18650 lithium-ion battery

　　Research on the layout of cutting-edge 18650 lithium-ion battery technologies in China, Japan and South Korea

　　good morning guys! We are honored to have the opportunity to share our research on key components of new energy vehicles. The electric vehicle industry has received a lot of attention, but the industry has encountered some difficulties this year. The core is that the decline in subsidies has brought great challenges to the profitability of new energy vehicles, including battery components. When selecting the topic, we focused on two issues that everyone is concerned about:

　　First, will this industry meet the future needs?

　　Second, are there any opportunities for Chinese parts manufacturers?

　　How competitive are the current domestic leaders, such as CATL and BYD, in the global context? Especially after subsidies are gradually phased out next year, and when Korean and Japanese manufacturers come in, including LG, Samsung, and Panasonic, at what level can Ningde's competitiveness and profitability be maintained? This is the core reason why we consider whether to buy CATL. Tracing back to its roots, where is the current technical level of CATL and what echelon does it rank in the world? Today I try to use simpler language to bring some of the latest technological developments and share them with you.

　　In the first part, I will briefly introduce the current background and opportunities of this industry:

　　One is the general background of the industry.

　　The second is to look at China’s role in the industrial chain from the top-level designs of China, Japan, South Korea, Europe and the United States.

　　The third is to look at the current competition situation between China, Japan and South Korea from the perspective of power batteries and battery materials.

　　The fourth is to look at where the market demand will be in the future.

　　In the second part, we try to compare power batteries horizontally from four major dimensions.

　　Part Three, our investment recommendations.

　　I will give you a brief review of the background and opportunities of the global 18650 lithium-ion battery industry using a few numbers and pictures. In 2016, more than 85% of battery production capacity was in China, Japan and South Korea. Although the figures are not the latest, this picture is very applicable. The blue in the picture indicates exports and the green indicates imports. It is obvious from the picture who is providing batteries, who is using batteries, and where they are mainly concentrated. I think that now more than 95% of battery shipments actually come from China, Japan and South Korea, so there is not a big problem. China's biggest competitors are Japan and South Korea.

　　In the field of power batteries and key materials, industrial clusters such as Beijing-Tianjin-Hebei, Jiangsu and Zhejiang, Guangdong, and Fujian (Ningde Era) have been basically formed in China. The regional layout basically matches that of vehicle companies. Among them, the Yangtze River Delta + Pearl River Delta + Beijing-Tianjin-Hebei 18650 lithium-ion battery The total production capacity reaches more than 50% of the world.

　　The shortcoming of China's industrial chain lies in its resource endowment, which is the distribution of lithium, cobalt, nickel, manganese and graphite materials in the global field. It can be seen from this picture that compared with domestic battery production, China's resources related to cathode materials, such as lithium, cobalt, and nickel, are relatively scarce. Lithium is abundant in places such as Australia, and cobalt is in Congo, so the supply is very concentrated. China relatively has advantages in graphite materials, but everyone also knows that graphite does not account for a high cost in battery materials. The proportion of China's resources does not match our current battery production. How to do it in China? Leading companies mainly focus on locking in supply. Take the domestic leader (CATL) as an example. In 2017, it signed a 20,000-ton cobalt raw material purchase contract with Glencore. Glencore’s cobalt output in 2017 was approximately 29,000 tons, accounting for the world’s 10,000 tons of cobalt. than 22%. In addition, the company further achieves resource security through GEM, the main supplier of ternary precursors (GEM plans to purchase the equivalent of 60,000 metal tons of cobalt from Glencore from 2020 to 2024, further achieving control over core resource products).

