Sector Soars, Attracting Funds Amid Continuous Surge

Today, there is a sector that is defying the trend and showing strength, with individual stocks even triggering a surge in price limits.

It is the battery sector.

Del Shares, Nand Power with a 20CM price limit, Li Wang Shares surged by more than 10%, Lian Chuang Shares, Dongfeng Group all hit the price limit, and Lan Hai Huateng, Yin Tu Net Union, Xiang Feng Hua and others followed suit.

In fact, the performance of the battery sector is not just a one-day phenomenon, but has already begun to show signs a week ago.

The Battery ETF (561910) started to rise on August 29th, with a gain of 6.7% in the past five days, leading the ETF market and ranking first in the same category of ETF gains.

Why has the battery sector suddenly become the target of capital pursuit amidst the retreat of dividend stocks and AI stocks?

Major Breakthrough

On August 28th, Peng Hui Energy released the first generation of all-solid-state batteries.

This battery completely uses inorganic solid-state electrolytes to replace the separator and electrolyte, greatly improving safety; the energy density is as high as 280Wh/kg, with a capacity of 20Ah, and it can stably charge and discharge cycles at temperatures ranging from -20°C to 85°C, with a cycle life of 600 times.Penghui Energy expects to initiate pilot R&D and small-scale production in 2025, and to officially establish a production line and mass production in 2026.

On the same day, CATL unveiled an all-solid-state battery named "Boundless," with an energy density as high as 430wh/kg, a capacity exceeding 50Ah, and significant breakthroughs in battery operating pressure, lifespan, and power.

CATL plans to achieve small-batch vehicle verification for this all-solid-state battery in 2027 and expects mass production in 2028. In addition, by the end of this year, CATL's semi-solid-state battery with 400Wh/kg energy density will be mass-produced and is expected to hit the market in the first half of next year.

On August 30th, Nantu Power announced significant progress in all-solid-state battery technology.

The company stated on the interactive platform that since starting the development of solid-state batteries in 2017 and undertaking a key R&D plan for solid-state batteries in Zhejiang Province in 2020, the current solid-state battery product has an energy density of up to 350Wh/kg, a cycle life of 2000 times, and has passed safety tests such as thermal box and short circuit. The project is expected to be accepted in the fourth quarter of this year.

Investors familiar with the power battery industry know that solid-state batteries are a new type of battery technology. Due to the use of solid electrolytes instead of liquid electrolytes in traditional lithium-ion batteries, they have the advantages of strong safety, high energy density, long cycle life, and fast charging and discharging, and are therefore considered one of the important development directions for future battery technology.

At present, several battery manufacturers and car companies are actively deploying technology R&D, which has accelerated the industrialization process of solid-state batteries. Recently, many manufacturers have revealed the latest R&D progress, further increasing the market attention to solid-state batteries.

The downstream demand for solid-state batteries is very broad, covering new energy vehicles, smart wearable devices, energy storage systems, electric aviation, consumer electronics, and other fields. Among them, new energy vehicles are one of the most important downstream application markets.

Data from the China Association of Automobile Manufacturers shows that in 2023, the cumulative sales of new energy vehicles in China reached 9.495 million units, a year-on-year increase of 37.9%, with a market share of 31.6%. Although the growth rate has declined compared to previous years, it is still a blue ocean market.

Some securities firms have made predictions that the global demand for solid-state batteries (including semi-solid-state batteries) will be 2.3GWh in 2024, and the global demand for solid-state batteries is expected to reach 220GWh in 2030, with a compound annual growth rate of 114% from 2024 to 2030; the global market space for solid-state batteries (including semi-solid-state batteries) will be 1.95 billion yuan in 2024, and the market space is expected to reach 116.23 billion yuan in 2030, with a compound annual growth rate of 98% from 2024 to 2030.Solid-state batteries are also one of the industries that national policies focus on supporting.

As early as 2020, the State Council issued the "New Energy Vehicle Industry Development Plan (2021-2035)", which for the first time included solid-state batteries as a key industry development target and proposed to accelerate research and development and industrialization processes;

In January 2023, six departments including the Ministry of Industry and Information Technology jointly issued the "Guiding Opinions on Promoting the Development of Energy Electronics Industry", and in February of this year, the Ministry of Industry and Information Technology issued the "Lithium Battery Industry Standard Conditions (2024 Edition)", both of which reiterated or increased support for the solid-state battery industry.

In May, news indicated that China may invest about 6 billion yuan in the research and development of all-solid-state batteries, with six companies including Contemporary Amperex Technology Co., Ltd. (CATL), BYD, FAW, SAIC, Weilai New Energy and Geely potentially receiving government basic research and development support.

Although solid-state batteries still need time to achieve large-scale commercialization, the industry is accelerating towards the inflection point of 0-1 with technological progress and cost reduction.

At present, the installation rate of semi-solid and solid-state batteries is less than 1%, indicating a huge industry space in the future.

Trading benefits

In addition to the favorable catalysis of research and development progress, the battery sector is also enjoying benefits from the market and trading aspects.

The biggest recent change in the market is that the two major group-buying sectors - dividends and AI, are disintegrating.The performance is characterized by a significant drop in bank stocks, China-named stocks, and CPOs, which are heavily held by institutions.

