Power battery observation in February

On March 12, the monthly data of power batteries for February was released. Overall, there are the following characteristics:

1) At the beginning of 2022, the output of power batteries reached 61.46GWh in the first two months, equivalent to 73.6% of the whole year of 2020 (83.42GWh) and 23.9% of 2021 (219.68GWh). If it continues to grow at this rate, it is expected to hit a production of 400-450GWh this year.

2) The output of lithium iron phosphate (20.1GWh) is nearly twice that of ternary batteries (11.6GWh). The corresponding installed capacity of lithium iron phosphate in February was only 7.8GWh. In the future, lithium iron phosphate will be used on a larger scale, and a considerable part of it will be exported abroad with the export models, and another part will be directly supplied to foreign countries by sea.

3) The demand for pure electric passenger cars has become the most important pillar of power batteries, but due to rising costs, plug-in hybrids have a good opportunity. This will be a very clear trend in 2022. The demand for commercial vehicles has shrunk significantly, and we expect a major breakthrough in battery-swap heavy trucks in the second half of the year.

4) In the second half of the year, more battery companies will start to produce lithium iron phosphate. In addition, the gap between CATL and BYD in the lithium iron phosphate market will get closer and closer. 

01

Output: Lithium iron phosphate has a large inventory 

In February, the output of power batteries was 31.8GWh, a year-on-year increase of 236.2% and a month-on-month increase of 7.1%. 

Despite the long Spring Festival holiday in February, the production of power batteries still exceeded the historical peak of 31.63GWh in December last year. Such a high output means that battery manufacturers plan to produce batteries at the beginning of the year, as the demand in 2022 is very high. Especially under the condition of high raw material prices, even if the batteries are kept in stock, there will be good returns. 

Figure 1 Power battery production in February 2022 maintained a high level of prosperity (the picture can be clicked to enlarge, the same below)

From the perspective of the output of different types of batteries: the output of ternary batteries is 11.6GWh, which currently only accounts for 36.6% - although it has increased by 127.2% year-on-year. Looking back at May 2021, the output of ternary batteries was surpassed by lithium iron phosphate, and the gap between the two has continued to widen since then. At present, the output of ternary batteries is only about half of that of lithium iron phosphate.

Figure 2 Lithium iron phosphate suppresses ternary production

The output of lithium iron phosphate batteries was 20.1GWh, accounting for 63.1% of the total output, an increase of 364.1% year-on-year.

The growth rates of these two types of batteries also objectively reflect the battery selection direction for updated car models in 2021. 

It is worth noting that the output of lithium iron phosphate in February was 20.1GWh, and the installed capacity was only 7.8GWh. The difference between these two data is getting bigger and bigger. The main reasonable explanations are:

1) It is used more in export models. According to the data from the China Automobile Association: 56,000 vehicles were exported in January, 48,000 in February, and a total of 104,000 vehicles. If calculated at 60kWh per vehicle, it is about 6GWh (3GWh per month).

2) Lithium iron phosphate is growing rapidly in commercial vehicle applications around the world, and a portion of it is exported;

3) The last one is inventory: it takes 30-45 days for the batteries produced in January and February to be loaded from the finished product warehouse of the battery manufacturer to the warehouse of each car company. It is expected that car companies with higher production in the future will complete the reserve in advance. Since batteries are still in short supply in 2022, it is expected that these car companies will buy the batteries first and load them according to the subsequent demand. 

From January to February 2022, the cumulative output of power batteries reached 61.4GWh, a year-on-year cumulative increase of 185.7%. Among them, the output of ternary batteries was 22.5GWh, accounting for 36.6% of the total output, a year-on-year cumulative increase of 87.6%; the output of lithium iron phosphate batteries was 38.8GWh, accounting for 63.2% of the total output, a year-on-year cumulative increase of 308.2%. 2022 is still an era dominated by lithium iron phosphate, and the high growth of power batteries will not reduce the demand for resources in the short term. 

02

Installed capacity: The gap between iron-lithium and ternary 

In February, the installed capacity of power batteries was 13.7GWh, a year-on-year increase of 145.1% and a month-on-month decrease of 15.5%. 

Although the installed capacity has increased significantly year-on-year, the installed capacity is about half of the peak value of 26.22GWh in December last year, which is very different from the production data.

