2024, indicating a shift from Internal Combustion Engine (ICE) vehicles to Battery Electric Vehicles (BEV) [1][7] - **Market Share of Top Manufacturers**: The top two battery manufacturers, CATL and BYD, held a combined market share of 66% in July 2025, with CATL at 43% and BYD at 22%, both down by 1 percentage point MoM [2][5] Market Dynamics - **Battery Chemistry**: Lithium Iron Phosphate (LFP) batteries continued to dominate the market with a 79% share in July 2025 [1] - **Commercial Vehicle Battery Size**: The average battery size for commercial vehicles increased to 160 kWh per unit in 2025, up from 110 kWh in 2024, driven by the growing demand for larger batteries in special vehicles [7] Company Insights - **Top Picks**: Recommended stocks in the battery space include CATL, EVE Energy, and Hunan Yuneng, all of which are under observation for potential upside catalysts [1] - **Valuation Metrics**: - CATL is valued at HK$425/share based on a target EV/EBITDA of 16.6x for 2025, implying a P/E of 28.2x for 2025 and 22.4x for 2026 [12] - EVE Energy is valued at Rmb59.20/share, with a focus on its core battery business and other contributions [15] - Hunan Yuneng is valued at Rmb51.9/share, reflecting a cautious outlook due to surplus supply in the LFP cathode industry [17] Risks Identified - **CATL Risks**: Potential risks include lower-than-expected EV demand, increased competition leading to reduced market share, and higher raw material costs [13][14] - **EVE Energy Risks**: Risks include impacts from COVID-19-like situations, slower EV penetration in a low oil price environment, and rising raw material costs [16] - **Hunan Yuneng Risks**: Key risks involve lower-than-expected LFP cathode shipments, worse-than-expected gross profit margins, and higher expenses [18] Additional Insights - **Commercial Vehicle Transition**: The transition of special vehicles such as refrigerated trucks and garbage trucks from ICE to BEV is a significant trend contributing to the growth in battery installations [7] - **Market Share Trends**: The decline in market share for leading manufacturers like CATL and BYD may indicate increasing competition in the EV battery market [2] This summary encapsulates the essential insights and data from the conference call, providing a comprehensive overview of the current state and future outlook of the China battery materials industry, particularly in the EV segment.

Group 1 - POSCO Future M has signed a memorandum of understanding with CNGR and FINO to expand its precursor production agreement into the lithium-iron-phosphate (LFP) cathode material business, focusing on constructing LFP production facilities and promoting their use in Energy Storage Systems (ESS) [1][7] - The global ESS market is predominantly composed of LFP batteries, which accounted for 80% of the market in 2023, due to their cost-effectiveness and longer lifespan compared to ternary batteries like nickel-cobalt-manganese (NCM) [2][7] - POSCO is diversifying its product portfolio beyond high-nickel NCMA and NCA batteries, developing lithium-manganese-rich (LMR) materials for entry-level electric vehicles (EVs) and conducting R&D on high-density LFP cathode materials to enhance energy performance and supply-chain competitiveness [3][7] Group 2 - PKX stock has experienced a decline of 14.3% over the past year, which is slightly better than the industry's decline of 17.4% [5] - PKX currently holds a Zacks Rank of 2 (Buy), indicating a favorable outlook compared to other stocks in the Basic Materials sector [6]

Battery Industry Deal - LG Energy Solution signs a $4.3 billion (十亿) global LFP battery deal [1] - The deal spans from 2027 to 2030 [1] Potential Customer - Tesla is speculated to be a major client for LG Energy Solution's LFP batteries [1] - The customer for the $4.3 billion (十亿) deal remains unnamed [1]

