Methodology Change | Solactive China Electric Vehicle and Battery Index | Effective Date 24/05/2024

Today, on the 10/05/2024, Solactive announces the following changes to the methodology of the following index (the ‘Affected Index’):

Rationale for Methodology Change

Given the current trends in the clean energy vehicle market and the structure of the Solactive Electric Vehicles and Battery Storage Technologies Index, we are increasing the weight cap from 15% to 17%. Here is the reasoning:

1. Industry Consolidation:

• The electric vehicle industry is undergoing consolidation as larger companies gain more market share.
• The top two companies in this index comprise approximately 50% of the total market capitalization, reflecting their dominant market position.
• This trend means that market leaders are becoming even more significant, necessitating adjustments to accurately reflect their impact and mitigate potential distortions.
  
  2. Growing Irrelevance of Smaller Companies:
• As a result of consolidation, smaller companies within this sector are becoming increasingly less relevant.
• With the industry heavily concentrated around a few leaders, lower-ranked companies contribute less significantly to the index’s performance.
• Raising the weight cap aligns the index’s structure with the market reality of company relevance and dominance.
  
  3. Turnover Reduction:
• One of the largest companies, Contemporary Amperex Technology Co. Limited (CATL), is currently weighted at 19% in the index, exceeding the current weight cap.
• Increasing the cap to 17% would reduce the turnover in the index, as the weight of CATL would then be closer to the cap, resulting in fewer transactions required to adhere to the limit.
• This adjustment ensures that index rebalancing aligns with market trends while maintaining a level of diversification.
  
  4. Reflecting Market Dynamics:
• The weight cap increase provides a more accurate representation of the evolving market dynamics, aligning with the concentration of top players.
• It also improves the index’s performance tracking, minimizing excessive concentration while allowing market leaders to drive growth.

In conclusion, the increase from 15% to 17% reflects the dominant role of the leading companies and provides a more precise alignment with market realities. This will enhance the index’s performance and maintain diversification by reflecting the current state of the electric vehicle market.

Changes to the Index Guideline

2.3. WEIGHTING OF THE INDEX COMPONENTS

Old text:
On each SELECTION DAY each INDEX COMPONENT is assigned a weight according to FREE FLOAT MARKET CAPITALIZATION such that the weight of the company does not exceed 15%.

New text:
On each SELECTION DAY each INDEX COMPONENT is assigned a weight according to FREE FLOAT MARKET CAPITALIZATION such that the weight of the company does not exceed 17%.

The methodology change will become effective in 10 business days after this announcement i.e., 24.05.2024. The first application will be applied with the Market Watch in June 2024 and rebalance in July 2024. 

Defined terms used in this announcement, but not defined herein, have the meaning assigned to them in the respective index guideline of the Affected Indices. The amended version of the index guideline will be available on the effective date.