　　There is a lot of lithium in China's salt lakes, but the marginal contribution of lithium extraction from salt lakes in the past two years has been limited, and leading companies mainly invest in overseas companies. Qinghai has proven lithium reserves of 17.24 million tons, accounting for 83% of the national reserves and 1/3 of the world's salt lake lithium resource reserves. It has attracted leading battery companies such as CATL and BYD to settle in, but the lithium-magnesium ratio is low and the development environment is complex. etc. resulting in limited marginal contribution. Take Ningde Times as an example. In March 2018, Ningde Times acquired a controlling stake (90%) in North American Lithium Industry, which may enable it to obtain an annual production capacity of 23,000 tons of battery-grade lithium carbonate. In addition, in September 2019, the company acquired Pilbara for 260 million yuan. of 8.5% equity. What we are playing now is basically a bright card. Where are the resources and how to obtain more stable protection through better methods? This is the main idea.

　　What is China's current role from the perspective of national top-level design? This is the material system and goal for us to sort out the core goals and cost goals of the United States, the European Union, Japan, South Korea, and China in terms of power batteries and how to achieve costs. How does Japan do it? How does South Korea do it? What does Europe do? After listing this picture, it can be clearly seen that everyone's focus is very different. for example:

　　First, regarding cost requirements, the United States and the European Union require that the unit Wh battery price in 2022 be less than 7 cents, while Japan’s price expectation at the same time point is 1.2 yuan, which is seriously behind the current domestic situation. South Korea did not mention it, but China is about 0.8 yuan. Europe and the United States use batteries, while China, Japan and South Korea manufacture batteries. The two sides have different battery cost targets. As a car company, of course, we hope that the cheaper the battery, the better. Europe and the United States prefer end-use consumption, while China, Japan and South Korea prefer intermediate processing.

　　Second, from the material system point of view, the short-term plans of various countries are basically the same. Everyone has been asking a question. The iteration of battery technology seems to have slowed down in the past two years. NCM811 was speculated last year. What will be speculated this year? The so-called foresight in the capital market is understandable, but the industry will achieve NCM523 and NCM622 this year, and NCM811 next year, or even higher, with a nickel content of more than 90%. This is the recent technological layout of major countries, and there is no fundamental difference. But there are slight differences in the mid- to long-term direction.

　　Looking at China's advantages and disadvantages from the typical development process of enterprises, I have roughly listed three types of enterprises:

　　the first sort:

　　One is Funeng Technology, the domestic leader in soft pack batteries.

　　The second is Lishen Battery, an old state-owned enterprise.

　　Category 2: Listed companies that everyone is familiar with: CATL, BYD, Guoxuan, Yiwei, and Sunwanda.

　　The third category: overseas leaders, including Panasonic, Samsung, LG, and AESC.

　　I listed their key business layout time points. At the first time point, when will they expand their 18650 lithium-ion battery production capacity? The second time is when to enter independent, especially overseas brand passenger car customers. The third time point is when to develop energy storage customers? When is the fourth point in time profitable? Comparing these companies horizontally, we may have several conclusions.

　　The first conclusion is that passenger cars started later at home than abroad, and the pace of expansion and policies are basically the same. When policies are given, Chinese people will take action. For the first echelon, CATL and BYD have cooperated with overseas car companies relatively early. CATL started working with BMW in 2011, and BYD established a brand with Daimler in 2010. These two companies are considered to have started relatively early in China. The overall layout of our country is much later than the layout of overseas models that achieved mainstream models around 2009-2012.

　　The second conclusion is that people have recently paid more attention to the second-tier companies, such as Yiwei, Sunwoda, and Guoxuan. Taking Guoxuan as an example, it first cuts into buses, gets a share of the bus dividends, and then makes the layout of passenger cars. This is the same as Yiwei. Yiwei's installed capacity may be even more in buses. The second echelon in China will first focus on areas with lower barriers to entry, save their first pot of gold, and then expand into passenger cars. For foreign models, domestic suppliers achieved relatively concentrated breakthroughs in 2019. For example, Guoxuan entered Bosch, Sunwanda entered Renault, and Yiwei entered Daimler, all of which occurred within the past two years. Judging from the development history of typical enterprises, China does start relatively late.

