Battle between two lithium battery giants: Tesla places another order for lithium hydroxide. Can ternary lithium make a comeback?

After receiving the largest order for new energy vehicles in history, Tesla immediately placed a large order with the king of lithium batteries.

Ganfeng Lithium announced on the evening of November 1 that the company had signed an agreement with Tesla to provide battery-grade lithium hydroxide products to Tesla within three years starting from the beginning of next year.

Although Ganfeng Lithium did not disclose the order amount, not long ago, the US car rental giant Hertz ordered 100,000 electric vehicles from Tesla. At this critical juncture, how many batteries Tesla, with its growing production and sales, will purchase from Ganfeng Lithium is a matter of speculation.

Why does Tesla favor lithium hydroxide products so much?

The reporter learned that lithium salts are mainly divided into different varieties such as lithium carbonate and lithium hydroxide. The production of lithium hydroxide is more difficult than that of lithium carbonate and is mainly used to produce high-nickel positive electrode materials in ternary materials, while lithium carbonate is mainly used to produce lithium iron phosphate and medium and low-nickel positive electrode materials in ternary materials.

In the earnings call in October this year, Tesla also announced that the standard range Model 3 and Model Y models worldwide will be equipped with lithium iron phosphate batteries. Musk also said that he prefers lithium iron phosphate batteries because they can be charged to 100%, while ternary lithium batteries are only recommended to be charged to 90%.

This once sent a signal to the outside world that "Tesla embraces lithium iron phosphate batteries and ternary lithium batteries are being marginalized."

However, now that Tesla has placed an order for lithium hydroxide again, can ternary lithium batteries make a comeback in the "era of two heroes"?

Ganfeng Lithium continues to expand production as it receives another lithium hydroxide order

Specifically, Ganfeng Lithium announced on November 1 that the company and its wholly-owned subsidiary signed a "Product Supply Contract" with Tesla, Inc. and Tesla (Shanghai) Co., Ltd. (hereinafter collectively referred to as "Tesla"), stipulating that from January 1, 2022 to December 31, 2024, the company and Ganfeng International will supply battery-grade lithium hydroxide products to Tesla. The actual purchase quantity and sales amount shall be subject to the purchase order issued by Tesla.

Although Ganfeng Lithium did not disclose the specific order amount, the company still stated that this contract is a sales contract for the company's existing product areas, and the company has the ability to fulfill this contract in terms of funds, personnel, technology and existing production capacity. The signing of this contract is conducive to strengthening the long-term and stable cooperative relationship between the company and Tesla, and is conducive to improving the company's sustainable profitability and long-term development.

The company said that this contract will be fulfilled and revenue will be recognized from 2022 to 2024, which will have a positive impact on the company's operating performance in the above years.

Ganfeng Lithium and Tesla have long been familiar partners.

As early as September 2018, Ganfeng Lithium signed a contract with Tesla, agreeing that from January 1, 2018 to December 31, 2020 (extendable for three years), Tesla designated its battery suppliers to purchase battery-grade lithium hydroxide products from the company and Ganfeng International. The annual purchase quantity is approximately 20% of the company's total production capacity of the product that year, and the amount is subject to the final actual settlement.

The reporter checked Ganfeng Lithium's 2020 annual report and noticed that due to confidentiality clauses, the company did not mention the amount of sales revenue confirmed when it previously cooperated with Tesla.

However, the performance of Ganfeng Lithium, the king of lithium batteries, continues to rise as the demand for lithium batteries increases.

In 2020, Ganfeng Lithium's operating income increased from 5.342 billion yuan in 2019 to 5.524 billion yuan in 2020, with a growth rate of 3.41%; the net profit attributable to shareholders of the listed company increased from 358 million yuan in 2019 to 1.025 billion yuan in 2020, a year-on-year increase of 186.16%.

Behind the increase in performance is the fact that lithium hydroxide has become the main growth driver of lithium compounds in 2020 due to the rapid development of high-nickel ternary batteries.

According to a research report by Minmetals Securities, the global demand for lithium hydroxide monohydrate in 2020 is about 123,000 tons, of which the demand in the lithium-ion battery field is about 98,800 tons. It is expected that the total global demand for lithium hydroxide will increase significantly to 575,000 tons in 2025, with a compound average annual growth rate of about 36.35% from 2020 to 2025. In 2024, the global demand for lithium hydroxide is expected to surpass lithium carbonate.

