As the year draws to a close, the battery factory sales champion has taken a more relaxed approach. On the winter solstice, December 22nd, Xiao Wang spent the morning scrolling through his phone in his office, with no customer calls or interactions. “Two years ago at this time, my phone was constantly ringing—orders and shipment requests kept coming in,†he said. The end of the new energy vehicle market is now shifting, and the power battery sector is experiencing a sudden surge. Back then, the market was driven by subsidies, but the supply chain wasn’t fully developed, and battery capacity was in short supply. Companies that entered the power battery industry early were often snapped up.
However, this year’s power battery market has seen dramatic changes. On December 20th, Liu Yanlong, the secretary-general of the China Chemical and Physical Power Industry Association, shared an article on WeChat stating: “The battery market has entered a dull off-season. This slowdown is different from before, as power battery plants are now sandwiched between car manufacturers and raw material suppliers, facing pressure from both ends.â€
Most of the small battery companies, known in the industry as low-end producers, have seen declining sales and profits this year. The main reason is that the overall market dynamics have shifted. “In recent years, there were periods when power batteries were in short supply and highly sought after. Although demand for power batteries is still rising this year, the high production capacity has made it harder for small companies to compete,†Liu Yanlong, a reporter from 21st Century Economic Report, explained. Xiao Wang’s battery factory used to produce mobile phone batteries, but only two years ago, it shifted to power batteries. In Shenzhen, there are many such companies. “Becoming a power battery manufacturer isn’t just about hiring a few people—it requires some equipment. With rapid technological upgrades, many small companies can't keep up,†Liu added.
According to data from the 5th Lithium Davos Forum, from January to October 2017, the cumulative installed capacity of domestic new energy vehicle power batteries reached 18.1 GWh, while the total production capacity had already exceeded 200 GWh, leading to overcapacity.
“Actually, it refers to the surplus of low-end production capacity. Currently, China has more than 200 battery factories, but 80% of shipments are handled by the top 10 companies in the industry. The rest of the market is split among the remaining 20%, which is why this situation exists,†said an insider from a power battery company.
Over the past two years, more than 200 battery companies emerged. In 2011, when China's new energy vehicles were just starting out, the domestic power lithium battery capacity was only 3,200 MWh, with output at 653 MWh. However, in the second half of 2014, with the influence of subsidies and falling prices, new energy vehicle sales surged, causing a shortage of power battery production capacity. Many new energy car companies had orders but couldn’t secure enough batteries.
At that time, car companies weren’t too picky about battery quality or other parameters. “Back then, subsidies only required certain parameters like battery range. As long as those were met, subsidies were given, but battery output was still limited,†Xiao Wang said.
Soon, power battery production capacity and projects began to explode. According to GBII (Ligong Institute of Lithium Research) statistics, China’s power lithium battery capacity increased from 73MWh to 204MWh in 2015, a 179% increase.
In Liu Yanlong’s view, there are three main forms of power battery capacity investment: 1. Original power battery companies expanding their production; 2. Companies that previously didn’t do power batteries building new lines and entering the market; 3. New capital entering the field from scratch.
The boom in power battery expansion was mainly driven by the surge in new energy vehicle sales, but the rate of battery capacity growth far outpaced the growth of new energy vehicles. According to the China Chemical and Physical Power Industry Association, at the end of 2016, China’s power battery capacity reached 101.3GWh, while shipments were only 28GWh, indicating a serious capacity bubble.
Behind this abnormal expansion, there are deeper reasons: strong policy support for new energy vehicles, including large financial subsidies, and local governments’ efforts to attract investment, which fueled investment enthusiasm.
“In the past few years, any company claiming to be involved in new energy vehicles or related industries would get full support from local governments, not just in land and tax incentives, but also funding. Some companies even took over multiple locations,†said a battery plant executive.
Against this backdrop, the number of power battery companies soared. According to GBII data, the number of Chinese power lithium battery companies in 2015 was around 84. Other sources indicate that by 2017, the number of power battery companies had exceeded 200.
Even in 2017, when government subsidies for new energy vehicles drastically declined, carmakers reduced battery prices, and raw material costs rose significantly, the pace of battery capacity expansion did not slow down. BYD revealed during an investor meeting that by the end of the year, its battery production capacity would reach 16GWh, with 6GWh dedicated to ternary batteries and 10GWh to lithium iron phosphate batteries. Next year, BYD plans to expand its ternary battery capacity by 10GWh in Qinghai, bringing the total to 26GWh.