　　The third conclusion, after just talking about batteries, let’s look at key materials. If we look at companies that make battery materials that we can name in Japan and South Korea, and look at their reports, we can see that China, Japan and South Korea are declining and rising. Japan's largest battery company is Panasonic. It has achieved stable growth through the rise of Tesla in the past two years. Last year's battery revenue growth rate was about 20%, and it is still not profitable. With this as a background, let’s look at the growth rate of materials. It is basically the same as the growth rate of batteries. The cathode is relatively better. Sumitomo Metal supplies NCA materials. The second one is Sumitomo Chemical, which supplies diaphragms. These two are pretty good, the others are okay, and the industrial chain is relatively complete. Japanese companies have a good relationship with each other, and they generally give priority to buying their own products. If this is not possible, either the product quality is not good (the probability is relatively small), or the production capacity is not enough, then they will consider cutting some products to China. South Korea is different. The number of companies in the battery-related industry chain in South Korea is far less than that in Japan. The two South Korean battery companies, LG Chem and Samsung SDI, grew at a decent rate last year, especially Samsung. However, in terms of materials, except for the positive electrode Ecopro and L&F, whose growth rates are basically matched, other copper foil, 6F, and electrolytes have almost no opportunities based on their revenue volume. Therefore, domestic materials may rise first than batteries.

　　Finally, we are more concerned about future demand, and there are two main battlefields: China and Europe. In China, according to statistics compiled by Reuters, car companies will invest more than US$300 billion in electric vehicles in the next 5 to 10 years, some investing in cars and others in batteries. Needless to say, in Europe, every battery company you can name is building factories. The goal is to follow up in time when European brands start to work in 2021. These are the two main battlefields in the future.

　　Let’s talk briefly about China. In addition to the efforts of domestic brands, Korean companies LG and Samsung have begun to increase their presence in China. According to statistics, capital expenditures in the battery and materials fields from the end of 2016 to the present. The top three capital expenditures in Q1 from 2016 to 2019 are ternary batteries, ternary materials and wet separators, which are 281.18 billion, 83.88 billion and 29.26 billion respectively. Electrolytes, lithium iron phosphate, etc. are basically blank after 2018 and are not heavily invested. The domestic layout of overseas companies is also along these three directions, including ternary batteries, separators and ternary materials. Why the pattern of ternary materials has not been finalized in the past two years has something to do with this.

　　The international comparison we want to make today is the so-called global competitiveness of domestic battery cells. It should be emphasized that our technical evaluation of power batteries needs to start from the vehicle level. Before, everyone always talked about battery energy density and low-temperature and high-temperature performance. I have been in the industry for almost four years. When we started working on it, we discovered that the most fatal problem was that the people who made cars didn’t understand batteries, and the people who made batteries didn’t understand cars. We couldn’t talk about it. Things have gotten better in recent years. The design of 18650 lithium-ion battery systems includes issues such as electrochemistry, thermal, mechanical design, and software development of the battery itself. It is not an easy task to span so many disciplines. To truly compare the competitiveness between battery companies, we must compare them in this dimension.

　　The question everyone has been asking is whether the battery is now a standard product. Is it possible to overtake in corners? I don’t think it’s that time yet. Currently, battery packaging forms include cylindrical, square, and soft packs. The two types of pole pieces include winding and lamination, including more than four mainstream positive electrode materials, more than four negative electrode materials, and four product types (energy type, power type, etc.) , for example, power-type batteries are more suitable for HEVs. If you look at overseas orders for Sunwoda, you will know that the unit price of these products is higher than that of energy-type batteries. Battery manufacturing includes more than 18 processes and more than 1,000 process control points. All combinations determine that it is relatively difficult to make a small battery now.

