With overcapacity, subsidy reduction, and strict cost control, how can BYD Battery get out of its predicament?

How should battery companies cope with the current situation under the heavy pressure of battery overcapacity, subsidy reduction, and strict cost control? At the Shanghai Auto Show, Li Fengmei, vice president of Shenzhen BAK Power Battery Co., Ltd., accepted a media interview at the exhibition site and proposed BAK's solution to the pressure and challenges faced by the power battery industry, which is currently in a reshuffle period.

BAK ranked fifth in terms of installed capacity in the first quarter of 2019

First, although the new energy subsidy policy continues to adjust, the pressure on the power battery industry, as the upstream of the new energy vehicle industry chain, has risen sharply. However, under heavy pressure, the lithium battery industry has not shown a downward trend. According to statistics from the research department of the Power Battery Application Branch, the installed capacity of power batteries for new energy vehicles in China was about 5.09GWh in March 2019, a year-on-year increase of 146.3% and a month-on-month increase of 126.69%. Among them, ternary material batteries once again proved their mainstream status, with an installed capacity of 3.89GWh, accounting for 76.47% of the new energy vehicle market share, an increase of six percentage points compared with the same period last year.

According to the statistics of the Power Battery Field Database released by GGII, the total installed capacity of power batteries in my country was about 56.98GWh in 2018, a year-on-year increase of 56%. Among them, BAK Battery ranked 6th with an installed capacity of 1.74GWh in the top ten list of installed capacity; in the first quarter of 2019, among the top 10 companies with the total installed capacity of power batteries, BAK Battery ranked 5th with an installed capacity of 0.26GWh.

The dilemma of declining profits

Although the shipment and installation volume of BYD Battery have increased significantly, it is facing the dilemma of declining profits like the entire industry. It is understood that BYD Battery has promised Changxin Technology that its net profit after deducting non-recurring items in 2016, 2017 and 2018 will not be less than 400 million yuan, 700 million yuan and 1.2 billion yuan respectively. In 2017, the net profit attributable to the parent company's shareholders after deducting non-recurring items was 491 million yuan, with a difference of 209 million yuan. According to the compensation terms, Shenzhen BYD has transferred its 3.3055% equity in BYD Battery to Changxin Technology at a price of 1 yuan, and completed the industrial and commercial change registration procedures on March 7, 2019.

The failure to achieve the expected sustained growth in net profit is due to the decline in subsidies and increasingly fierce market competition, as well as the pressure on battery companies caused by the rise in upstream raw materials and the downstream vehicle companies' demands for price reductions and longer payment terms. In 2018, there were many cases where companies' revenue and net profit declined or even faced bankruptcy due to failed performance bets and a sharp decline in orders.

『Xpeng P7 equipped with BAK 21700 battery』

"The tight capital chain has led to the companies not daring to accept orders. Not accepting orders has led to a decline in corporate revenue and net profits, which has caused the capital chain to become increasingly tight. This is the tense situation that battery companies are currently facing," said an industry insider.

As a battery company, BAK is also affected by the environment. According to the evaluation report issued by the evaluation agency on April 8 this year, after using the income method to evaluate, with December 31, 2018 as the evaluation base date, the valuation of BAK Battery shrunk from 10.25 billion yuan to 7.186 billion yuan.

Piccolo's Way Out

As a company with great achievements in the field of cylindrical batteries, BAK Battery has also started a diversified product development path. For example, it exhibited square batteries in addition to 18650 and 21700 cylindrical batteries at the Shanghai Auto Show. According to Li Fengmei, BAK's square batteries currently include 48Ah products, 275Ah products and 45Ah hybrid products; at the same time, there is a square battery pilot line (also called a sample line) with a production capacity of 1GWh in Shenzhen, and Zhengzhou is also planning a square battery production line. It is expected that the production line will be completed in the fourth quarter of this year and put into production before the end of the year. It is understood that BAK's square battery currently has a planned production capacity of 2GWh, and in addition to ternary batteries, it will also produce lithium iron phosphate batteries.

"Leapmotor S01 Razer co-branded version equipped with BAK cylindrical battery"

It can be seen that even BYD Battery, which is focused on and well-known in the field of cylindrical batteries, has begun to expand its product line to include other products including square batteries. At the same time, Li Fengmei introduced that the square 45Ah battery is a high-nickel 811 product and also a high-rate product. The 5C fast charging technology can charge 80% in 12 minutes, and the energy density can reach 200Wh/kg. At present, the product has passed the review of FAW, and is also in contact with Geely, Chery (Shanghai Auto Show), Great Wall and other companies. At this Shanghai Auto Show, BYD also brought a variety of power battery products such as 18650 full-line high-energy cylindrical cells, 27100 cells, square batteries, battery modules and battery packs, demonstrating its leading achievements in the high-nickel 811 material system.

In addition, compared with foreign brands, Li Fengmei said that although BAK's cylindrical batteries still have a gap in cost and energy density compared with Panasonic, it also has advantages in aspects such as cycle life. With the existence of differentiated advantages, BAK has the strength to continue to compete in the market.

Regarding the poor cash flow of battery companies caused by accounts receivable, Li Fengmei said that this is a problem faced by the entire industry. BYD's response is first to improve revenue through transformation, such as changing its products from power-oriented to power, energy storage and light power fields; secondly, it is to continuously improve BYD's technical management capabilities and reputation through cooperation and learning with large manufacturers.

"The transition period is the only way to promote high-quality development of the industry. The introduction of new subsidy policies has put forward higher requirements for lithium battery companies. The only way for lithium battery companies to break through is to improve quality." Li Fengmei said.