CITIC Construction Investment: Long-term optimism for lithium battery and intelligence to boost the rise of Chinese tool companies' own brands

According to the report released by CITIC Construction Investment, in the short term, under the impact of U.S. reciprocal tariffs, companies are pushing for order relocation and capacity transfer; in the medium term, U.S. interest rate cuts are expected to drive down long-term loan rates, thereby boosting the real estate sector's prosperity and driving terminal demand in the industry; in the long term, there is optimism about lithium battery electrification and intelligence helping Chinese tool companies rise with their own brands. Currently, the tool and hardware sector is situated in: ① the U.S. real estate chain: mainly affected by changes in the Federal Reserve's interest rate cut expectations, focusing on company scale and its own alpha; ② the export and overseas chain: mainly fluctuating under the influence of U.S.-China relations centered on tariffs, with attention to the progress of overseas capacity layout.

CITIC Construction Investment's main viewpoints are as follows:

Tool and Hardware: A market worth hundreds of billions of dollars, strongly tied to North American real estate demand

The market size of the tool and hardware industry exceeds $100 billion, with suppliers selling tools to the C-end through various channels and achieving to C through to B, where the role of channels is crucial. In addition, the long-tail effect in the industry is significant, with a trend of further concentration towards leading enterprises, which often expand their brand matrix through mergers and acquisitions. The demand regions are mainly in Europe and America, with North America being the largest demand region; downstream, it is closely related to real estate, primarily driven by new home construction and home renovation needs.

Review of the last cycle: Demand front-loading under U.S. pandemic disruptions, the channel destocking pain period has passed

The tool industry experienced demand front-loading driven by U.S. fiscal subsidies from 2020 to 2021, followed by significant destocking in channels from 2022 to 2024. Since mid-2024, the inventory of mainstream products in channels has returned to normal levels before the U.S. pandemic impact. Entering 2025, the inventory cycle has entered a "weak replenishment" phase, with terminal demand returning to a regular cycle dominated by U.S. real estate demand.

Focusing on the present: Capacity transfer under tariff impacts, optimistic about medium to long-term U.S. real estate demand

Demand side: U.S. interest rate cuts are about to begin, and real estate demand is waiting to be unleashed. Under the backdrop of high long-term loan rates, pressure on U.S. real estate demand remains. The actual extent and frequency of interest rate cuts after entering the rate cut cycle still need to be observed for their impact on improving loan rates. However, it is worth noting that under the relatively healthy background of U.S. residents' balance sheets, the transmission of stimulus through borrowing to promote home purchases remains smooth. Therefore, macro policies that promote improvements in loan rates, such as interest rate cuts, still play an important role, with expectations for interest rate cuts in 2026 to improve U.S. real estate demand.

External disturbances: Order relocation and capacity transfer under tariff impacts. Since the tariff war in 2025, various tool companies have accelerated capacity transfer, with Southeast Asian countries such as Vietnam, Thailand, and Cambodia rapidly taking over orders flowing out of China under the "decoupling" background. Given the current situation of U.S. reciprocal tariffs, tool companies can benefit from the relative advantages of tariff costs through capacity transfer, making it a timely opportunity for the tool industry to move capacity overseas.

Looking to the future: Lithium electrification and intelligence help Chinese tool companies rise with their own brands

Lithium electrification: The electrification level of power tools is relatively high, and the market share of new energy OPE is rapidly increasing. In terms of power tools, the market size CAGR of cordless products from 2020 to 2025 is expected to reach 9.9%, significantly higher than the growth rate of wired products at 2.1%. It is anticipated that by 2025, the market share of cordless power tools will reach 56.12%, with a relatively high penetration rate of lithium electrification; In terms of OPE, it is expected that the lithium battery OPE market size will grow to USD 12.515 billion by 2029, with a CAGR of approximately 7.05% from 2022 to 2029. As end-user demand develops towards specialization, coupled with the gradual advancement of consumer education in lithium batteries, it is anticipated that the lithium battery OPE market size will grow at a rate exceeding that of the tool industry.

Intelligentization: Traditional tool companies are initiating embodied intelligence transformation, with lawn mowing robots being an important category for implementation. With the rapid iteration and widespread empowerment of artificial intelligence, major domestic tool companies have begun to promote the intelligentization of their traditional main businesses, starting or already laying out intelligent lawn mowing robots, while some companies are also initiating embodied intelligence layouts outside their main businesses. The firm believes that intelligent lawn mowing robots are the fastest-implemented category for the lawn mower industry to embrace embodied intelligence. Traditional tool companies have a relative advantage in brand and channels, and under the backdrop of relatively mature technical solutions, actively laying out products such as intelligent lawn mowing robots is expected to achieve better sales performance