In fact, Ganfeng Lithium stated in its early years that the company planned a series of expansions of its production facilities to meet the growing demand for lithium and consolidate its leading position in the lithium products industry.

In December 2017, Ganfeng Lithium publicly issued convertible corporate bonds, and the company had already invested in advance using self-raised funds before the raised funds were actually in place. Among them, as of the end of 2020, 178 million yuan had been invested in advance for the 600 million watt-hour high-content lithium-ion power battery project, 3.3879 million yuan had been invested in advance for the 15,000-ton annual battery-grade lithium carbonate construction project, and 150 million yuan had been invested in advance for the 20,000-ton annual lithium hydroxide monohydrate project, totaling 330 million yuan.

In its 2020 annual report, Ganfeng Lithium stated that the construction of a 50,000-ton battery-grade lithium hydroxide production line (i.e. the Mahong 10,000-ton lithium salt phase III project) at the Xinyu Basic Lithium Plant in Jiangxi Province has been completed and will gradually ramp up production capacity and reach full capacity in 2021. The production line is currently operating well.

Ganfeng Lithium is still increasing its lithium hydroxide production. In the first half of 2020, Ganfeng Lithium took the initiative to reduce the production of lithium carbonate and increase the production of lithium hydroxide based on the changes in the lithium carbonate and lithium hydroxide markets. By the end of that year, Ganfeng Lithium's designed production capacity of lithium hydroxide was twice that of lithium carbonate.

In the first three quarters of 2021, Ganfeng Lithium achieved operating income of 7.054 billion yuan, a year-on-year increase of 81.19%; and achieved net profit attributable to shareholders of listed companies of 2.473 billion yuan, a significant year-on-year increase of 648.24%.

Even if we only look at the third quarter, Ganfeng Lithium's operating income and net profit attributable to shareholders of listed companies increased by 98.50% and 506.99% respectively.

The company said that the growth in operating income was mainly due to the completion of the 10,000-ton lithium salt expansion and renovation project (Phase III), which led to an increase in both the quantity and price of lithium salt products.

The era of two battery giants is coming? Can ternary lithium batteries make a comeback?

While signing a large order with Ganfeng Lithium, Tesla has also been seeking other lithium hydroxide supply partners in China.

In April last year, the board of directors of Yahua Group passed a resolution agreeing that the company would issue no more than 1.5 billion yuan in a private placement to be used for the second phase of the 20,000-ton battery-grade lithium hydroxide, 11,000-ton lithium chloride and its products construction project of Yahua Lithium Industry (Ya'an) Co., Ltd. (hereinafter referred to as "Ya'an Lithium Industry") and to supplement working capital.

Shortly after Yahua Group decided to expand its lithium hydroxide production capacity, in December last year, Yahua Group issued an announcement showing that its wholly-owned subsidiary Ya'an Lithium had signed a battery-grade lithium hydroxide supply contract with Tesla of the United States, stipulating that from 2021 to 2025, Tesla will purchase battery-grade lithium hydroxide products from Ya'an Lithium with a total value of US$630 million to US$880 million.

In the latest third-quarter report released by Yahua Group, Yahua Group's operating income increased by 1.233 billion yuan compared with the same period last year, an increase of 55.74%. This is mainly because the company's operating performance increased significantly during the reporting period as the lithium business expanded in the market and prices rose.

After tasting the sweetness, Yahua Group's projects under construction increased by 31.5254 million yuan compared with the beginning of the year, an increase of 66.87%, which is because Yahua Group continues to invest in transforming production lines to increase lithium salt production capacity. In addition, the company's R&D expenses increased by 24.5162 million yuan compared with the same period last year, an increase of 59.32%, because the company increased its R&D investment in lithium salt product-related technologies.

Why does Tesla favor lithium hydroxide products so much?

The reporter learned that lithium salts are mainly divided into different varieties such as lithium carbonate and lithium hydroxide. The production of lithium hydroxide is more difficult than that of lithium carbonate and is mainly used to produce high-nickel positive electrode materials in ternary materials, while lithium carbonate is mainly used to produce lithium iron phosphate and medium and low-nickel positive electrode materials in ternary materials.