Indepth of China’s Automotive Industry Evolution by Outing Media

by Roomy

With the release of October’s battery installation data, two domestic battery manufacturers have become the focus. Ningde Times, which once again won the first place in global installation volume, and Honeycomb Energy, which has the fastest growth rate.

In this global power battery installation volume Top 10 list, Chinese companies occupy 6 seats and there are obvious changes.

In addition to the stable supply of the top-ranking suppliers such as Ningde Times, LG new energy, BYD, there are two new battery manufacturers. These are Honeycomb Energy and Eve Energy, who have squeezed out CALB and Far East Power. Judging from the recent installation volume data, the last two have been changing with new Chinese battery companies taking turns to appear.

This indicates two issues. First, the speed of Chinese battery companies grabbing market share is accelerating, the share of Japanese and Korean battery companies is being squeezed and compressed, and have been pushed out of the top three. Second, as the penetration rate of new energy continues to increase, the shortage of electricity is gradually becoming more serious, making the competition for resources increasingly urgent.

The Pressure is Focused on Battery Suppliers

Looking at the specific data for October installation volume, there are mixed joys and sorrows.

Ningde Times dominates with an installation volume of 8.9 GWh and a market share of 34.2%. LG new energy lags behind 4.8 GWh and ranks second, BYD surpasses Panasonic with a growth rate of 172.4%, occupying third place. Guoxuan High-tech has a slight advantage over CATL and ranks seventh. There are also two other Chinese battery manufacturers, Honeycomb Energy and Eve Energy.

This list also reflects another issue, which is the decline in the month-on-month data of some battery merchants. Among them, Ningde Times’ installation volume fell by 16% month-on-month, with LG’s decline being the most severe at 47.4%. This is mainly due to the shortage of chips and difficulties in car delivery.

In 2021, known as the outbreak year for new energy vehicles, November delivery data from various companies also confirms this.

Xpeng set a new record for monthly sales of new forces with more than 15,000 vehicles sold. Idean ONE sold 13,485 vehicles in November, and NIO achieved a sales performance of 10,878 vehicles in November. In addition, Li Auto also surpassed the five-digit threshold. Despite not exceeding 10,000, Zeekr had an order volume of up to 16,000.

Combined with the fact that traditional car companies are moving towards transformation faster and with greater ambition, delivery schedules are approaching and deadlines are pressing. No one wants to be left behind. Ningde Times openly stated that it has been under pressure to deliver on orders.No matter whether Chen Hong of SAIC visited Ningde Times or He XPeng traveled around to find new battery suppliers, they are all indicating one thing: “how to obtain sufficient resources” has become the new challenge in the industry.

“Compared with encountering the ‘chip shortage’ crisis, the shortage of battery supply is even more worrying.”

Since the beginning of this year, due to the increase in production of new energy vehicles and the corresponding lack of growth in short-term power battery production capacity, the supply of power batteries has become tight, which has made new energy vehicle companies very nervous.

In early March, Li Bin of NIO admitted that “compared with chips, battery supply will be the biggest bottleneck in the second quarter of this year”. Musk acknowledged that battery supply is the main factor limiting the launch of Tesla products.

The global installed capacity of power batteries was 158.2 GWh in 2020, and the demand for lithium from power batteries was about 190,000 tons. It is estimated that by 2025, the demand for lithium from power batteries will reach 1.07 million tons, an increase of more than 4.6 times in five years.

There is also a set of forecast data that reflects this anxiety. Industry predictions indicate that the penetration rate of electric vehicles will reach about 40% by 2030, and by 2035, the penetration rate will exceed 50%.

These seemingly bright data contain contradictions, which are breaking through that fence. The price zone of new energy vehicles is continuously decreasing as software and hardware are upgraded, and autonomous driving technology is developed.

The pressure caused by the contradiction between the scarcity of energy and the rising cost of power batteries and the decreasing prices of new energy vehicle models is concentrated on battery suppliers.

From the situation this year, both the upstream and downstream prices of power batteries have experienced significant fluctuations. However, the delivery price of power batteries has not changed much. The pressure of the price increase in the lithium battery industry chain has been almost absorbed in the battery manufacturing process.