A comparable figure shows that last year, BYD’s production capacity was only 10GWh, and Ningde Time’s was 8GWh. However, BYD’s long-term plan is to expand its battery production to 40GWh by 2020, while Ningde Time aims to reach 50GWh this year.
Despite this, the expansion of battery capacity has moved from the chaotic phase of the previous two years into a new stage led by giants. Companies with larger expansion plans are mainly the top five in terms of installed power battery capacity, who have gained market recognition.
“Shenzhen has many battery companies, including BYD, Waterma, and Bic. Their sales are still relatively good. We can’t compare with them,†said Xiao Wang, whose factory has no reason to expand production.
According to interviews with several battery companies by 21st Century Business Herald reporters, the top installed capacity companies remain optimistic about market expectations. According to the GBII "New Energy Auto Industry Chain Database," the total installed capacity of new energy vehicles in October 2017 was approximately 2.93 GWh, up 49% year-on-year and down 6% from the previous quarter. Among them, the top ten power battery companies accounted for 2.27 GWh, or 77% of the total. The top five are: Ningde Times, BYD, Waterma, BAK Battery, and Guoxuan Hi-Tech.
The power battery industry is witnessing both waves of change and challenges. While large companies continue to expand on a large scale, small businesses are entering a reshuffling phase. It has become a consensus in the industry that 90% of small businesses will be eliminated within the next three years.
“The power battery technology has advanced rapidly. Many small businesses have failed to keep up with the necessary investments in capital and technology. The small and scattered situation is very common,†said Liu Yanlong. At this point, state subsidies have specific requirements for battery range, energy density, and quality, making it difficult for small battery manufacturers to adapt to market demands.
In a battery factory visited by 21st Century Business Herald reporters, some companies still use workers to measure the thickness of electrode sheets manually. “The thickness affects the consistency of the battery pack, which is a critical process. Large companies use intelligent testing, but some small businesses still rely on manual methods,†said an industry expert.
“Overall, the pattern of small and scattered power batteries has not been fundamentally resolved. High-end production capacity is insufficient, and the contradiction of low-end overcapacity has intensified this year,†said a battery company insider.
“The low-end production capacity is already at a disadvantage in terms of price, safety, and lifespan. Power batteries cannot meet the 5–8 year lifespan requirement. For low-end production, this is a huge problem,†said Liu Yanlong.
Which kind of battery is in surplus?
Power batteries are still dominated by lithium iron phosphate and ternary materials. According to GBII data on the total installed capacity of power batteries in October 2017, 2.68 GWh of lithium iron phosphate and ternary materials were installed out of a total of 2.93 GWh, accounting for 91.6%.
However, the share of ternary materials batteries has risen relatively quickly, and many large companies also use ternary materials batteries as part of their future capacity expansion plans.
“The increase in the share of ternary materials and the new capacity planning are mostly guided by policies. State subsidies require specific energy, and ternary materials indeed have higher energy density, so the current situation has emerged,†said Liu Yanlong.
As for the advantages and disadvantages of the two technical routes of lithium iron phosphate and ternary lithium, the head of R&D at a power battery company believes it cannot be simply judged by the monomer's energy density, because battery performance is a complex parameter requiring large-scale industrial application.
The above-mentioned sources believe that although the energy density of ternary materials may be higher than that of lithium iron phosphate, its energy density during use is not as high as that of lithium iron phosphate batteries. For example, the energy density of a lithium iron phosphate single cell is 126Wh/kg, with a group utilization rate of 70% and a final energy density of 70Wh/kg. For ternary batteries, if fast charging and discharging cause loss of control, a cooling system is needed, reducing available energy to 47%. Additionally, to ensure safety, SOC can only be used at 70%, greatly reducing usage efficiency.
“In actual use, the energy density of lithium iron phosphate is higher than that of ternary materials. There is indeed an oversupply of lithium iron phosphate batteries on the market, while ternary materials are relatively scarce. But this is not a problem of battery routes, but due to policy guidance. In the course of industrialization, the industry consensus is that lithium iron phosphate is superior to ternary materials. Cobalt and nickel needed for ternary materials are mostly imported, increasing production costs, and are not as good as lithium iron phosphate, which was previously restricted by the Ministry of Industry and Information Technology for new energy passenger vehicles due to safety issues. Therefore, in terms of reliability, consistency, stability, and cost, lithium iron phosphate is more controllable than ternary materials,†the source said.
“Some people say that the surplus of power batteries is a structural excess of lithium iron phosphate and ternary materials. I don’t agree. In the future, short-distance, shared, and bus applications will still choose lithium iron phosphate batteries,†said Liu Yanlong.