Summary of China Battery Sector Conference Call Industry Overview - The conference call focused on the **China Battery Sector**, particularly the export trends and dynamics in the first half of 2025 (1H25) [1][4]. Key Insights - **Export Performance**: In 1H25, total battery exports from China (including consumer batteries and energy storage systems) increased by **73% year-over-year (YoY)**, with June 2025 showing a **74% YoY** growth [4][14]. - **Export Contribution**: Direct exports accounted for approximately **18%** of China's total battery output, highlighting the importance of export momentum for the sector's dynamics [1]. - **Regional Demand**: China supplied over **90%** of Europe's and **80%** of the US's battery imports in 1H25, indicating China's critical role in the global battery supply chain [1][24]. Export Breakdown - **By Region**: - **US**: Contributed **22%** of total exports in 1H25, with a **49% YoY** increase. The volume rebounded significantly in June (+80% month-over-month) after tariff adjustments [4][24]. - **Europe**: Accounted for **35%** of total exports, with a **61% YoY** growth. Monthly exports remained high at **11-12 GWh** [4][5]. - **Rest of the World (RoW)**: Represented **42%** of total exports, with a remarkable **102% YoY** growth, particularly driven by demand from the Middle East, Chile, and Australia [7][8]. Product Trends - **LFP Battery Penetration**: The share of lithium iron phosphate (LFP) batteries in direct exports rose to **62%** in 1H25 from **50%** in 1H24, indicating a strong demand for LFP technology [7][29]. - **LFP Cathode Exports**: Exports of LFP cathodes surged to **7.3 kt** (approximately **3 GWh**) in 1H25, up from **0.8 kt** in 1H24 [7][29]. Company Highlights - **CATL**: The leading contributor to China's battery exports, supplying about **70%** of Europe's battery imports and significant volumes to the US. Expected to stabilize its ex-China volume exposure at around **30%** [7][8]. - **Gotion**: Collaboration with Volkswagen is seen as a strategic opportunity to enhance its product mix and market position, particularly in Southeast Asia [7][8]. - **Hunan Yuneng**: A leading LFP cathode manufacturer with a **34%** market share, positioned to benefit from the increasing LFP demand [7][8]. Market Dynamics - **Correlation with EV Sales**: There is a strong correlation between China's battery exports and European battery electric vehicle (BEV) sales, with exports leading sales by approximately **3 months** [5][24]. - **Tariff Impact**: The rollback of a **125% reciprocal tariff** in April 2025 significantly impacted export volumes, leading to a recovery in June [4][34]. Conclusion - The China Battery Sector is experiencing robust growth in exports, driven by increasing demand from key markets such as the US and Europe. The shift towards LFP technology and strategic partnerships among leading companies are expected to shape the future landscape of the industry.

Investment Rating - The report rates CATL as "Outperform" and LGES as "Market-Perform" while POSCO Future M and other Korean companies are rated "Underperform" [6][7]. Core Insights - Lithium-Manganese-Rich (LMR) battery technology is positioned as a potential disruptor to the Lithium Iron Phosphate (LFP) market, particularly in the entry-level EV segment outside of China [1][9]. - LMR technology combines the safety and cost-effectiveness of LFP with the high energy density of NMC, achieving specific capacities of 250-280 mAh/g and cell-level energy densities around 300 Wh/kg, with potential optimization to 320 Wh/kg [2][15]. - Despite its advantages, LMR faces challenges in cycle life, voltage stability, and scalability, which need to be addressed for successful commercialization [3][15]. Summary by Sections LMR Technology Overview - LMR technology is a balanced approach between LFP and NMC, offering a theoretical cost of approximately US$55/kWh, which is about 15% higher than LFP but 20% cheaper than NMC [4][35]. - The technology does not rely on scarce resources like nickel and cobalt, reducing supply chain vulnerabilities and enhancing recycling potential [3][26]. Market Dynamics - Korean companies are focusing on LMR for entry-level EVs, while Chinese firms target higher-end applications, with significant advancements expected in commercialization by 2025-2028 [5][51]. - The report expresses skepticism about LMR's ability to replace LFP, suggesting that hybrid packs combining LFP and NMC may be a more effective solution [5][7]. Competitive Landscape - The lithium-ion battery industry is dominated by LFP and NMC chemistries, with LFP currently holding a 68% market share in China, while LMR is gaining traction in Western markets [29][31]. - Companies like POSCO Future M and Umicore are making strides in LMR technology, with plans for mass production and collaboration with global automakers [50][51]. Cost and Performance Metrics - LMR batteries are expected to provide a 35% improvement in energy density over current mainstream LFP products, making them a compelling option for mid-range EVs [24][26]. - The cost structure of LMR is competitive, with a breakdown showing that manganese's lower price compared to cobalt and nickel contributes to its cost-effectiveness [48][35]. Future Outlook - The report anticipates that LMR technology will play a significant role in the transition to more sustainable and cost-effective EV battery solutions, particularly in markets outside of China [27][31].