　　The second question is that battery performance is a trade-off, and you may have to sacrifice something for what you want. For example, I need high energy density now. Let me give Panasonic as an example. Tesla's choice of Panasonic was an active and passive act. Tesla was too big at the time to ask battery companies to do special development for them. He could only find the best mature products, which was Panasonic. Panasonic's cylindrical battery was not developed for automotive use. The cycle is average and drops below 80% after 600 times. According to domestic national standards, this battery cannot pass. How to avoid this problem? When everyone is installing 30-40 kilowatt hours of electricity, Tesla installs 100 kilowatt hours of electricity and only allows the battery SOC to work at 90-60% or 80-50%. Such shallow charging behavior avoids deep charging and deep discharge from damaging the battery. Impact on lifespan. Of course, with a single charge of 400 kilometers, if it can be deeply charged and discharged 500 times and 200,000 kilometers, it can basically reach the same lifespan as the entire vehicle. At present, the actual data reported by users in the Tesla community has reached a maximum running speed of more than 350,000 kilometers, and the attenuation is within 5%. Therefore, it is often difficult for car manufacturers to leave this problem to the battery, and they also need to consider their own strategic choices. To say that battery products are standard products, it is not that fast yet. The current technology is still in the iterative process, which may widen the gap between the first and second echelons.

　　The patent layout of 18650 lithium-ion battery companies at the vehicle level. Each line represents the patent layout data of the entire vehicle at different levels.

　　The first wave was probably around 2006, when LG Chem’s patent layout reached its peak. At this time, there was still a little time before the official launch of GM Volt (in 2010), so it was a relatively large advance.

　　The second wave is Samsung SDI. In 2012, Samsung made a big and comprehensive layout, which basically coincides with the launch of BMW i3. Panasonic has continued to invest.

　　The third wave is China. CATL was founded in 2011. Many patents were previously reflected in ATL. After CATL emerged, the number of patents exploded in 2015. What's behind it? R&D expenditures were very small at the beginning. In 2018, the R&D investment in batteries related to Ningde, Samsung, and LG was basically at the same level. The industry believes that if the battery's annual revenue is within 400 million, there is no need for research and development at all, just copy it. When the revenue is above 1 billion, without positive layout and development, it will be difficult to support subsequent development. Therefore, what we are concerned about is whether the company's subsequent R&D volume is large enough.

　　Among car companies, we look for the most typical one, Tesla. Tesla’s patent layout basically revolves around batteries. The top three patents are charging and discharging devices, battery packs, and battery management. Most of the other patents are related to batteries, including peripheral devices, voltage and current regulation, etc. Looking at Panasonic again, Panasonic's own layout of power batteries can basically match Tesla's, and the overlap with Tesla's layout is very high. This is why although there are some fire safety incidents, there are no large-scale problems. Therefore, when planning around the needs of the entire vehicle, car manufacturers believe that a good battery is a good battery.

　　Let’s look at the differences among Korean companies. Compared with Panasonic, the focus of Samsung's layout is similar to Panasonic. Their power supply and power control are slightly less, and their layout of balanced management of battery packs and cells is slightly more than Panasonic. It can be seen that they still have improvements in the underlying battery level. Large layout. Compared with Panasonic and Samsung, LG has all the layouts on the car, and significantly increased the layout of positive electrode, binary and ternary materials and cooling. In addition, we add the time dimension to see what changes have occurred in the past two years. We compare data from four years, from 2016 to the end of August this year.

　　Samsung, from 2016 to 2019, in status monitoring, data transmission, charging equalizationThe large layout increases the dialogue with the car. LG has increased its layout efforts in structure, mechanical connection, and diagnosis, and maintained its layout efforts in battery cooling. What did Ningde do? Ningde came later, but the breadth and depth of its layout are no less than theirs. Compared with Japanese and Korean companies, in addition to the layout of the car end, the layout of the material end has been increased, including the layout of electrolytes, additives, binders, etc. This is the overall situation. What are the recent changes? From 2016 to 2019, the layout of battery box structure protection and connection has been significantly increased. At the Frankfurt Auto Show in September this year, Ningde introduced a product called CTP, which directly uses battery cells to make larger packages, hoping to reduce the overall development cost by reducing module development. Of course, the car manufacturer is a little wary of this matter. You have done all these things, what should I do? What am I selling? Consumers will not pay an extra thousand yuan because I use double-glazing. There will be certain challenges and difficulties in the short term.