The state plans to completely abolish subsidies for new energy vehicles by 2020, when companies may reorient their battery routes. “When car companies choose to use a power battery, if cost, safety, service life, and other aspects are considered, it is not certain which route will win at that time.â€
In addition, there are concerns that the current production capacity of power batteries as a whole may be excessive, potentially leading to an oversupply of upstream raw materials.
Power battery raw materials include cathode materials, anode materials, separators, electrolytes, conductive agents, adhesives, tabs, and aluminum-plastic composite film. The four most important materials are cathode materials, anode materials, separators, and electrolytes.
Liu Yanlong believes that positive materials, negative materials, and separators may face surplus conditions in the future, but they are not currently prominent. The cobalt and nickel in upstream materials are relatively scarce.
According to a person in charge of R&D at a battery company in Shenzhen, positive electrode material production capacity is relatively abundant; the most important component of the electrolyte is lithium hexafluorophosphate, which accounts for half of the electrolyte cost. With the entry of new upstream material companies, production capacity has increased significantly, easing the tight supply situation in 2016; the key material for the negative electrode is graphite. Although natural graphite is relatively abundant, it is subject to environmental protection regulations, and there is a risk of price increases in the short term, but no supply shortages; diaphragms have been in tight supply since wet diaphragms are thin and difficult to produce, and in the next two or three years, diaphragm production and performance will continue to increase.
“Overall, the supply and demand of raw materials are basically balanced, and it is not as severe as the battery capacity. The cobalt and nickel needed for ternary material batteries are in short supply and demand, and prices are rising quickly,†the source said.
Who will take over the production capacity?
The power battery industry has already entered a phase of elimination and reshuffling. Factors pushing small companies out of the market include, in addition to overcapacity, rising prices for cobalt and other raw materials. “Now, cobalt prices are still rising, and prices have doubled this year,†said Liu Yanlong.
Data from December 20 showed that the latest cobalt price reached 517,000 yuan to 53 thousand yuan per ton, up 7,000 to 220,000 yuan per ton compared to a week ago.
The main upstream materials used for the cathode include lithium, cobalt, nickel, and manganese. “The release of cobalt ore may not keep up with the rapid growth in demand, and cobalt prices are expected to remain relatively high,†said the R&D person in charge of the battery company.
On the demand side, the overall price pressure of power battery packs is also a trend. Subsidies for new energy vehicles have been declining year by year. This year and next year, it is the period with the largest reduction in subsidies. New energy car companies are facing huge cost pressures, and the cost of battery packs accounts for roughly 40%-50% of the car’s cost, which is the focus of cost reduction.
The battery industry is under pressure from both upstream and downstream, and small businesses are still caught in the dilemma of not being able to scale. “In addition to battery quality competition, there is also cost competition. The scale of application is essential for power batteries, and it is an important measure for power battery companies to expand market share and reduce costs,†said a battery company insider.
According to the statistics of a large battery factory, in 2017, the output of new energy vehicles in China reached 700,000 units, and the corresponding lithium-ion battery installed capacity reached 30GWh. The capacity utilization rate was about 15%.
In the longer term, according to the national data plan for the promotion of new energy vehicles in 2020, the production capacity of pure electric vehicles and plug-in hybrid vehicles will reach 2 million units. “If 1GWH corresponds to 20,000 passenger cars or 0.85 million passenger cars, it is expected that the total battery capacity for passenger cars and commercial vehicles by 2020 will be 226.84 GWh,†said the R&D person in charge of the battery company.
Currently, the domestic power battery capacity has exceeded 200GWh. According to the company's expansion plan, by 2020, if the capacity of the top ten battery companies is fully released, it will already be sufficient to meet market demand. Small businesses face the choice between survival and death, but due to low technological content and outdated technology, the path for the elimination of low-end production capacity is unclear. “At present, the production capacity of large companies is mainly self-built. It will be difficult to say whether they will buy small businesses. It mainly depends on the prices of enterprises. This year, there are still some markets for small businesses that may ask for higher prices. The future is very difficult, and the asking price may be very low,†said Liu Yanlong.
In another way, small businesses may introduce new investors. However, with this integration, it is difficult to rescue low-end production capacity.
However, the future prospects of power batteries are still very optimistic, with market share concentrated in large companies, promoting the industry's R&D strength, market share, scale of application, and management, and entering a new stage.
“Even in the global market, China’s power batteries have now exhibited three major advantages: low manufacturing costs, the world’s largest power battery consumer market, and a relatively complete lithium-ion battery industrial chain. Power battery companies will not lose to Japanese and Korean companies,†said the R&D responsible person at the battery company.
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