Since 2020, with the rapid development of the domestic new energy vehicle industry, the company has seized the opportunity to enter the new energy vehicle supply chain, expand the product matrix, expand production capacity, and usher in a new round of growth. The company's main product range covers nine series of automotive cooling system hoses and assemblies, automotive fuel system hoses and assemblies, oil cooling pipes and assemblies, turbocharging pipes and assemblies, brake system hoses and assemblies, power steering system hoses and assemblies, nylon pipes and assemblies, inlet and outlet system hoses and assemblies, vehicle body accessory systems and assemblies.

Currently, Chuanhuan Technology has established stable supply and distribution relationships with more than 300 automobile and motorcycle manufacturers, including Volvo, Dongfeng, Chang'an, Chang'an Ford, Jianghuai, Geely, Huapu, Chery, BAIC, Changhe Suzuki, SAIC Wuling, Great Wall, Jianshe, Yamaha, Jialing, Jialing Honda, Lifan, Zongshen, Longxin, Dachangjiang, and Yanghonda, and has entered Ford, Valeo, Fiat, Briggs Stratton The international procurement system of major groups such as Biaqiao.

With the high visibility of the domestic new energy market scenario, the company has seized the opportunity to quickly enter the new energy vehicle industry chain. Currently, the company has established long-term and stable cooperative relationships with leading domestic new energy vehicle manufacturers such as BYD, GAC Aian, Chang'an New Energy, Celes, Geely New Energy, and Hezhong. The company's customer structure is also being further optimized, with the top five customers accounting for 33.80% of operating revenue in 2021, a year-on-year decrease of 20.26 pcts.

Increased penetration of new energy vehicles brings new growth in the pipeline industry

Automotive pipelines can be divided into three categories according to their material types: rubber, nylon, and metal. They are commonly used in automotive cooling systems, fuel systems, refrigeration systems, power systems, braking systems, steering systems, and air conditioning systems. The internal transmission of fuel, lubricating oil, refrigerant, and water in pipelines, which work under relatively complex operating conditions for a long time, helps various subsystems of the vehicle achieve their functions, directly affecting the reliability, safety, and vehicle performance of the vehicle. Therefore, there are usually specific mechanical and chemical characteristics requirements for pressure, high and low temperatures, and the corrosivity of the transmission fluid.

Thermoplastic dynamic vulcanized rubber (TPV) has the characteristics of both rubber and plastic, and is receiving increasing attention in cooling pipelines. With the development trend of lightweight, environmental protection, and low cost in automobiles, the application of plastic materials in automobile cooling pipes is becoming increasingly widespread. TPV materials have the advantages of both rubber and plastic properties, gradually showing a broader application potential in automobile coolant pipes.

Automotive pipeline products are not standardized and change frequently with customer needs. They have corresponding technical requirements in research and development, testing, yield control, and other aspects. Sales channels, talent teams, and government industrial policy adjustments also constitute barriers to entry into the industry.

The traditional thermal management of fuel fueled vehicles is mainly carried out around the engine thermal system, so that the internal components of the engine can reach the optimal temperature as soon as possible and prevent overheating. On the one hand, the residual heat from the electric motor of new energy vehicles cannot meet the needs of defrosting the heat exchanger, defogging the window glass, and heating in winter. On the other hand, they also need to face the temperature control of the battery, motor, and electronic control system. Therefore, the thermal management system of new energy vehicles is significantly different from that of fuel vehicles, mainly through the addition of thermal management circuits for power batteries, electronic controls, and motors.

With the popularity of electric vehicles and the increase in application scenarios, the demand for vehicle power continues to increase. Electric vehicle motors require higher power, torque, and rotational speed, which also means higher heat generation. Excessive ambient temperatures can seriously affect the performance, life, and safety of battery packs. Therefore, thermal management technology has become an important guarantee for the safety and comfort of driving new energy vehicles, and has become a core and key technology in the development of electric vehicles.

At present, the thermal management technology for electric vehicles is gradually developing towards a highly integrated and intelligent direction. The thermal management system for electric vehicles has added more gas-liquid circuits, and corresponding valve bodies, water pumps, pipelines, and other components have increased, resulting in a higher demand for pipeline usage.

Pure electric vehicles have replaced the fuel exhaust system with a three electric system, while hybrid vehicles have both fuel and electric systems. According to Chuanhuan Technology's interactive Q&A with investors on March 23, 2022, based on the value of supporting pipeline products per vehicle, fuel vehicles are about 200-400 yuan, pure electric vehicles are about 400-600 yuan, and plug-in vehicles are about 800-1200 yuan; In the air conditioning system, the value of single vehicle air conditioning pipelines for fuel vehicles is about 200 yuan. Heat pump air conditioning systems are commonly used in new energy vehicles, and the entire air conditioning pipeline system is more complex. The value of single vehicle air conditioning pipelines is significantly higher than that of fuel vehicles, which is about twice as much.

In 2022, the sales of new energy passenger vehicles experienced rapid growth, with the growth rate of plug-in hybrid sales exceeding that of pure electricity. Guohai Securities expects that the sales of new energy vehicle market will still maintain a certain growth trend in the future, benefiting from the demand for thermal management of new energy vehicles, and the demand for cooling pipes mainly composed of rubber and nylon will significantly increase.