　　In summary, from the perspective of the entire vehicle, domestic high-quality companies are on the same starting line as their overseas counterparts. Although domestic companies started late, their layout at the vehicle level is becoming more and more comprehensive, such as the CTP product of CATL. In addition to seeing progress, we must also see potential hidden dangers. This is our list of the currently best-selling models, their battery cells, pack energy density and corresponding suppliers. The domestic market is catching up very quickly. Looking at the indicators after grouping, Model 3 is the best overseas model, with a level of 170Wh/kg after grouping. The domestic battery system provided to GAC AionS is also 170Wh/kg, although the energy density at the single unit level is much lower than Panasonic. BYD is also above 160Wh/kg. The country is catching up very quickly, which is the result of financial subsidies. Of course, we have seen many safety incidents since the second quarter of this year, including NIO’s cars. Here is a short joke. NIO once had a big fall and had a conference call with an expert. The stenographer wrote "recall" as "fire" related. Of course, this has sounded the alarm for us. Many people asked me what is the core reason why this industry cannot take off? I said there should be no large-scale car burning accidents. If there is a large-scale car burning accident, the industry will be gone. No matter how sexy I say it, it will be useless. Relevant departments are also aware of this problem and will not excessively pursue a certain indicator while neglecting other things in the future. I can probably say this much about the entire vehicle.

　　Looking at the differences between companies from the material level, and looking at their technical differences from the system choices of each company, I just said that we reach the same goal through different paths. If you ask most battery factories and materials companies at home and abroad, they will draw similar plans, starting from low nickel to high nickel. We have put the material systems of CATL, BYD, Funeng, Panasonic, Samsung, LG, etc. from 2018 to 2020 here for your reference. They are basically the same, except that the domestic ones are slightly higher and slightly faster, for example In terms of performance, except for BYD, the battery cell energy density of 300Wh/kg is basically set as the goal for 2020. Currently, Funeng is slightly higher.

　　Material systems basically lead to the same goal through different paths. Based on this picture, we would like to add one thing. It is expected that with the rapid decline of subsidies, the choice of technical routes for complete vehicles may diverge. Everyone should have some impression of this in the first half of the year, the so-called revival of lithium iron phosphate. My conclusion is very simple. It depends on the application scenario, 2C side. Sorry, you can't tell me that 300-400km is enough. Even if my actual demand is only 20 kilometers a day, I just hope to have a car that can nominally run 600-400km. It is a 700km car, so it is more difficult to use iron-lithium for the 2C end. But on the 2B side, taxis and online ride-hailing companies, if they are fully charged the night before, there will be an opportunity to recharge the battery the next day, which is enough to operate three to four hundred kilometers a day. Therefore, it is not necessary for these companies to give them too large batteries. What they are more concerned about is whether to replace the batteries after one and a half or two years. I think lithium iron is very suitable for the 2B end, including areas that are cost-sensitive and cycle life-sensitive. There are now overseas models that are investigating domestic battery solutions, including energy storage. The sales volume of South Korea's LG and Samsung grew very fast the year before last, but declined last year, which was related to the frequent incidents related to energy storage safety. Now overseas terminals are looking for safe and good recycling solutions in China, which is exactly the advantage of iron lithium. The advantages of domestic iron-lithium may make energy storage the exclusive preserve of domestic enterprises.