In other words, battery companies have absorbed the majority of the pressure. But it should be noted that this is not something that manufacturers such as Ningde Times and Guoxuan High-tech are willing to undertake voluntarily. It is done only because they are forced to do so.

Of course, the price of power batteries has not been unaffected. However, automakers understand the price increase of batteries, but they cannot accept significant price increases in the short term.

This has led to a more serious “winner-takes-all” situation.

Power battery manufacturers and automakers are deeply bound. Under limited resources, when deliveries are made to one, the other may not be able to obtain battery supply. There were previous comments that “XPeng cannot beat SAIC in grabbing goods”.

By comparing the installed capacity and sales data, we can also see some logic. Head enterprises are more likely to obtain resources, accelerating the survival of the fittest among new players in the automotive industry. The problem of the supply chain has once again become a game in the fate of manufacturing companies.

In Ningde Times, which has increased its market share to over 50% in the domestic market, the company is still facing various challenges. Although expanding its business has helped alleviate the problem of rising lithium battery material prices to a certain extent, it has led to a decrease in gross margin. In the first half of this year, Ningde Times’ gross margin for power battery systems was 23%, down 3.5% year-on-year and 3.56% quarter-on-quarter.

Therefore, the ranking data of installation volume is bittersweet for battery manufacturers. It is obvious that it is not a sustainable solution for battery manufacturers to rely solely on expansion to suppress the rising prices of power batteries.

“Requires the Joint Efforts of the Industry Chain”

Behind the surge in sales of new energy vehicles is the inevitable increase in the cost of power batteries.

Over the past year, almost all raw materials and accessories related to lithium battery manufacturing, including lithium carbonate, lithium hexafluorophosphate, cobalt metal, nickel, and negative electrode graphite materials have seen significant price increases.

“Nowadays prices change every day, and some first-tier manufacturers directly stop quoting,” a senior executive of a lithium iron phosphate material enterprise revealed.

Currently, both upstream and downstream of the industry chain have been relatively consistent in their attitude. Due to the significant increase in raw material prices, they are no longer willing to accept large orders. The reason is simple: they are afraid of making a loss when it comes time for delivery.

This has put constraints on the booming new energy market.

Some simple data shows that the price of lithium carbonate has risen from 100,000 yuan/tonne in early August to 200,000 yuan/tonne at the end of October. The price of cobalt acid lithium has increased more than twice, and the price of electrolyte has also risen by over 150%… the price of each raw material has continued to rise.

As a result, the decline in the gross margin of battery manufacturers has become a new concern in the capital market. Zeng Yuqun has even said angrily, “If someone tries to raise prices recklessly in our industry, we will exclude them!”

This confidence comes from the company’s market share of over 50%, but Evergrande still faces challenges from all directions.

The most pressing issue now is that securing the position of the world’s top installation volume and the domestic market share of over 50% means that half of all types of lithium battery materials in China have to be sold to Ningde Times. Therefore, Ningde Times has an indisputable responsibility for stabilizing electric vehicle prices.

Therefore, it is necessary to accelerate the pace of expansion, which also lays a foundation for Ningde Times and Ganfeng Lithium’s battle for lithium mining overseas.

“Five to ten years from now, the raw materials used to produce lithium-ion batteries will be depleted,” said Stanley Whittingham, 2019 Nobel Prize winner in chemistry.Experts in the industry have indicated that “consumption exhaustion” mainly refers to cobalt resources, “there is also nickel and cobalt in lithium batteries, and the supply is currently very tight.” The United States Geological Survey also has a set of data. The global nickel resource reserves in 2020 are about 89 million tons, which, based on the global nickel production in 2020 of 2.5 million tons, can be mined for about 35 years. However, the global cobalt resources will continue to be scarce in the next five years.

Due to the limited nickel resources, excessively high cobalt unit price, and the extent and frequency of price increases in the supply chain, the battery companies have been forced beyond their capacity. “Currently, the orders are very saturated, and it’s not that we don’t want to make deliveries.” The fluctuation of price also further limits the pace of delivery.

Currently, power battery companies such as CATL and BYD have released information about their capacity being unable to meet demand. Competitors led by Contemporary Amperex Technology, CATL, BYD, are impacting the supply-demand relationship in the industry chain.

