2018 Lithium Battery Equipment Industry Research Report

In 2011, the sales volume of new energy vehicles in China was only 8,159 units, and in 2017 it reached 777,000 units, with a compound growth rate of about 114%, which is much higher than the global level. We believe that although the sales growth rate of new energy vehicles in my country may decline in the next two years, China will still be the main battlefield of new energy vehicles in the world.

At present, in the manufacturing cost of new energy vehicles, power lithium batteries account for the highest proportion, reaching about 38%; motors + electronic controls account for 12%. The high growth in sales of new energy vehicles has driven the prosperity of the entire industry chain, especially power lithium batteries, which account for the highest proportion of new energy vehicle costs, and have received great attention from the market. Power lithium batteries and their manufacturing equipment are also the main focus of this article.

The shipment volume of power lithium batteries has grown rapidly along with the sales volume of new energy vehicles. In 2017, the global and domestic shipment volumes of power lithium batteries reached 69GWh and 44.5GWh respectively.

The rapid development of my country's new energy vehicle industry is closely related to the country's policy support, especially the "Made in China 2025" issued by the State Council in May 2015 and the "13th Five-Year Plan for the Development of National Strategic Emerging Industries" issued in December 2016, which positioned the development of the new energy vehicle industry as a major national strategy.

Matching the policy is a large subsidy for new energy vehicles.

Before 2016, the central government allocated a total of 33.44 billion yuan in subsidies and rewards for new energy vehicles. On May 25, 2018, the Ministry of Industry and Information Technology announced the "Preliminary Review of Subsidies for the Promotion and Application of New Energy Vehicles in 2017 and Previous Years", confirming that the total subsidy funds to be issued to new energy vehicle companies in 2016 and 2017 are about 18.972 billion yuan, and the total amount of the above subsidies is 52.4 billion yuan; considering that more batches are waiting to be liquidated in 2016 and 2017, plus the subsidies for new energy vehicles from local governments, the total amount of subsidies in the new energy field in the country is more than 100 billion yuan.

In addition to direct subsidies, exemptions from purchase tax and preferential license policies also provide consumers with more reasons to choose new energy vehicles. Especially in cities such as Beijing and Shanghai, it is difficult to get a license plate for a fuel vehicle, which has prompted more people to choose new energy vehicles.

In the past few years, lithium battery suppliers and lithium battery equipment suppliers have benefited from the high prosperity of the new energy vehicle industry. Listed companies such as BYD, CATL, Guoxuan High-tech, Lead Intelligent, and Yinghe Technology have all achieved rapid growth in performance. (In terms of industrial chain relations, Lead Intelligent and Yinghe Technology are suppliers of CATL, Guoxuan High-tech, etc., supplying them with lithium battery production equipment.)

The power battery sales revenue of CATL and Guoxuan High-tech grew rapidly from 2014 to 2016, but the growth rate slowed down after 2017. This is related to the increasing sales base of new energy vehicles in my country and the slowdown in overall growth.

In 2016, 2017 and the first half of 2018, CATL's power battery sales revenue growth rates were 180.59%, 19.18% and 34.94% respectively, while Gotion High-tech's were 91.05%, -0.34% and 8.73% respectively.

Equipment suppliers Lead Intelligent and Yinghe Technology maintained high revenue growth for a longer period of time, especially Lead Intelligent, which grew by 103.62%, 149.38% and 173.20% in 2016, 2017 and the first half of 2018. After 2017, the revenue growth of Lead Intelligent and other companies was much higher than that of power battery companies, which may be related to the progress of order execution and the transmission of prosperity in the industrial chain.

From the perspective of stock price performance, the stock prices of listed companies related to power batteries performed relatively strongly from 2014 to the first half of 2016. During this period, the stock price of Guoxuan High-tech rose by about 600%; from the second half of 2016 to the present, the stock price of Guoxuan High-tech has undergone a long period of adjustment. (CATL was listed later, and its stock price is still greatly affected by short-term market sentiment, so we will not make too much analysis.) The stock prices of listed companies related to lithium battery equipment rose sharply in 2017. The stock price of Lead Intelligent Technology rose by as much as 148% in 2017. Although the company's performance maintained a continuous high growth, the stock price still ushered in an adjustment. At present, the stock price of Lead Intelligent Technology is only about 60% of the highest point in 2017.