　　In terms of cathodes, everyone now only sees high nickel, but in fact the cathode route is not the only one, which also increases the uncertainty of the cathode material pattern. In addition to high nickel, it can be made into single crystal to match the size of particles. What is the formula behind this? The energy density of the battery = gram capacity * voltage * compacted density * active material content. These four parameters determine the energy density of the entire battery and determine the specific direction of development.

　　As a comparison in terms of cathode materials, South Korea's Samsung and LG focus on nickel-based ternary materials. The focus is still on nickel-based ternary materials and related auxiliary materials. In addition, it is also involved in lithium-sulfur battery-related materials (sulfur-containing cathodes, etc.). Like LG, they have more layouts than Samsung in two aspects, one is concentration gradient materials, and the other is metal doping. To explain simply, the higher the nickel in the ternary element, the higher the capacity, but the higher the activity, and the circulation will not work. Can I make the shell with a lower nickel content and the core with a high nickel content while taking into account energy density and circulation? This is something the Koreans have been doing a long time ago when I was still in the industry chain.

　　The second is metal doping, which is something that has been done at home and abroad. Aren't you very active? Can I reduce the activity by mixing in some materials? From these two small examples, we can see that they continue to invest in basic research and development, industry and technology development. What is the situation like in China's Ningde era? First, it is also necessary to carry out a complete layout around the battery system, active materials (binary, ternary), inactive materials, etc., without being biased. Changes from 2015 to 2019 include an increase in ternary materials, including precursors and coating materials, extending their layout a little further upstream. In terms of mid- to long-term layout, Ningde pays relatively high attention to solid state.

　　In summary, from the perspective of cathode materials, domestic companies still need to catch up and make breakthroughs. This is the patent layout of a well-known battery and cathode material company since 1995. Several conclusions: First, foreign companies have laid out their patents relatively early, starting in the early 1990s. Second, the quantity is relatively large. Third, the layout after 2013 is larger than before. This reflects from the side that we have shortcomings in technology research and development and technical reserves. It depends on whether more companies like Ningde can continue to invest in research and development to achieve overtaking in corners.

　　At the manufacturing level. The battery core includes three links: pole piece preparation, battery core assembly and pretreatment. Cost share in battery manufacturing (equipment depreciation, energy consumption, excluding materials). The cost ratio of battery manufacturing is about 4:2:4. Coating, pole piece assembly and formation + aging are the main cost components of the above three processes. Currently, in battery manufacturing, every link has a lot of parameters that need to be monitored. This is why I say there are more than a thousand process control points. In terms of pole piece assembly, there are currently two routes, one is winding and the other is lamination. After winding, it is either stuffed directly into the 18650 or placed in a square aluminum shell, which is relatively mature.

　　The second category is lamination, which is relatively weak in China. Funeng ranked first in domestic shipments last year, with shipments of less than 2GWh, while foreign LG's shipments were probably close to 8GWh. Lamination is difficult to do, including efficiency, yield, etc. This leads to the feeling that there is no threshold for cylinders. You can buy ready-made production lines from Japan and South Korea, but lamination is not that easy.

　　Take LG as an example. It is currently the best in the power field in the world. LG uses a Stack&Folding process, which is different from traditional winding. On the one hand, the four corners of the winding core are curved, while the laminations are square tofu blocks, which has different space utilization for packaging materials. In addition, the weight of packaging materials also differs. In addition, it also has certain advantages in terms of circulation and heat dissipation. LG's process of first stacking and then rolling is closely related to the many patent layouts mentioned before. Of course, now winding and lamination manufacturers are working in the same direction. Winding will learn from the design ideas and methods of lamination, and lamination will also want to learn from the high automated production efficiency of winding.

