CATL takes the lead! The power battery industry may usher in a wave of price cuts

At the World Power Battery Conference held on July 21, 2022 , Zeng Qinghong, chairman of GAC Group, said in his speech that the current cost of power batteries already accounts for 40% to 50%, or even 60%, of new energy vehicles . He laughed and said: "Then am I not working for CATL now ?"

Faced with the "accusations" of partners, CATL Chairman Zeng Yuqun later responded: " The capital hype of upstream raw materials has brought short-term troubles to the power battery industry chain. Upstream lithium batteries such as lithium carbonate, lithium hexafluorophosphate , and petroleum coke Material prices have skyrocketed.”

The implication is that CATL is only passively increasing prices, and there is no such thing as car manufacturers working for battery factories. At that time, CATL transferred more cost pressure to downstream car companies.

But such a strategy will undoubtedly force car manufacturers to look for second or even third battery suppliers.

01

Ningde era may implement "price-for-volume"

Against this background, CATL’s power battery market share also fell below the 50% mark in 2022, reaching 48.2%.

For leading companies like CATL, having a market share below 50% is undoubtedly a target that requires vigilance.

At the same time, according to data from the China Automotive Power Battery Industry Innovation Alliance, CATL’s power battery installed capacity in January was 7.17GWh, with a market share of 44.4%, down 3% from 48.2% last year. .8 percentage points.

On the other hand, the entire demand segment has also declined. In January 2023, my country's power battery installed capacity was 16.1GWh, a year-on-year decrease of 0.3% and a month-on-month decrease of 55.4%.

In January, China's new energy vehicle production and sales were 425,000 and 408,000 units, respectively, down 46.6% and 49.9% month-on-month, and down 6.9% and 6.3% year-on-year respectively. Market penetration rate Reached 24.7%. The year-on-month declines exceeded the same period in history.

Facing the decline in market share and demand, CATL can no longer sit still.

According to 36 Krypton, 36 Krypton learned from many industry chain figures that CATL is currently actively promoting a lithium ore rebate plan to car companies to achieve battery price reductions.

Sources revealed that the plan is not for all customers, but for many strategic customers such as Li Auto, NIO, Huawei, and JK Auto. The core terms are:

In the next three years, the price of lithium carbonate for some power batteries will be settled at 200,000/ton. At the same time, car companies that sign this cooperation need to commit about 80% of their battery purchases to CATL.

02

Where does low-price lithium ore come from?

If this plan really comes to fruition, then the profit transfer from CATL will be huge. But the question is where to find 200,000/ton of lithium carbonate?

If negotiating with lithium mining companies, CATL’s biggest bargaining chip is its scale and market share. If the plan can be negotiated with all its new energy vehicle company customers, then the overall power battery procurement volume cannot be underestimated.

And from mid-November 2022 to the present, the prices of lithium carbonate and lithium hydroxide have fallen significantly. Among them, the price of battery-grade lithium carbonate has dropped from the previous price of 620,000 yuan/ton to today's 440,000 yuan/ton. Around 2019, the price of lithium hydroxide also dropped to 460,000 yuan/ton. The industry also estimates that the price of lithium carbonate may drop further in the second half of the year, possibly to below 400,000 yuan/ton, or even to 350,000 yuan/ton.

However, once the drop is too large, the production willingness of lithium mining companies will inevitably decline. Therefore, it is extremely unlikely that lithium prices will fall to 200,000/ton this year.

And for most lithium mining companies, although the price of lithium carbonate of 200,000 per ton is profitable, after experiencing huge profits, which lithium mining company will give up its profits for no reason?

Therefore, for CATL, negotiating with lithium mining companies is not a realistic option. In this context, CATL may be a more likely option to mine its own lithium mines.

It is worth noting that according to the Financial Associated Press, the first phase of the mineral processing plant in Ningde Times's Yanxiawo Mining Area will be put into trial production in March this year. If trial production reaches full production, based on three quarters, the theoretical maximum output will be 31,300 tons of LCE, industry insiders estimate that the whole year will be around 20,000 tons of LCE. There are different opinions on the cost estimate of the Jianxiawo mining area, but it does not exceed 200,000 yuan/ton LCE.

03

The industry may usher in a wave of price cuts

As for the impact of CATL's move on the industry, from the perspective of the power battery industry, a price war may be unavoidable. This is just like after Tesla announced a price cut, most new energy vehicle manufacturers also followed suit.

For downstream new energy vehicle manufacturers, the price reduction of power batteries is conducive to the recovery of new energy vehicle sales on the one hand , but on the other hand it may also intensify the trend of new energy vehicle price reductions.

For lithium mining companies, this is outright short-term bad news, making the market more worried about the profitability of lithium mining companies. Affected by this, the stock prices of lithium mining companies also fell to varying degrees today. As of closing, Yiwei Lithium Energy fell by 5.66%, Ganfeng Lithium fell by 0.73%, and Tianqi Lithium fell by 0.68%.

Finally, what is interesting is that almost all power battery manufacturers chose to expand production this year despite knowing that overcapacity may occur. Why is this?

This comes back to the industry itself. Although the new energy industry continues to grow and move forward, there are more and more industry participants. Stopping means that you no longer have advantages in cost and technology. Stopping means waiting. In comparison, expansion of production is of course risky, but at least it gives the company a ticket to future competition.

After all, the core essence of manufacturing is that in each iteration, investment is continuously reduced, efficiency is continuously upgraded, quality is continuously improved, and costs are continuously reduced.

For investors, it is enough to pay attention to only a few companies at the top. As long as the technological route does not undergo disruptive changes, the ones that will survive are destined to be the leading companies with the greatest scale advantages and the lowest costs in the industry.