Is it "expensive" in the Ningde era with LG new energy?

Catching up with the Ningde era, another global leader in lithium batteries, LG new energy (LG Energy Solution), has recently stepped up again to enter the energy storage system integration market, proving its ambition to "surpass the Ningde era and become the first in the world".

Behind the escalation of Ningde era and LG new energy tug-of-war, the contest between the two sides has been going on for a long time: in addition to the performance and market share that the outside world focuses on, the two sides are "catching up with each other" in terms of capacity expansion and technological progress.

The market capitalization performance highlights the intensity of the battle, which surpasses LG New Energy by nearly 90 per cent, even after Ningde's share prices have been depressed for nearly two months and rebounded slightly this week.

Is the valuation of "Ning Wang" really too high? There may be a thousand Ningde times in the hearts of a thousand investors. In this regard, the "Science and Technology Innovation Board Daily" will LG new energy and Ningde era to conduct an omni-directional comb, multi-angle comparison, or to provide some reference for your judgment.

In terms of revenue, the cumulative revenue volume of Q1MurQ3 in 2021, Ningde era and LG new energy is about the same. Among them, Ningde Times lagged behind LG New Energy in revenue performance in the first half of the year, but Q3 surpassed the latter by 37 per cent. (note: Ningde Times does not forecast / announce Q4 revenue)

In terms of net profit, the advantage of Ningde era is more significant. With the exception of Q2, the net profit of Ningde era surpassed that of LG New Energy in the rest of 2021, and the company's net profit increased steadily quarter by quarter. In contrast, LG New Energy made a profit for the first time last year, with a substantial loss on Q3 and a small net profit on Q4.

In the first three quarters of 2021, the gross profit margin of the Ningde era was stable above 27%; the average gross profit margin of LG new energy was about 23.5%, at least 3.5 percentage points lower than that of the Ningde era.

Why are the financial performances of the two sides so different? Citic Securities believes that compared with LG new energy, Ningde era has more advantages in cost control, so it is more profitable. Among them, in terms of material purchase cost, the purchase cost of diaphragm and electrolyte in Ningde era is significantly lower than that of LG new energy; and labor cost also has certain advantages.

Judging from the ranking of global power battery installation in 2021, Ningde era still firmly controls the top spot in the world, far away from LG New Energy, which ranks second in terms of installed capacity and its year-on-year growth and market share.

Among them, in the domestic market, GGII data show that for the whole of 2021, the installed capacity of Ningde era reached 69.33GW, with a market share of nearly half; by comparison, the installed capacity of LG new energy is only 6.25GW, with a market share of less than 5%. According to the latest data from the China Automobile Association, in January this year, Ningde era accounted for more than half of China's market share, with 8.13 GWH installed capacity, while LG New Energy only ranked 12th, with 0.11 GW installed capacity and 0.7% market share.

However, if calculated on this basis, the pattern of overseas competition will be completely reversed-the installed capacity of 27.37GWh and LG new energy in the Ningde era in 2021 will be 53.95GWH, nearly twice as much as the former.

From this, it can also be seen that the high global market share of "Ning Wang" power batteries depends more on the support of the Chinese market. This is also reflected in the customer list of the Ningde era. In addition to the largest customer Tesla, Ningde era accounts for a large proportion of domestic new forces or joint venture brands, including Wei Xiaoli, SAIC Volkswagen, brilliance BMW and so on.

However, the research summary disclosed by Ningde Times on the 15th shows that the company has more interaction with American customers, and the two sides have jointly discussed various possible supply and cooperation options and the possibility of localized production, and plan to strengthen the layout of overseas bases in the future.

And LG new energy revenue is mainly from Europe, America, including GM, Volkswagen, Renault and other car companies.

Ningde era is centered on Ningde, Fujian Province, and currently has five major R & D centers and ten production bases. By the end of last year, the company's production capacity (sole proprietorship + joint venture) was about 235GWh. Soochow Securities expects its production capacity to exceed 750GWh in 2025.

LG New Energy, which aims at the global production capacity champion, revealed at a news conference on January 10 that its backlog of orders has reached as much as 260 trillion won (about 1.4 trillion yuan). In its prospectus, the company disclosed the "five-legged Tripod" global delivery system covering China, South Korea, the United States, Europe and Indonesia, with an estimated production capacity of about 430GWh in 2025, less than 40% of the Ningde era.

It is worth noting that the two are quite different in the way of expanding production.

Ningde era mainly relies on self-built capacity expansion; most of the recent expansion actions of LG New Energy are cooperation with car companies, including GM, Honda, Stellantis and so on.

In the face of the aggressive expansion of competitors, the Ningde era said bluntly: "expansion of production by competitors does not mean increased competition. Products with innovative material systems and structural systems are worthy of competition."

Generally speaking, in the battery material system route, Ningde era has been one step ahead of the LG new energy in the lithium iron phosphate (LFP) battery, while in the technical route, the two have their own advantages.

In terms of battery material system, Ningde era is dominated by ternary and LFP batteries, while the long-term layout of LG new energy basically revolves around ternary batteries, but it was only in the second half of last year that it was finally decided to enter LFP batteries.

In terms of technical route, Ningde era chose "multi-line"-a substantial increase in high-nickel battery shipments; sodium-ion batteries are expected to form a basic industrial chain next year; and lithium ferromanganese phosphate has long been laid out, which is expected to replace lithium iron phosphate.

The selected technology route of LG new energy is slightly different from that of Ningde era, it is the first manufacturer in the world to develop NCMA battery, and its products have achieved mass production last year; at the same time, it is also continuing to promote the development process of silicon oxide (SiO) anode material and safety enhanced diaphragm (SRS).