Figure 3: Installed capacity in February 2022 is also running at a high level

From the perspective of different battery types:

The installed capacity of ternary batteries was 5.8GWh, a year-on-year increase of 75.6% and a month-on-month decrease of 19.9%;

The installed capacity of lithium iron phosphate batteries was 7.8GWh, a year-on-year increase of 247.3% and a month-on-month decrease of 12.3%. 

On the installation side, lithium iron phosphate surpassed ternary batteries in July last year, but overall, on the installation side in 2022, the difference between the two is only about 2GWh, and the difference in output is much smaller. 

Looking at the first two months of 2022, the cumulative installed battery capacity was 29.9GWh, with ternary batteries accounting for 13.1GWh, or 43.8% of the total installed capacity, and lithium iron phosphate batteries accounting for 16.7GWh, or 55.9% of the total installed capacity. The difference between the two is not wide. 

Will the follow-up be extended? Not necessarily. 

As the price of lithium carbonate rises sharply, the price difference between the two is narrowing (lithium iron phosphate generally uses lithium carbonate as the source of positive electrode material, while ternary generally uses lithium hydroxide as the source of positive electrode material). Overall, mid-to-high-end models do not care about this price difference; while low-end models are still very sensitive to price even if they use lithium iron phosphate. We need to continue to observe this aspect.

Figure 4 Review of domestic installed capacity

03

Demand breakdown: Plug-in hybrids gain momentum 

From a longer-term perspective, the demand for power batteries has been changing. 

Let’s break it down:

In 2017, the majority of power battery demand came from buses and special-purpose vehicles, which was the era of lithium iron phosphate.

In 2018, the proportion of pure electric passenger cars increased, and ternary batteries began to be widely adopted;

In 2019, passenger cars and special-purpose vehicles have gradually begun to shrink, and pure electric passenger cars have become the main demand side;

In 2020, under the influence of the epidemic, pure electric passenger cars became a high-growth demand;

From 2021 to 2022, the demand for commercial vehicles has become a small part. By February, the installed capacity of plug-in hybrid power batteries has exceeded the sum of special-purpose vehicles and buses. 

From a cost perspective, plug-in hybrid passenger cars are very attractive in the face of high oil prices. In 2022, the demand for plug-in hybrid passenger cars will be very strong. In 2022, the demand for power batteries for buses may continue to decline, and the increase in commercial vehicles will mainly focus on special-purpose vehicles, especially the battery-swap heavy trucks mentioned earlier, which may have a rapid breakthrough.

Figure 5 Changes in the main body of domestic power battery demand from 2017 to 2022

04

Matthew effect of battery suppliers

In the new energy vehicle market in February, only 35 power battery companies achieved vehicle installation and matching, and the concentration level further increased. 

The top three and top five companies’ total installed capacity was 10.6GWh and 11.7GWh respectively, accounting for 77.7% and 85.4% of the total installed capacity respectively.

Figure 6 Comparison of domestic enterprise installed capacity from January to February

From the perspective of lithium iron phosphate, BYD's rapid increase in volume has gradually narrowed the gap with CATL. Second-tier battery companies, AVIC Lithium, EVE Energy, SVOLT and Sunwoda are all rapidly developing lithium iron phosphate supporting products. From the current technical direction, these companies will also come up with more optimized lithium iron phosphate battery solutions in 2022 to serve smaller automakers. These small automakers have endured higher price increases than leading automakers and need to quickly switch and develop supply to cope with price increases.

Figure 7 Competition of lithium iron phosphate

On the ternary side, CATL is basically the only dominant player, followed by AVIC Lithium Battery. 

It should be noted that as the installed capacity of ternary batteries in China has gradually reached a relatively stable state, not many companies have subsequently focused on this field. Since ternary batteries are mainly installed in mid-to-high-end models, second-tier automakers have worked hard on this field for many years but have not achieved particularly good results.

Figure 8 Competition among ternary batteries 

05

summary

We are still unclear about the overall impact of the macro economy on new energy vehicles in 2022. In the era of high oil prices, the shift in consumer choice is obvious. However, all the increases in material costs need to be digested by automakers. In order to cope with the pressure of price increases, automakers still need some time to let end consumers share the burden.