Investment Rating - The report does not explicitly provide an investment rating for the industry or specific companies within it Core Insights - NEV-PV battery installations increased by 11.2% week-over-week to 11.9 GWh, with a month-to-date increase of 14.5% and a year-to-date increase of 37.3% year-over-year [1] - CATL outperformed in market share, gaining 0.5 percentage points month-to-date, while BYD lost 4 percentage points in the same period [1][3] - Lithium-carbonate prices decreased by 2.7% week-over-week to Rmb 60,400 per ton, reflecting a 9.4% decline month-over-month [1] Summary by Sections Battery Installations - NEV-PV battery installations for the week of May 26 to June 1 reached 11.9 GWh, marking a 29.9% increase month-over-month and a 37.3% increase year-over-year [1][3] - Year-to-date installations for BEV and PHEV increased by 47.3% and 30.6% respectively [1] Market Share Dynamics - CATL's market share rose to 49.1%, while BYD's share fell to 33.6% [3] - CATL's installation growth was 15.8% year-to-date, compared to BYD's 2.5% [3] Cost Trends - LFP cell costs decreased to Rmb 245.2 per kWh, down 1.3% month-over-month and 9.3% year-over-year [2][8] - NCM cell costs fell to Rmb 351.9 per kWh, reflecting a 0.8% month-over-month and 10% year-over-year decline [2][8] - The gross profit margin for LFP cells improved to 15.9%, while NCM cells reached 17.2% [2][8]

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the **China EV (Electric Vehicle) and ESS (Energy Storage System) battery industry** [1] - Battery prices have reached historical low levels, with the average lithium iron phosphate (LFP) battery cell price at approximately **RMB 345/KWh** [2][8] - The sector is experiencing a rebound in EV demand, particularly in **Q2**, following a low seasonality in **Q1** [2] Core Insights - **Battery Pricing Trends**: - Battery prices are at trough levels, with a forecasted increase to **RMB 380/KWh** by the end of **2024** [2] - The average operating profit margin (OPM) for battery materials and component suppliers was **5% in Q1 2025**, down from **7% in Q1 2024** and **13% in Q1 2023** [2] - Despite the cost tailwind from declining upstream raw material prices (over **5% YTD**), pricing pressure from downstream EV customers remains significant [3] - **Tariff Impact**: - Current US-China tariff framework allows Chinese battery makers to pass on some tariff costs to downstream customers, enhancing their bargaining power [4] - Easing trade tensions could serve as a catalyst for growth in the ESS segment, which primarily uses LFP batteries [4] - **Company Focus - CATL**: - CATL is highlighted as a preferred stock within the China battery supply chain, with a target price of **RMB 322.00**, implying a **25% upside** from current levels [5][48] - CATL holds a **44% market share** in China's EV battery market and **39% in the LFP EV battery market** as of **Q1 2025** [13][15] Additional Insights - **Production and Sales Growth**: - China's EV battery production volumes increased by **77% year-on-year** in the first three months of **2025** [9] - Domestic ESS battery sales volume reached **69 GWh** in **Q1 2025**, marking a **219% year-on-year** increase [24] - EV battery export volumes were **37.8 GWh** in **Q1 2025**, up **34% year-on-year** [26] - **Market Dynamics**: - The LFP battery installation share in China's EV market rose to **81%** in **Q1 2025** [19] - The report notes potential risks including prolonged pricing pressure, lower-than-expected EV demand, and unfavorable tariff policies [5] Conclusion - The China EV and ESS battery industry is at a critical juncture with low battery prices, potential for recovery, and significant market share held by leading companies like CATL. The interplay of upstream cost dynamics and downstream pricing pressures will be crucial in shaping future market conditions [2][3][4][5]