▌The impact of subsidy refunds and price cuts on lithium battery suppliers and equipment suppliers

Subsidies are declining, the dual-credit policy is taking over, and the industry will continue to be prosperous

Comparing the development of new energy vehicle industry at home and abroad, it is not difficult to see the importance of financial subsidies.

In 2009, my country launched a pilot program to promote new energy vehicles in 13 cities including Beijing, Shanghai, Shenzhen and Hangzhou, and provided a one-time fixed-rate subsidy. The following year, the pilot program was expanded to 20 cities.

In 2013, the Ministry of Industry and Information Technology issued detailed subsidy rules for new energy vehicles and promoted the subsidy policy nationwide. Since then, the new energy vehicle industry has ushered in a real spring.

For consumers, the high one-time subsidies make up for the higher prices of new energy vehicles to a certain extent; for car companies, the subsidies they receive for making cars (in 2015 and before) have greatly increased their enthusiasm for switching to new energy vehicle production.

As a follow-up to the subsidy policy, the double-point policy came into being. On September 28, 2017, the Ministry of Industry and Information Technology, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, and the General Administration of Quality Supervision, Inspection and Quarantine jointly announced the "Parallel Management Measures for Passenger Car Enterprises' Average Fuel Consumption and New Energy Vehicle Credits" (hereinafter referred to as the "Dual-Point Policy"), which is seen as a change in the government's attitude towards new energy vehicles from "carrot" to "stick".

The double points refer to fuel consumption points and new energy vehicle points. According to the double points policy, for passenger car manufacturers with an annual production of more than 30,000 traditional energy passenger cars, new energy vehicle points will be required to account for 10% and 12% of the points in 2019 and 2020, respectively. If the requirements are not met, negative points will be generated.

Regarding the question of "whether the industry's prosperity can continue as subsidies decline", we believe that in the short and medium term, the implementation of the dual-point policy will greatly increase the enthusiasm of vehicle manufacturers to produce new energy vehicles from the supply side, and it is expected to support the industry's prosperity as subsidies decline.

In the long run, new energy vehicles have the advantages of being environmentally friendly, comfortable to drive, and easy to electrify. As manufacturing costs decrease and technology matures, it is an inevitable trend for them to widely replace fuel vehicles.

The pressure of subsidy reduction is transmitted, and the gross profit margin of lithium battery equipment suppliers has declined

Although new energy vehicles and fuel vehicles are currently facing different consumer groups, we believe that fuel vehicles will still be the main competitive products for new energy vehicles in the future.

For consumers, immature technology, inconvenient charging and high prices are three important factors that affect their enthusiasm for purchasing new energy vehicles. The continued decline in subsidies will inevitably affect the competitiveness of new energy vehicles.

The subsidy reduction and the introduction of the double-credit policy have increased the urgency for vehicle manufacturers to reduce the cost of new energy vehicles. In addition, new energy vehicles are still a relatively new market, and accelerating the improvement of product cost performance is of great significance for vehicle manufacturers to form a more stable market position and obtain a larger market share.

The pressure of subsidy reduction will inevitably shift to upstream vehicle manufacturers.

Vehicle manufacturers, especially large automakers with high sales of new energy vehicles, have strong bargaining power with lithium battery suppliers. Faced with the continued decline in subsidies, they are able to pass on the pressure to their upstream suppliers.

Lithium batteries account for the highest proportion of new energy costs, and vehicle manufacturers have a strong desire to transfer the pressure of subsidy reduction to lithium battery suppliers.

From 2014 to 2017, the average sales price of CATL's power battery systems was RMB 2.89/wh, RMB 2.28/wh, RMB 2.06/wh and RMB 1.41/wh respectively. The average price in 2017 was only about half of that in 2014. It is expected that the rapid price reduction of power battery systems will continue in the next few years.

Relatively speaking, lithium battery suppliers do not have strong bargaining power with upstream raw material suppliers. Lithium, cobalt and manganese, important raw materials for lithium batteries, have strong resource attributes, and their prices are greatly affected by the supply side. Their domestic prices rose sharply in 2016 and 2017. Although they have declined since 2018, the current prices are still much higher than the 2015 levels.