The electrification of automobiles has become an irreversible trend. This has not only ignited the new forces in car manufacturing in China but also boosted the upstream component enterprises in the automotive industry chain. In recent years, new energy vehicles have been a hot investment topic. As a latecomer in the global automotive industry, China is seizing this wave of electrification to overtake others and truly become a strong automotive nation.

　　This year is of great significance for Chinese new energy vehicle brands. Following the shocking launch of Xiaomi's SU7, Huawei's Aito has unlocked a new height for high-end electric vehicles in China, and BYD's sales in the third quarter have surpassed Tesla. The 'traditional' trio of car manufacturers, Weilai, Xiaopeng, and Lixiang, have also frequently launched new cars. In the first quarter of 2024, Chery Group's cumulative car exports reached approximately 253,400 units, a year-on-year increase of 40.9%; Geely's cumulative export sales were about 87,000 units, a year-on-year increase of 66%. The new energy vehicle sector in China is bustling.

　　Behind this bustle is the reflection of the Chinese automotive industry seizing the opportunity for development in the transformation of automotive electrification and intelligence. New energy vehicles have gained strong development, and independent brands have rapidly risen, gradually moving away from the low-end market towards the mid-to-high end.

　　At the same time, with the warming of automotive consumption this year, domestic car sales are expected to achieve rapid growth. According to relevant analysis, China's car sales significantly increased from 2008 to 2009, and from 2023 to 2024, they will successively enter a concentrated scrapping period. The typical lifespan of a vehicle is usually 15-20 years. Based on estimates, vehicles generally enter a concentrated scrapping period after 10-15 years of use, corresponding to the peak of the previous sales cycle. It is expected that China's car sales will enter a concentrated scrapping period from 2022 to 2025. As of the end of 2023, China's vehicle ownership was 336 million. If calculated at a scrapping rate of about 4%, the replacement space exceeds 13 million vehicles per year, which is expected to accelerate the guidance of old vehicles into the scrapping period and drive the rapid growth of replacement demand.

　　At the same time, policies are also making efforts. The fourth meeting of the Central Financial Committee held on February 23 emphasized the need to encourage and guide a new round of large-scale equipment updates and the replacement of old consumer goods with new ones, particularly for traditional consumer goods like automobiles and home appliances. On March 1, the State Council reviewed and approved the "Action Plan for Promoting Large-Scale Equipment Updates and the Replacement of Old Consumer Goods with New Ones." Against this backdrop, many regions have successively launched stimulus measures for automotive consumption this year, with significantly increased intensity, mainly through cash subsidies and consumption vouchers, with per vehicle subsidy amounts ranging from 1,000 to 7,000 yuan. This round of replacement emphasizes the linkage between central and local governments, stimulating consumers in a more direct and beneficial way to truly boost consumption.

　　In addition, domestic cars are setting sail overseas. Besides the domestic market, overseas markets will become new incremental markets. Since 2021, China's automobile exports have entered a period of rapid growth, and it has now developed into the world's largest automobile exporter. According to data from the General Administration of Customs, in 2023, China's automobile export volume was 5.221 million units, with an export growth rate of 57.4%. This year, the export volume of domestic cars is expected to further increase.

　　The strong sales of domestic cars are not only due to the collective rise of independent brands but also highlight the investment value of the entire Chinese automotive industry. The rise of domestic cars has naturally driven the growth of investment in upstream automotive components. Compared to the fiercely competitive complete vehicle sector, automotive components have more definite growth potential. Regardless of how the competitive landscape of complete vehicles changes, the demand for mid-to-upstream components will not change. Under the trend of the rise of Chinese automotive independent brands and the development of electrification and intelligence, the automotive components sector will welcome new growth opportunities.

　　With the rise of domestic cars and the continuous improvement of domestic automotive component manufacturing levels, the automotive components industry has also developed rapidly. In 2021, the revenue scale of China's automotive component manufacturing enterprises was 4,066.8 billion yuan, a year-on-year increase of 12%. In 2022, it was approximately 4,195.3 billion yuan, and in 2023, it further increased to 4,408.6 billion yuan. Looking ahead, the automotive components sector is expected to welcome new growth opportunities, with immense potential for imagination.

　　The future development space of automotive components can be referenced from the smartphone industry chain. From 2004 to 2016, the smartphone industry experienced rapid development, with a compound growth rate of 42.5%. Behind the rapid growth in penetration rate is the continuous acceleration of component upgrades. Accelerated component upgrades generally mean higher customization demands, larger usage, and faster R&D speeds. Domestic manufacturers have sufficient talent reserves, faster response times, and lower factor prices, giving them significant advantages.

　　Automobile electrification has transformed cars from mere transportation tools into the largest smart devices for individuals. In the future, smart cars will become the largest smart devices for everyone. Electrification, intelligence, connectivity, and sharing have become the development trends in the automotive industry, driving technological progress and product innovation in the automotive components sector. Compared to traditional fuel vehicles, smart electric vehicles have added many configurations, such as more modular and integrated designs, new body processes, batteries, motor control, increased semiconductor usage, new electronic and electrical architectures, more user-friendly human-machine interaction experiences, and greater emphasis on comfort in the interior space. Each differentiated configuration represents a segmented investment opportunity.

　　Moreover, investment opportunities are not limited to the components themselves but can be further explored, including investment opportunities in material systems, equipment, and secondary suppliers. In the incremental configurations of smart electric vehicles, there are many sub-industries of components with low penetration rates and hundreds of billions of yuan in potential, such as lidar, air suspension, and millimeter-wave radar. These areas are precisely those with the fastest growth in penetration rates in recent years, and there is still significant room for improvement at this stage.

　　The domestic automotive supply chain is rising strongly, but there are over ten thousand domestic automotive component companies, with more than two hundred listed companies in the automotive industry chain. For ordinary investors who want to quickly get on board and catch the fast train of new energy vehicles, buying into a thematic ETF would be a good choice. The CSI Automotive Components Thematic ETF selects 100 listed companies involved in automotive system components, automotive interior and exterior, automotive electronics, tires, and other fields as index samples, reflecting the overall performance of listed companies in the automotive components theme. The top ten constituent stocks of the index mainly cover leading companies in the automotive and computer fields. From the index valuation perspective, as of the latest, the automotive components index is valued at 25.36 times, which is already below the historical opportunity value, positioned at the 13.73% low percentile over the past five years.

　　The automotive components industry is in a period of rapid development, and the strong rise of Chinese domestic automotive brands provides strong support. Macroeconomic policies and the wave of global procurement of automotive components are also aiding the development of China's automotive components industry. China's automotive components industry has broad development space. In the future, domestic enterprises need to develop with a pragmatic mindset through independent innovation and deep digestion, enhancing the international competitiveness of China's automotive components industry to become giants in the automotive components sector, with a promising future.