Based on historical data on the sales scale of domestic passenger vehicles, it is assumed that a growth rate of 3% will be maintained from 2023 to 2024, and a growth expectation of 2% will be maintained thereafter. At the same time, it is assumed that the penetration rate of new energy will reach 46% in 2025 and the penetration rate of plug-in and hybrid vehicles will reach 16%. Taking the single vehicle pipeline values of fuel, pure electric, and plug-in and hybrid vehicles as 1300, 1400, and 2000 yuan respectively, it is estimated that the domestic passenger vehicle pipeline market size is expected to reach 36.8 billion yuan in 2025, The CAGR from 2022 to 2025 is 4.5%; The market scale of rubber, nylon, and TPV pipelines in 2025 was 32 billion yuan, and the CAGR from 2022 to 2025 was 6.2%.

Taking advantage of the trend of new energy, autonomous vehicle companies have gradually taken the initiative in the domestic automotive market competition, and their market share has increased year by year, with 36%/41%/47% respectively in 2020/2021/2022. The changes in the downstream landscape will also bring new development opportunities to the upstream. Autonomous pipeline suppliers are expected to grow together with autonomous vehicle companies, seizing a greater market share in future market competition.

Embrace the wave of new energy localization and make continuous breakthroughs in pipeline business

The expansion of production capacity has been accelerated, with a focus on the layout of new energy sources, and the creation of a "automotive hose supermarket".

According to the 2022 semi-annual report of Chuanhuan Technology, in response to the new pattern of new energy in the domestic automotive market, the company has actively adjusted its development strategic planning, focusing on the development direction of new energy. In 2021, it will acquire 200 mu of new land to invest in the construction of the "Incremental (Manufacturing) and Capacity Expansion of Traditional and New Energy Automotive Parts" project, which includes 101 to 104 factories. Upon completion, the production capacity will increase by 10000 tons, Currently, Phase I 101 and 102 plants have been completed in April 2022 and put into production in August 2022, and the production capacity is gradually climbing. The second phase 103 and 104 plants are expected to be put into production in 2023.

The new production capacity will significantly alleviate the problem of insufficient production capacity. In 2022, the production and sales of new energy vehicle supporting products of H1 Company increased by 100% year-on-year. It is expected that H2 new energy vehicle supporting products will account for about 40% of the company's main business. The production of Phase I new production capacity will significantly improve the current problem of insufficient production capacity.

In addition to its subsidiary Fuxiang Technology, Chuanhuan Technology has also established a processing center for the autonomous production of various outsourced parts, which can assemble and integrate many conventional single piece hoses into a single assembly according to the different needs of customers, improving the reliability and speed of assembly of such automotive components by the main engine factory. It has unique advantages in synchronous development and design coordination with the pipeline system of the main engine factory.

Establish a technology center to enhance the comprehensive competitiveness of technology. The core technical talent team of Chuanhuan Technology is stable. On the basis of the original technology department, we have integrated the development department, project department, and other company departments to reorganize the technology center. We have hired experts and technical backbones from the chemical industry to improve the research and development capabilities of new products such as TPV tubes and the quality of existing products, thereby consolidating the existing market and opening up new markets.

Currently, in 2022, Chuanhuan Technology has a customer base of more than 50 automobile main engine factories, more than 50 motorcycle factories, and more than 100 secondary accessory manufacturers. New energy vehicle customers mainly include BYD, GAC EAN, Chang'an, Celes, Geely, Geely, Zero Run, Ideal, etc., with a wide range of cooperative models.

In 2022, Chuanhuan Technology participated in the pipeline system matching of multiple models such as BYD's Dynasty series (Tang, Song, Yuan, Qin, Han, etc.), Ocean series (Dolphin, Seal, etc.), Tengshi series, and warship series; The pipeline system of Celes M5 and M7 models is 100% exclusively equipped by the company; In the cooperation with GAC Aian, the company only provides 100% rubber pipelines, and strives for a 50% matching proportion of nylon pipelines.

Major customers of Chuanhuan Technology, such as BYD, GAC Aian, Chang'an Autonomous, Nezha, and Ideal, have gained market recognition for their new energy strategies, and their sales have continued to rise. It is expected that the new energy vehicle market will continue to expand its price range in the future, with sales expected to further increase, and expand the depth of cooperation with the company, bringing more market growth to the company.

Actively enter the supply system of new energy vehicle enterprises and strengthen customer networks. Auto parts suppliers who want to enter the supply and distribution system of the main engine factory require a long period of certification. Before supplying products to customers in batches, the company must undergo multiple customer certification procedures. After entering the supporting system through certification, the company can establish long-term and stable cooperative relationships with customers, forming a channel advantage.

In addition, in August 2020, Chuanhuan Technology signed a cooperation framework agreement with CRRC Xuzhou Rail Equipment Co., Ltd. to supply various pipelines including rail transit vehicle braking systems to CRRC. In 2021, breakthroughs were also made in fields such as PetroChina, Sinopec, and military products. The company strategically deploys the energy storage/semiconductor field and expands the energy storage/semiconductor market.

In recent years, the increasing share of new energy power generation has driven the hot energy storage market. In 2022, household storage and large storage will fly together, driving the domestic shipment of energy storage batteries to 130GWh, with a year-on-year growth rate of 170%.

The National Energy Administration proposes that by 2025, China's new energy storage installed capacity will reach over 300GW, becoming another growth point in pipeline demand. The internal thermal management system of the energy storage cabinet uses a large number of cooling pipelines, which have new requirements for technical and quality indicators compared to automotive pipelines. The company's relevant pipeline products have been supplied in small batches.