The reasons for this can be attributed to two main factors. First, the stock prices have indeed been inflated to high levels, creating a natural need for capital to take profits and settle. Second, institutions are required to address the tide of redemptions.

These clustered sectors have good liquidity and strong profit performance, making them the top choice for institutions to sell off. At present, it is uncertain when this disintegration will come to an end. However, it is certain that such a large-scale sell-off will enable institutions to recover a considerable amount of funds. Although a portion of these funds will be redeemed by investors, a significant amount will still be available as ammunition for the "next time" to buy.

So, where will this "next time" focus on? Looking at the market sector performance after the disintegration of the clusters, sectors such as liquor, photovoltaics, batteries, and pharmaceuticals have all been targets for capital testing. However, in terms of effectiveness, only the battery and photovoltaic sectors have shown the best sustainability.

Why is that?Firstly, both of these sectors belong to the new energy field. After a long period of valuation digestion, they are currently in a bottom range. For instance, the latest PE (TTM) value of the CSI Battery Theme Index is 20.35, which is at the 6.07% percentile over the past decade.

Secondly, both sectors have short-term, certain catalysts for positive developments. The battery sector has the previously mentioned benefits of solid-state batteries, while the photovoltaic sector has seen price rebounds, accelerated mergers and acquisitions, and expanded overseas demand (such as in North America and the Middle East).

Thirdly, in the long term, both sectors are considered growth-oriented. Although the overall growth rate has declined somewhat, the future growth prospects remain broad. This is because the world needs to address climate challenges and implement sustainable development, and our country needs to achieve long-term dual-carbon goals, all of which require new energy.

In other words, both batteries and photovoltaics are not only undervalued and cost-effective but also have certain stimuli, such as demand, and long-term growth potential.

From the perspective of capital preferences, in the current environment, the most attractive sectors are those that are both cheap and have certain catalysts. This is the fundamental reason why these two sectors have outperformed and continue to maintain their popularity over sectors like liquor and pharmaceuticals.

It is foreseeable that they will continue to be the hot spots for market capital inflow and are worth investors' close attention.

Regarding specific operations, investors can focus on industry leaders or exchange-traded funds (ETFs). For example, the Battery ETF (561910), which rose by 1.27% against the market trend today, tracks the CSI Battery Theme Index and includes stocks related to power batteries, energy storage batteries, consumer electronics batteries, and companies in the related industry chain.

It is worth noting that among the constituents of the Battery ETF (561910), there are 15 solid-state batteries, accounting for 36.33% of the weight, including Nantong Battery, which has risen by more than 80% in the past five days, and Penghui Energy, which has risen by more than 22% in the past five days.

In the past month, capital has been净流入 the Battery ETF. Since August, the shares of the Battery ETF have increased by 30 million to 938 million, with the latest scale increasing by 373 million yuan. The average daily transaction volume is 19.84 million yuan, and both the scale and liquidity rank among the top in similar products.Battery ETF (561910) has shown a significantly stronger trend than its peers recently. Investors who are optimistic about the battery sector may want to look into Battery ETF (561910). Investors outside the market can consider regular investments through the Battery ETF Linked Fund (Class A: 016019, Class C: 016020).

Conclusion

Today's market saw bank stocks and China-headquartered companies continue to decline, with CNOOC's stock price plummeting by more than 5%. At the same time, following Nvidia's nearly 10% drop overnight, the three strong players in China's CPO sector—referred to as "Yi Zhong Tian"—also experienced a decline in their stock prices.

It is evident that the disintegration of dividend stocks and AI stocks is ongoing, with no end in sight. No one knows when this disintegration will come to an end. However, it is certain that as long as this trend continues, it means that a substantial amount of capital will keep flowing out.

As the saying goes, when a whale falls, all things thrive.

The outflowing capital will choose new directions and flow towards sectors that align with their preferences. Among the limited options, batteries are one of the key focuses.

In the first half of the year, the hottest AI concept in China's A-shares was CPO. However, the battery industry even has some advantages that CPO might not match. For instance, it is one of the most comprehensively independent, fastest-growing, and most important industries in our country. It is not subject to foreign constraints nor determined by foreign demand. It also has the highest global market share.

According to the "Power Battery Industry Development Index (2024)" recently released by the Ministry of Industry and Information Technology, China's power battery installation volume accounted for 59% of the global total in 2023. The Chinese power battery industry has a clear leading advantage in all dimensions, with a global leading industry scale and a relatively balanced development of the industry chain upstream and downstream.

In the current emphasis on high-quality development, the battery industry is also one of the few industries that meet the criteria.Originally, some perspectives might suggest that the battery industry has already passed its fastest growth phase, and the second half of the electric vehicle (EV) industry is primarily focused on intelligent technologies, with the appeal of batteries diminishing.

However, with the breakthroughs in solid-state battery technology, new growth opportunities for the battery industry are gradually unfolding. This is similar to when the automotive industry was perceived as unattractive, and electric vehicles emerged, rejuvenating this century-old sector with renewed growth.

Overall, the current valuation of the battery sector remains at the bottom, and with the emergence of new growth points, a double whammy of performance and valuation could be triggered at any time. Do not miss this rare opportunity.