In addition, energy storage and solid-state batteries are in the development blueprint of both sides. Ningde era energy storage business revenue, gross profit margin has gradually increased, has become the "second growth carriage"; at the same time, LG new energy is also clinging to, this week has completed the acquisition of NEC in the United States energy storage system manufacturer NEC Energy Solutions 100% stake, and the new legal person "LG new energy Vertech", into the energy storage system integration market.

In terms of R & D investment, the leading range of Ningde era has continued to expand in recent years. In the first three quarters of last year, Ningde's R & D investment reached 4.6 billion yuan, 84% higher than LG new energy, and R & D investment accounted for 2.6% of revenue.

It is worth mentioning that, unlike LG New Energy, the business landscape of the Ningde era has already extended further. Recently, Ningde Times has launched the power exchange brand EVOGO, which is more optimistic that the "chocolate replacement block" product "will become the ultimate solution for models in the range of 8-120000 yuan"; in addition, the new Ningde era products can also achieve 9-minute fast charging.

In the current power battery "duopoly era", Ningde era and LG new energy market share has accounted for half of the country, but the two still "each has its own suffering".

LG New Energy has been mired in battery safety questions before. In the second half of last year, GM twice announced a recall of Bolt electric vehicles because of the risk of battery fires. As a battery supplier, the IPO process of LG new energy has also been overshadowed for a time. As a result of the industry's estimated total recall cost of about $2 billion, LG's new energy revenue rose 28 per cent year-on-year and net profit suffered a sharp loss, while parent company LG Chemical Q3 revenue rose 41 per cent year-on-year and net profit fell 20 per cent.

This week, another customer, Stellantis, announced a recall of nearly 20, 000 plug-in hybrid Pacifica minivans. The company said that an internal investigation found that there were 12 fires on the model in 2017 and 2018, of which eight cars were being recharged when the fire broke out, and the company is still confirming the cause of the fire. The recalled models are also equipped with LG new energy batteries.

On the other hand, the customers of the Ningde era are quietly losing, and their market share is being "eroded" by their peers.

Prior to this, there were many rumors in the market that BYD, one of its biggest domestic competitors, had been favored by Tesla and Ulai; AVIC Xinhang (AVIC Lithium) replaced Ningde era as the first battery supplier of Guangzhou Automobile; Xiaopeng also planned to reduce the supply share of Ningde era. Among the new main suppliers, in addition to Sinotrans, there was another Korean battery giant SK innovation. The rise of BMW in the Ningde era is a big boost, while the supply chain has introduced Yiwei Lithium Energy.

LG New Energy went public on January 27th and rose nearly 99 per cent on its first day of trading. However, after hitting a new high on the 7th of this month, its share price has been falling all the way. As of press time, the share price was at 451000 won, with a market capitalization of 106.35 trillion won (about 563.9 billion yuan).

On the other hand, the A-share "Ning Wang" has already stood on the market capitalization of more than one trillion yuan. Even in the recent downturn, the market capitalization is nearly 90% higher than that of LG new energy.

However, a number of industry insiders have said to the "Science and Technology Innovation Board Daily" analysis, "the valuation of Ningde era is falsely high."

Among them, a secondary market analyst told Science and Technology Innovation Board Daily, "I think 'Ningwang' valuation is too high, there is a certain Bubble." On the one hand, it will take time to verify whether the market penetration of new energy vehicles can be realized and developed as expected; on the other hand, once the market share of battery manufacturers exceeds 50%, there is a risk of being eroded by other enterprises. By the same token, for the reasonable valuation of battery manufacturers, market penetration and market share need to be taken into account. "

According to the China Automobile Association, the penetration rate of China's new energy vehicle market will reach 13.4% in 2021, an increase of 8 percentage points over the same period last year (that is, the penetration rate in 2020 is only 5.4%). It is expected that the penetration rate of new energy vehicle market will exceed 15% in 2022. According to the passenger car Association, the penetration rate of the new energy passenger car market will reach about 25% in 2022.

"the higher the market penetration, the lower the valuation level of the company." The above secondary market analyst told Science and Technology Innovation Board Daily that "after the increase in market penetration, the performance of relevant industrial chain enterprises will increase significantly, which can stabilize the stock price; if the performance growth of the enterprise is lower than expected, the decline in valuation is mainly reflected in the fall in stock prices." Among them, once the valuation level of the enterprise is too high, in 200 times or even 300 times, then the rate of decline in the valuation of the enterprise may be very fast. "

In addition, some investors in the field of new energy told Science and Technology Innovation Board Daily, "the more the head of the enterprise, the more need to continue to innovate." The same is true in the Ningde era, and the time left for its innovation is very limited, and the development momentum of other battery manufacturers is very rapid. "

Chuang Chuang Securities Research believes that to analyze the future ups and downs of the Ningde era from the perspective of short-term market sentiment, we can refer to the stock price trend of Guizhou Moutai in 2021. Judging by the fitting, the adjustment of the Ningde era may not be over, and there may still be 20% room for decline in the future.

In the long run, Guizhou Moutai is different from the industry of Ningde era. In the Ningde era, the new energy industry with high growth and technological change has more opportunities and greater risks, its moat is also more unstable, and the long-term trend may depend on changes in the fundamentals of the company and the industry.

Under the background of double carbon, at present, the prosperity of the new energy industry still exists. The latest news shows that the new product M3P planned by Ningde Times, "not exactly lithium ferromanganese phosphate, but also contains other metal elements, the company calls the ternary phosphate system, the cost is lower than ternary." And this may open up more room for imagination for "King Ning".