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On the 19th, the State Council's executive meeting announced a new initiative to boost the replacement of vehicles and home appliances through financial subsidies. This year, the central government will raise the retirement subsidy for old cars from 1 billion yuan to 5 billion yuan. Building on existing policies, the scope of support will be broadened, and incentives will be strengthened to accelerate the turnover of older models.
This policy move is not only in line with China’s need to further stimulate domestic demand but also aims to enhance energy efficiency, reduce environmental pollution, and promote green development and recycling economies. We believe that the strong performance of the auto industry in the first four months of the year, combined with continued national policy support, will lead to significant improvement in the sector. As an upstream auto parts supplier, our company stands to benefit from the recovery of the downstream market. Opportunities are expected to concentrate on leading brands within specialized segments of the industry.
**Data Shows Strong Recovery in the Auto Sector**
Recently, the China Association of Automobile Manufacturers released April production and sales figures, which showed sustained growth driven by both policy support and consumer demand. In terms of vehicle segments, A00 and A-class models saw significantly higher sales compared to other categories, while mid- to high-end car sales rebounded sharply. We believe that low-end models continue to be the main driver of sedan growth, while the rebound in mid- to high-end car sales suggests that the wealth effect is beginning to take hold. With rising consumer confidence, demand for premium vehicles shows some resilience, and we expect a further increase in May. Overall, the industry's recovery is gaining momentum. Looking ahead, passenger cars are likely to become more common in households, supporting continued rapid growth.
**Improved Operations Drive Substantial Gains**
The auto industry has navigated the peak of the 2008 crisis under policy support and continues to show strong growth. April’s results confirmed this trend, with expectations of continued optimism for future growth. As the mid- to high-end segment recovers and small-displacement cars remain popular, the sedan industry is set to see substantial earnings growth in Q2, potentially exceeding annual forecasts. While parts companies typically lag 2–3 months behind in recovery, their business conditions are expected to improve significantly as the auto sector rebounds.
Given the nature of the automotive industry, profits can be volatile. However, parts manufacturers often specialize in specific areas, allowing them to build core competencies and maintain stable profit margins. These companies usually have lighter asset structures, require less investment, and offer higher returns than整车 manufacturers. As mid- to high-end car markets recover, parts companies are well-positioned to benefit substantially.
**Strong Valuation and Safety Margins**
As of the end of 2008, China had over 49.75 million motor vehicles (excluding 14.92 million three-wheeled and low-speed vehicles). The auto market is expected to grow at a compound annual rate of over 10% in the next five years. As ownership increases, the aftermarket for parts and components is expected to grow more steadily and clearly than the overall vehicle market.
During the fast-growth phase of the industry, the valuation and growth potential of parts companies tend to outperform those of整车 manufacturers. Investors should pay close attention to opportunities in this sector, especially for companies with valuations below 20 times earnings, which offer higher safety margins. In the coming quarter, spare parts companies are likely to generate excess returns. Considering their low valuation, industry growth potential, and future prospects, it is recommended to focus on leading companies in the auto parts industry, such as Ningbo Huaxiang, Wanfeng Aowei, and Fuyao Glass.
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Luohe Tiema Hydraulics CO.,Ltd , https://www.hydraulichosesdirect.com