　　Finally, Musk often talks about first principles, where is the core competitiveness of the company? People often ask me how to reduce costs? It’s easier to understand if we go back to this formula. How much does a battery cost per watt-hour? You make a simple transformation of the formula, the numerator becomes yuan/kg, and the denominator becomes Wh/kg. What does this mean? How much does it cost per kilogram for you to buy equipment and materials? What does the denominator mean? Battery performance. Now I think that everything everyone is doing is based on this formula. Of course, these strategies do not act on the battery alone, but influence each other. High nickel and low cobalt can reduce material costs while increasing energy density, playing two roles at the same time. The first principles we use to build models come from this formula.

　　Take iron lithium as an example. When Guoxuan Hi-Tech disclosed something when issuing bonds, it gave a good sample and a practical example of the cost reduction of lithium iron phosphate batteries in the past few years. Since 2016, prices and gross profits have been on a downward trend. In 2016, the gross profit was about 1 yuan/Wh. Now it is good to earn 30 cents per watt-hour. Among them, the decline in material costs is the most important contribution to the decline in battery costs. We opened up the main cost items and separated them out. The most important thing is the main contribution to the decline in material costs. Materials have dropped by approximately 34.1%, which is basically equivalent to the 34.2% drop in battery costs. It mainly depends on this thing. Is the reduction in material costs due to material price reduction or something else? Two reasons:

　　First, the reduction in material costs comes from the reduction in unit consumption brought about by improved performance. From Q1 2017 to Q2 2019, the energy density of Guoxuan's typical products was 39%. When the denominator becomes 1.4, the cost will go down and the materials used will also go down.

　　Second, it comes from the decline in material purchase prices. In the past few years, there has been a significant decline in the four major materials. This is brought about by Guoxuan's upward extension, such as diaphragms. The price of diaphragms has dropped a lot. This case is a good illustration of everyone's cost reduction ideas.

　　In summary, our late start is our shortcoming. Our advantage is that our industrial supporting facilities cannot be found anywhere else in the world. Japan's industrial chain support is not bad, but Japan is too dependent on Tesla and Panasonic, which has caused it to miss several opportunities. Industrial supporting facilities are our greatest advantage. We used cheaper materials, but the product performance was okay, and we started to counterattack on the square route. I compared the above-mentioned mainstream companies. Their product performance, supply chain cultivation, equipment, and research and development are all on the same level. Of course, I think the counterattack of battery cells just mentioned can start with cost-effectiveness. Looking at the data, CATL's gross profit margin in the first half of this year was less than 29%. However, LG and Samsung both achieved profits in a single quarter in one or two quarters last year, which is completely incomparable with domestic companies. Their target for the break-even point is Q4 this year. What is the implication? Assume that CATL, LG, and Samsung have all entered the supply chain. The implication is that our products can all be used. CATL has a gross profit margin of nearly 30 points. The cost-effectiveness issue is a big challenge for overseas companies. .

　　Let’s briefly talk about industry suggestions:

　　First, starting from 2020, the upgrade of domestic automobile consumption may be an opportunity for high-end electric vehicles. This year's high year-on-year growth is difficult to sustain. Q3 has declined year-on-year. It will be difficult for Q4 to replicate the 200,000 units sold in one month at the end of last year. Mainstream institutions’ expectations for the whole year are basically 120-130. Unless something unexpected happens, the next one or two quarters may be the low point for the next two or three years. After these two quarters pass, will we find the lowest point for the entire industry in the next two or three years in the next two quarters. This is something that everyone is paying close attention to after my recent exchanges.

　　Second, the opportunity is consumption upgrade. Last year's passenger car sales data, judging from the year-on-year growth rate of price ranges, grades, and brands, the price of 150,000-300,000 and 300,000-500,000, C-class and D-class, and imported cars are still growing. I think this is for Tesla has a great opportunity, the so-called right time, right place and right people. Domestic sales will see if we can hit 150,000 units next year. The current unit capacity investment intensity of Tesla's U.S. factories is 2-3 times that of traditional luxury car companies. This is very incomprehensible. This may be the core reason why Tesla has not been making money. The capital expenditure per unit of production capacity of the Shanghai factory is expected to be reduced by 65%.

