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The Reshuffle of the Power Battery Industry Chain

Benefiting from the rapid rise of electronic vehicles and energy storage markets worldwide, the lithium battery industry has shown unprecedented vitality in recent years. Chinese power battery companies have firmly seized this opportunity and have invested and built factories overseas to participate in international market competition.

The industrial chain is deeply trapped in the vortex of rising prices.

As the most critical material for electric vehicles, industrial-grade lithium carbonate accounts for about 40% of the manufacturing cost. Recently, the continuous rise in the price of lithium carbonate has not only failed to benefit the entire industrial chain but has also made power batteries, and vehicle manufacturers in the middle and lower reaches face more significant cost pressure.

According to data released by Shanghai Steel Union, the price of industrial-grade lithium carbonate has started a rising pattern since 2022, until it broke through the 570,000 yuan/ton mark in November 2022 and hit a historical high of 571,000 yuan/ton.

On the one hand, the price of upstream raw materials has risen, which has led to a substantial increase in battery manufacturing costs for midstream manufacturers.

On the other hand, with the hot sales of new energy vehicles, the vast market demand has made it more difficult for battery manufacturers to obtain price reduction space from lithium raw material suppliers.

To alleviate the pressure brought about by rising raw material costs, battery manufacturers have raised product prices one after another, trying to spread the cost pressure to downstream car companies. Under the layer-by-layer transmission of the supply system, the downstream vehicle manufacturers are deeply caught in the vortex of price increases.

In May 2022, more than 20 domestic new energy car companies collectively announced a price increase, and the terminal price increased by more than 40 models. The increase was relatively significant, ranging from 3,000-30,000 yuan.

After the surging price, Lithium Carbonate has recently shown a signal of stopping rising and stabilizing near the Chinese New Year.

Since the end of November 2022, the price of lithium salt has continued to fall, and the price drop has gradually accelerated since mid-December. As of January 6, the battery-grade lithium carbonate price has dropped to 501,500 yuan/ton.

The contradiction between supply and demand is difficult to resolve in the short term.

Although the development prospects of the power battery industry are unanimously optimistic, in the short term, the contradiction between the supply and demand of lithium carbonate still needs to be resolved.

According to the forecast of South Korean research organization SNE Research, by 2023, the global demand for power batteries for electric vehicles will reach 406GWh, while the worldwide power battery supply is expected to be 335GWh, with a gap of about 18%. By 2025, this gap will be further expanded to about 40%; lithium prices will continue to rise in supply shortages.

The supply of upstream lithium resources is the key to determining the future trend of lithium prices. The mismatch between upstream and downstream production cycles is the root cause of the difficulty in responding quickly when lithium demand explodes.

The upstream mining army continuously expands lithium carbonate production capacity driven by high profits.

According to a person from Qinghai Salt Lake Co., Ltd., the company has now achieved 30,000 tons of lithium carbonate production capacity, and the self-built 40,000 tons of basic lithium salt integration project has been implemented. It is planned to be put into operation in 2024.

The 30,000-ton battery-grade lithium carbonate project jointly developed with BYD in Salt Lake is progressing orderly.

Gotion High-Tech stated on the investor interaction platform that the new production line of Gotion was put into production in early September 2022, and the current production capacity is constantly climbing. At the same time, the company's lithium carbonate production line in Yifeng will also be put into operation in the first quarter of next year, and the production capacity of the first phase of lithium carbonate is expected to be 25,000 tons.

In addition, Yichun Gotion Mining officially obtained the mining right of the China clay (lithium-containing) mine in the Shuinan section of the Geshili mining area at the end of November 2022. The designed production scale is 3 million tons per year, supporting the company's lithium carbonate shipment target for next year.

At the same time, midstream and downstream enterprises, including CATL, BYD, GAC, Geely, Great Wall, and NIO, have begun to integrate the layout of the industrial chain, deploying battery manufacturing projects overseas or "buying mines" to enter the upstream mineral and material link.

In June 2022, SVOLT, under Great Wall Motors and Ganfeng Lithium, signed the "Strategic Cooperation Framework Agreement". The two parties will cooperate in lithium resources, lithium salt supply, and marketing.

In August 2022, CATL announced that it plans to invest in Hungary to build a new power battery industry base project in Hungary.

In September 2022, NIO reached a strategic financing deal with Australian ore mining company Greenwing Resources Ltd to advance its exploration plan for the San Jorge Salt Lake Lithium Project in Catamarca Province, Argentina.

In addition, it is reported that BYD found 6 lithium mines in Africa in 2022, all of which have reached acquisition intentions.

The era of power battery recycling is on the way.

According to the data from China Automotive Technology and Research Center, the total amount of decommissioned power batteries in China will be about 23GWh in 2020. By 2025, this number will rise to about 125 GWh. In the context of increasing lithium carbonate prices, many manufacturers have begun to focus on the battery recycling industry, hoping to reduce costs through resource recycling.

Battery manufacturers have launched battery recycling businesses, including CATL, BYD, Gotion High-Tech, and OEMs such as NIO. At the same time, lithium battery material suppliers such as Huayou Cobalt, CNGR, Ganfeng Lithium Industry, and Tinci Materials, located in the upper reaches of the industrial chain, are also actively deploying in the field of battery recycling.

GEM has been in the business for a long time and has become a leader in battery recycling. In August 2022, GEM stated on the investor interaction platform that the company has established cooperative relationships with more than 1,000 vehicle manufacturers, battery factories, and operators. So far, it has deployed more than 200 recycling outlets and plans to recycle nearly 3 10,000 tons of scrapped power batteries.

"Going Global"

Chinese battery companies' overseas expansion is mainly due to the needs of giant car companies.

On September 9, 2022, the BMW Group announced on its official account that it will be the first to use cylindrical batteries in "new generation" models from 2025.

And to meet the demand for batteries of the "new generation" models, BMW Group awarded a battery production demand contract worth more than 10 billion euros to two companies, CATL and EVE Lithium Energy. The two partners will build two cell factories in China and Europe, each with an annual production capacity of 20 GWh.

On October 19, 2022, Envision AESC also announced in its official account that it will build a new zero-carbon battery factory in South Carolina, USA, with a planned annual production capacity of 30GWh, which will be put into operation in 2026. The factory will supply cylindrical power batteries for BMW.

Earlier on March 16, Envision AESC also announced the construction of a large battery factory in Kentucky, USA, to provide battery products for Mercedes-Benz. According to its official data, Envision AESC has set up production bases in Japan, the United States, the United Kingdom, and France. By 2025, the total battery production capacity will exceed 300 GWh.

In addition, several battery manufacturers, including Sunwoda, CALB, and Gotion High-Tech, got purchase orders from overseas car companies in 2022.

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