The power battery industry is about to be reshuffled, and some companies may face bankruptcy

“To be or not to be, that is the question.” (A line from Hamlet, a representative play by the great British playwright Shakespeare).

The sales of new energy vehicle companies have always depended on the output of battery companies. Based on this, in recent years, with the explosive growth of new energy vehicles, the production capacity of power batteries has also increased rapidly. However, the development of the power battery industry is small, scattered and chaotic, and the problems of "insufficient high-end production capacity and excessive low-end production capacity" have become more and more prominent. Especially since 2017, power battery manufacturers have been squeezed from both upstream and downstream: on the one hand, the price of battery raw materials has continued to rise, and on the other hand, subsidies for new energy vehicles have been reduced. Industry insiders said: The power battery industry may enter a difficult time. Is this really the case?

Who is to blame for the failure of the "early warning mechanism" and overcapacity?

Since 2015, power batteries have ushered in a large-scale expansion wave, with traditional equipment manufacturers, new energy vehicle companies, Internet giants and other capitals competing to seize the opportunity in the rapidly developing market. From the perspective of capacity expansion, by the end of 2016, the new capacity of the power battery industry increased by nearly 35GWh compared with the same period, and the total amount was almost three times the annual shipments two years ago. In 2016 alone, the funds invested in the power battery field exceeded 100 billion yuan, and this is just a microcosm of the "flying" capacity in the power battery field.

In the industry's view, if all these capacities are released, the power battery capacity will reach 170GWh/year. An analysis report from Industrial Securities shows that China's power battery demand in 2016 was about 28GWh, and it is expected that the power battery demand will exceed 90GWh by 2020. "If the market sales ratio of electric buses to electric passenger cars is 1:10, 170Gwh can meet the total demand for 500,000 electric buses and 5 million electric passenger cars per year." In the view of Tsinghua University professor Ouyang Minggao, the industry may reach capacity saturation in the next three to five years.

Entering 2017, the pace of capacity expansion has not stopped, and companies engaged in power batteries have shown greater enthusiasm. According to reports, many power battery companies including BYD, Tianjin Lishen, Watma, Tianneng, Guoxuan High-tech, Yiwei Lithium Energy, Narada Power, Shanshan Co., Ltd., Wanxiang A123, and Yiwei Lithium Battery have already or plan to launch new production lines.

It is obvious that, judging from the current situation, the growth rate of domestic power battery production capacity reserves has far exceeded the growth rate of sales.

Double pressure squeezes Matthew effect

At the beginning of 2017, the subsidy reduction mechanism for new energy vehicles was launched. After calculation, the overall subsidy was reduced by 40%. The subsidy for new energy vehicles dropped sharply, and the cost pressure directly affected the power batteries in the upstream industrial chain. In addition to the price reduction pressure from downstream car companies, the high price of raw materials has made the situation of power battery companies even worse.

Since the beginning of this year, raw material prices have remained high. Industry data show that on May 18, the reference price of lithium carbonate was 140,000 yuan per ton, and the reference price of cobalt metal remained at 367,000 yuan per ton. In particular, the price of cobalt metal, which accounts for about 10% of the cost of batteries, has doubled compared with 2016.

New energy vehicle companies generally call for a 20%-30% price cut for power batteries. "Faced with the pressure of reducing costs, companies mainly rely on improving energy density and economies of scale, as well as compressing raw materials in various links, and profits are squeezed out," said Wu Hui, general manager of the Automotive Industry Research Center of the China Academy of Information and Communications Technology of the Ministry of Industry and Information Technology, in an interview with reporters.

Earlier this year, Miao Wei, Minister of Industry and Information Technology, spoke frankly about the pain points at the Electric Vehicle Hundred People Conference, "Our core technology of power batteries has not yet achieved a revolutionary breakthrough, and performance needs to be greatly improved." At the Hundred People Conference, Miao Wei said that in the field of new energy buses and trucks, there are signs of structural overcapacity, and the problems of insufficient high-end production capacity and overcapacity of low-end power batteries are also further exacerbated. "Not only that, the key problem in the field of power batteries is the low technical level and lack of battery standards. At the same time, there are many problems such as low manufacturing qualification rate, poor safety, and high cost."

It can be said that the development and progress of the new energy vehicle industry has put forward higher requirements for power batteries, especially for battery quality, energy density, safety factor, etc. At the same time, battery manufacturing is also moving towards informatization and stabilization. In the final analysis, the core competitiveness of power battery companies is to accelerate the pace of battery intelligent manufacturing through technological innovation, production automation, and standardized management, and promote my country's battery products to enter higher-end markets to meet the high-quality requirements of new energy vehicles for batteries, rather than blindly expanding production capacity and focusing on output rather than quality.

It can be said that due to the tightening of subsidy policies, the slowdown in the growth rate of the application-side market has become a general trend. For power batteries, which are closely related to the fate of new energy vehicles, it is an inevitable trend that they have experienced a low point in both volume and price since this year.

An expert said, "The battery companies in the first echelon have strong strength in cost reduction through various measures and can guarantee their own profits. However, if small companies do not expand their scale quickly, they will be eliminated. I estimate that a number of battery companies will go bankrupt this year, and only the battery giants will be left in a year or two."

"For large leading companies, the cost pressure may not be that great, but it is hard to say whether small companies can hold on. This year we will see a wave of industry consolidation, and a number of small companies may go bankrupt." Wu Hui holds a similar view.

Survival of the fittest is the rule of the game in the market economy, and the last laughing company will be the "last survivor". "Small, chaotic, and poor" power battery companies will be ruthlessly eliminated in the market competition. In difficult times, small companies must find clever strategies from many aspects, actively innovate in core technologies and business models, and reduce costs in all process links in order to survive.

From another perspective, industry concentration may also indicate the maturity of the industry. Only by concentrating the industry's superior resources on benchmark backbone enterprises can the industry's future be truly boosted.

From this perspective, the surging tide of reshuffle is a blessing for the industry!