Investment Rating - The investment rating for BYD is "Buy" with a target price of HK$688, implying a 32x/22x 2025E/26E PER [15] - The investment rating for CATL is "Buy" with a target price of Rmb362/share, implying a 24.5x 25E P/E and 19.4x 26E P/E [19] Core Insights - In March 2025, China EV battery installation reached 61.4 GWh, marking a 54% month-over-month and 56% year-over-year increase, with total installations for 1Q25 at 148.9 GWh, also up 54% YoY [1][2] - CATL's market share remained stable at 43% in 1Q25, while BYD's market share increased by 2 percentage points to 29% [2] - Lithium Iron Phosphate (LFP) batteries continued to dominate the market with a 79% share in 1Q25, up 17 percentage points from 62% in 1Q24 [2][5] Summary by Sections Market Dynamics - CATL is shifting towards the low-end market due to the rise of A-class passenger vehicles, which accounted for approximately 41% of battery installations in 1Q25, up from 25% in 2024 [8] - The combined market share of A-class and B-class vehicles rose to 66% in 1Q25, compared to 61% in 2024 [8] Company Performance - Xiaomi's battery demand surged to 6.67 GWh in 1Q25, with the SU7 model contributing over 2 GWh monthly since its launch in March 2024, while Huawei's battery installation volume fell by about 40% YoY to 2.2 GWh [12] - CATL's product mix saw A-class and B-class vehicles account for 50% of its offerings in 1Q25, compared to 29% in 1Q24 [8] Valuation Metrics - BYD's target price is derived using a PEG ratio of 1.0x based on a projected 32% NP CAGR from 2025 to 2027 [15][17] - CATL's valuation is based on a 15.0x 2025E EV/EBITDA, reflecting its historical average minus 0.25 standard deviation since listing [19]

Summary of Conference Call Notes Industry Overview - **Industry**: Battery and Electric Vehicle (EV) sector in China - **Key Players**: CATL, BYD, Gotion, EVE, CALB, REPT, Hunan Yuneng Core Insights and Arguments 1. **Production Cuts**: CATL has reduced its LFP battery production plan by 12% in March compared to the original plan, leading to order cuts from several LFP cathode suppliers, with reductions in production ranging from 10% to 30% [5][5][5] 2. **Battery Production Growth**: Despite the production cuts, there was a nearly 80% year-on-year increase in battery production in Q1 2025, raising questions about whether this reflects genuine demand or inventory stockpiling [5][5][5] 3. **EV Demand**: The domestic EV market in China grew by 35% year-on-year, while Europe saw a 20% increase in the same period. Chinese NEV wholesales, including exports, increased by over 50% [5][5][5] 4. **ESS Demand**: Demand for Energy Storage Systems (ESS) remains strong, with shipments in Q1 2025 estimated to have increased by over 120% year-on-year, despite recent policy changes in China [5][5][5] 5. **Inventory Concerns**: CATL's inventory days increased to 2.2 months at the end of 2024 from 1.8 months at the end of 2023. Management indicated that 60-70% of inventories are "goods in transit" due to high overseas demand [5][5][5] 6. **Hunan Yuneng Performance**: Hunan Yuneng, a top pick among battery materials suppliers, reported improved gross profit and operating profit per ton in Q4 2024 and plans to increase prices for both ordinary and premium products [5][5][5] 7. **Production Outlook**: The production outlook for March 2025 indicates a mixed performance among major battery manufacturers, with BYD showing a 51% year-on-year increase while CATL's growth was only 12% [15][15][15] Additional Important Information 1. **Market Share Gains**: Chinese EV makers and battery producers are gaining market share, contributing to the overall growth in the sector [5][5][5] 2. **Policy Impact**: Recent policy changes in China, including the removal of mandatory ESS attachment, have not significantly dampened demand, as evidenced by the rush purchases in the domestic market ahead of these changes [5][5][5] 3. **Price Hikes**: Hunan Yuneng's strategy to increase prices aligns with the anticipated growth in premium product contributions, particularly with CATL's increased production of superfast charging batteries [5][5][5] This summary encapsulates the key points from the conference call, highlighting the dynamics within the battery and EV industry, production trends, and market outlook.