　　Why do I say Tesla will still be the main force in 2019-2020? Traditional models have missed some opportunities before. They believe that investing in electric vehicles too early is a very unworthy business, but they may face a so-called turning point in the next one or two years. Because the cost of developing a gasoline vehicle is rising, while the cost of electric vehicles is falling due to the decline in battery costs. According to Volkswagen's judgment, the profitability of bicycles will probably reach an inflection point after 2022-2023. This is why Volkswagen has a plan after 2023. Many factories around the world will shift the production capacity of traditional cars to MEB. So what will Volkswagen mainly do in 2018-2020? Best-selling models are switching from oil to electric power, especially mid- to high-end models. Mid- to high-end customers are relatively less sensitive to price. Even if the difference between a plug-in model and a gas-powered vehicle is 20,000 to 30,000 yuan or 30,000 to 50,000 yuan, they can still accept it. This is a core reason why BMW 3 Series, 5 Series, and plug-in models sell so well.

　　Independent brands have made rapid progress in the past two years. According to statistics, in the first half of this year, the pricing range of 150,000-250,000 has been greatly enriched. However, there is still a lack of high-end models. They should target the trade-in market in second- and third-tier cities, as well as additional purchases in fourth- and lower-tier cities. BYD E-series, Great Wall Euler, and Trumpchi AionS should all have opportunities. In the past two years, the development of self-owned brand models has made great progress. It used to be that the car could drive, move, and run farther. Now it has a clear strategy. Let me give these two examples to compare the models of Trumpchi AionS and Geely Geometry A. If you drive these two cars at the same time, you will obviously feel that the development concepts behind the two cars are different. Trumpchi, no matter from the appearance, interior, or chassis tuning, I feel that I need the experience of an electric car, but it is also luxurious, comfortable, and quiet. Geometry A, on the other hand, is more subversive in appearance and interior, and is more suitable for young people. The independent brand has been thinking about this matter, which is a good thing. It shows that it is closer to the needs of the real market and accurately depicts the portrait of its target customers. Another example is the Ideal One, which will be delivered soon in December this year. It is a so-called seven-seater extended-range vehicle for dads with two children. The user profile is very accurate. Domestic independent brands are indeed considering what they will do when there are no subsidies. This is a good thing and a progress.

　　From the perspective of the supply chain, I have to say that LG has posed a big challenge to us now. After LG entered Tesla through the Nanjing factory, it basically took over all the world's mainstream electric vehicles. Overseas, LG, Samsung, and SKI are relatively aggressive, while Panasonic is relatively conservative. There is always talk of excess battery production capacity in China, and this problem also exists overseas. I would like to add that after Ningde went public, the layout of industrial chain extension, cooperation, and expansion has continued to increase. It currently has profits of billions a year, and has nearly 30 billion in cash on hand. After completing the debt of 10 billion, it is Have the foundation to compete with overseas.

　　In the future, through improvements in performance, scale, and efficiency, costs can be reduced by another 35%, but according to the requirements of car companies, the price needs to drop another 40-45%, which means that the profit per unit watt-hour will further narrow. This is an issue that all manufacturing industries cannot avoid. This process will further widen the competitive gap between the first and second tiers.

　　We believe that Tesla's market share may go up before 2021. After 2022, as traditional car companies gradually launch models, the market share may go down, but its volume will still go up. Car companies each have their own competitive advantages. For example, in terms of cost control, brand premium, etc., every car company has its own position. Whether domestic battery companies can squeeze into the remaining 10 brands in the future through cost-effectiveness needs to be continuously tracked. At present, the probability of CATL is very high.

　　The above is what I share with you, more from a technical perspective. Since the topic selection focuses more on international comparison, we did not expand too much on investment. We are very familiar with the targets of the relevant industrial chain. If you are interested, we can discuss it again after the meeting. Thank you.

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