Although the top 10 battery manufacturers account for 88.5% of the market share, 77.8% of the market share is occupied by the top five companies. The top five are Contemporary Amperex Technology, LG Energy Solution, BYD, Panasonic, SK Innovation…

An industry insider said, “Battery manufacturers need to drive the upstream and downstream of the industry chain to work together.”

Earlier, BYD’s plan to raise battery prices by at least 20% faced some criticism.

The Lithium Mining Sector Is Getting More “Coiled”

From this list of installed capacity, we can also see another problem. The amount of resources controlled has laid the groundwork for the future market competition structure.

In the first half of 2021, as the profit of Contemporary Amperex Technology declined, the net profit of Ganfeng Lithium surged by 805.29% year-on-year, which also indicates that the lithium mining sector is becoming more “coiled.”

Currently, major battery manufacturers, including Contemporary Amperex Technology, except bargaining for “high-nickel” and “cobalt-free” development, have also started the “battle for mining” in order to lock upstream resources.

Earlier, the prolonged battle between Contemporary Amperex Technology and Ganfeng Lithium to acquire Millennial Lithium brought the “mining war” to a small climax, mainly because Millennial Lithium has two salt lake projects in Argentina.

Ganfeng Lithium won with an offer of US$400 million, while Contemporary Amperex Technology made US$10 million and exited the scene, marking the end of this overseas lithium battle. However, in the era where resources are king, Contemporary Amperex Technology did not stop and continued to lock up upstream resources.# When Not Only Contenders Are Investing Heavily in Yichun, Fujian
Beyond CATL, others are racing to the lithium mine. Mining has become one of the major priorities for battery manufacturers today.

Yichun, a once-quiet city, has been swept up in the sudden trend of new energy. As a result, speed and scale have become some of the city’s defining features.

In April, Ganfeng Lithium and Yichun Economic Development Zone signed an agreement to invest CNY 2.2 billion, based on Ganfeng Lithium’s global largest metallic lithium production base in Yichun.

In May, Guoxuan High-Tech’s new energy industry project started construction in Yichun, with a total investment of CNY 11.5 billion. From the first survey to negotiation, from signing to formal construction, it only took 123 days.

In October, CATL invested in building a new lithium battery production base project in Yichun, Jiangxi, with a total investment of no more than CNY 13.5 billion…

Grabbing lithium mines has become the top priority for battery manufacturers.

Yichun is no longer quiet, as the sudden surge in new energy has taken over. Some worry that the aggressive expansion will leave behind many consequences as seen in Shangrao, Jiangxi, and give the industry a big lesson.

This concern is not loud, and like the expansion of new automakers back then, it will eventually be drowned out by the tide.

We must first clarify why we need to grab lithium mines.

According to Ganfeng Lithium, from the total reserves, lithium resources can still be used for at least forty to sixty years, and “depletion within ten years” is almost impossible. However, due to the pace of expansion being limited, supply cannot keep up with the expansion rate of battery production.

Due to the high development cost, local lithium salt producers are not enthusiastic. In the past few years, China’s external dependence on lithium mines has been about 75%. For example, Australia’s lithium mine production has accounted for about 60% of global production.

The new energy industry chain is ultimately global, and compared to international layout, Japanese and Korean power battery manufacturers that have already taken the lead, the future prospects of domestic battery suppliers are not optimistic.

In addition, the profits of processing lithium carbonate and lithium hydroxide are close to 40%, which is an unimaginable high profit margin for the entire power battery chain. As a battery manufacturer, it is urgent to control some lithium mines and develop upstream.

But there are also two major difficulties: increasing lithium mine production capacity is not a one-size-fits-all solution, and the reality that resources are becoming less abundant cannot be changed. Therefore, in the next two to three years, resource scarcity cannot be effectively eased.

“This is the industry’s long-term pain,” said a senior executive of an automaker.In addition, some vehicle manufacturers have already prepared to build their own factories. There are two reasons, not only to avoid the problem of being “stunned” due to insufficient battery production capacity, but also to avoid economic losses caused by price increases by battery manufacturers.

In order not to be “stunned”, this hurried expansion campaign has spread to the entire industrial chain.

Although vehicle manufacturers building their own battery factories will not become direct competitors of battery manufacturers, the initiative of the supply chain may be changed at some point in the future.

This may be something that battery manufacturers, led by CATL, are unwilling to see.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.