Guotai Haitong Securities Co., Ltd. has released a research report expressing continued optimism for European power equipment renewal and new energy growth, which are expected to sustain robust demand for related equipment.

The report states that Chinese enterprises are deeply entrenched on the supply side, possessing both technological capabilities and production capacity, and thus need not worry unduly about trade frictions.

The firm maintains an "Overweight" rating on the sector, noting that European trade risks have a limited impact on the power and new energy segment, and that the current oversold conditions may present a strategic entry opportunity.

Key Points from Guotai Haitong Securities

The domestic lithium battery industry chain, leveraging both domestic capacity and new European production facilities, provides strong support for the development of Europe's electric vehicle industry.

1) According to the firm's analysis, the European business currently accounts for 5%-20% of revenue for mainstream first and second-tier Chinese battery manufacturers, a manageable scale overall.

2) Europe's trade risks with China are aimed at reducing the manufacturing gap. Contemporary Amperex Technology Co., Limited has already commenced production at its European base, while overseas factories for companies like EVE Energy Co., Ltd. and CALB Group Co., Ltd. are scheduled for completion and operation around 2027. Should the EU subsequently introduce tariff-based restrictive policies, battery firms that have already established local European production capacity would face relatively muted impact.

3) European companies exhibit weaker competitiveness in the battery sector, with no European firms featuring in the projected global top ten list for power and energy storage battery manufacturers in 2025. The current industry landscape is dominated by Chinese battery companies, supplemented by a few Japanese and Korean manufacturers. China's mature and comprehensive battery industry chain significantly bolsters the development of the European automotive industry, markedly accelerating the R&D and launch pace of new vehicles for local automakers.

The third quarter is typically a peak season for batteries, and Q2 earnings for the lithium battery sector are expected to be strong. The current oversold conditions, influenced by factors like European trade risks, may represent a strategic opportunity.

Rising Overseas Demand for Power Equipment and Supply Constraints Enhance Role of Chinese Firms

Europe's power grid is entering a long-term investment cycle, compounded by rising electricity demand, aging equipment, large-scale integration of new energy, and growth of new types of loads. Grid investment needs are projected to reach €584 billion by 2030 and exceed €1.2 trillion cumulatively by 2040.

Currently, leading overseas equipment suppliers have extended delivery cycles to 4-5 years, indicating persistently tight supply. Chinese exports of transformers and switchgear to Europe have seen double-digit year-on-year growth. With advantages in cost, delivery, and product quality, domestic power equipment companies are presented with vast opportunities for overseas expansion.

European Energy Independence and Transition Drive Strong Demand for Solar and Storage

China's exports of photovoltaic modules to Europe are expected to maintain growth through 2026. Europe faces significant shortcomings in local PV production capacity and will find it difficult to decouple from Chinese supply chains in the short term. Concurrently, both residential and utility-scale energy storage in Europe are seeing substantial volume growth, leading to a sharp rise in exports of energy storage systems and inverters.

Although the EU has introduced trade-related policies such as local content requirements and financing restrictions, the overall impact is limited. Chinese companies can hedge risks through local partnerships. Furthermore, the structure of China's solar and storage export markets is continuously optimizing, with impressive growth rates in Asia-Pacific, Africa, and other emerging markets, further broadening the scope for overseas expansion.

Risk Warnings include risks related to raw material supply and industry policy changes.