Power battery is the only source of NEV driving energy, which is directly related to the power performance, range and safety of electric vehicles. From the cost composition of NEV, the battery system occupies 30% to 50% of its cost. Power battery technology has always influenced the practicalization process of electric vehicles.
China has abundant lithium resources and a perfect lithium battery industry chain, as well as a large basic talent pool, making mainland China the most attractive region in the world for the development of lithium batteries and its material industry, and has become the world's largest lithium battery material and battery production base. Among the power battery companies in the world, Chinese brands occupy an absolute advantage, accounting for 60.4% of the market share.
Chinese power battery brands firmly establish themselves as global leaders
The Chinese market is the largest market for new energy vehicles in the world, and the movement of smart electric vehicles launched in China has also made local power battery companies grow rapidly. CATL and BYD firmly occupy the top 2 positions in the field of power batteries in 2022. The installed capacity of the two will reach more than 50% of the total in 2022. Compared with the subsequent companies, CATL and BYD have gained a crushing advantage in the industry.
According to industry insiders, industry giants such as CATL and BYD are growing rapidly because they have significant advantages in terms of technical strength, supply chain control, industrial scale, and relationships with major OEMs.
Lithium Battery Industry Chain
The lithium battery industry chain is divided into three segments: upstream raw materials, midstream cell manufacturing and packaging, and downstream applications. Upstream raw materials are mainly divided into cathode and anode materials, electrolyte, diaphragm; midstream cell manufacturing and packaging mainly include electrode plate production, cell packaging, lithium battery assembly, lithium battery module and PACK; downstream applications are mainly in the field of consumer electronics, power batteries and energy storage batteries.
Upstream of the industry chain
1) Lithium resources
In recent years, under the strong pull of lithium battery-based power battery demand, the price of lithium carbonate has grown from less than CNY 50,000 / ton to CNY 500,000/ton since 2021.
Along with the contradiction between supply and demand of lithium materials, global giants are competing more and more fiercely for lithium resources. China, as the world's largest lithium power battery producer, in addition to resource mining and processing enterprises, cathode material enterprises, power battery enterprises and electric vehicle manufacturers, and even financial investment institutions have industrial layout in lithium resources.
2) Cathode material
Cathode material is a decisive factor in the electrochemical performance of lithium batteries, and plays a leading role in the energy density and safety performance of the battery. The cost of cathode material is also high, at 30%-40%. According to the cathode material system, the existing market for lithium batteries is mainly divided into LFP (Lithium iron phosphate (LiFePO4)) and NCM (Ternary material).
China is basically a monopoly in LFP. Japan and South Korea previously had advantages in technology and share in the field of NCM. However, as a large number of enterprises in China joined the competition, the market share has rapidly shifted to the Chinese market.
3) Anode material
China's anode materials market is highly concentrated, and the competitive pattern is relatively good. Anode materials are mainly in competition between China and Japan, and the share of companies from the two countries accounts for more than 95% of the world and the trend in recent years has been shifting from Japan to China. The combined market share of the top three Chinese companies is close to 60%.
4) Electrolyte
The electrolyte is the carrier that drives the flow of lithium ions in lithium-ion batteries, and plays a pivotal role in the operation and safety of lithium batteries.
Before 2014, Japan almost monopolized the LiPF industry, when the gross profit margin was as high as 80%. Since 2015, the overall growth rate of Chinese electrolyte companies has been higher than the global every year. As the market share of Chinese companies has gradually increased, the gross profit margin of electrolytes has dropped to 30%-40%. The current domestic competition pattern of this industry is clear and stable, so the gross profit margin will not change greatly, and technological change is relatively stable.
5) Diaphragm
The diaphragm is a layer of film used to isolate the positive and negative electrodes of the lithium battery and prevent short circuits. It not only is able to play the role of isolation, but also have a good passability for lithium ions, so that the battery can be charged and discharged normally. Among the four core raw materials, the only one that has not been fully localized is diaphragm, whose technical barriers are the highest. The cost of the diaphragm only accounts for 10-14% of the total cost of the lithium battery.
Midstream of the industry chain
Cell manufacturing and modules are located in the midstream of the lithium-ion battery industry chain. It uses materials supplied by upstream battery material companies to produce lithium-ion battery cell products with different specifications and capacities, and finally selects different cell products, modules and BMS solutions according to the requirements of end customers.
From a global perspective, China currently dominates the global lithium-ion manufacturing market. 2022 global installed power battery capacity is about 517.9 GWh. Among the top ten companies in terms of installed capacity, Chinese power battery companies occupy six seats, with a combined market share of 60.4%.
Downstream of the industry chain
The downstream market segments of lithium batteries are mainly power lithium batteries, energy storage lithium batteries and consumer lithium batteries, among which, the downstream applications of power batteries are mainly for new energy vehicles, the downstream applications of energy storage batteries are mainly for power systems, and the downstream applications of consumer batteries are mainly for cell phones and other consumer electronics.
Domestic overcapacity to accelerate the process of going abroad
According to public calculations, in 2022, China's power battery production totals 545.9GWh, meanwhile, the installed volume is only 294.6GWh, accounting for 53.96%, even with 108.1GWh of battery exports and exports with the vehicle, the ratio is only 73.77%. China's overcapacity has become an established fact. It is not difficult to find that the difference between the production and installation of power batteries in China is expanding year by year, which also indicates that the risk of overcapacity is still stacking up.
Therefore, lithium enterprises are actively broadening overseas markets, which will make the subsequent development of more market impetus. IIn addition to packaging and exporting, Chinese battery manufacturers have also begun to directly build factories overseas or invest in overseas battery manufacturing projects. In 2022, CATL, Sunwoda (欣旺达), EVE Battery (亿纬锂能), Gotion High-tech (国轩高科), etc. have successively announced that they have won large orders for batteries from overseas car companies, and at the same time stepped up the establishment of overseas factories to support customers nearby.
Other factors drive overseas business
Domestic power battery manufacturers are planning to go overseas and enter the markets of developed countries such as Europe and the United States. There are three driving factors for going overseas. First, Europe and the United States are accelerating the process of electrification under favorable policies (for example, the European Union will completely ban the sale of fuel vehicles and hybrid vehicles in the territory from 2035), and the local power battery production capacity or technology is insufficient to meet the growing demand. Second, most domestic battery manufacturers have signed strategic cooperation agreements with local car companies. The localization of production capacity is conducive to battery delivery cycle and supply stability, and saves logistics costs. Third, laws and policies issued in overseas regions require the complete industrial chain of power batteries to be localized, forcing domestic companies to build factories overseas and migrate upstream supply chains.
Under the influence of these factors, leading domestic battery companies are actively going overseas. Currently, they have planned about 400GWh production capacity in Europe, accounting for about 40% of the overall production capacity planned in Europe. Compared with Europe, due to factors such as geopolitics and tariffs, domestic manufacturers currently have relatively conservative plans to build factories in the United States.
Europe becomes the first choice for export
Europe has become the first choice for many companies to export, especially Germany, where Volkswagen and BMW are located, and Hungary, where assembly plants of multinational car companies gather. CATL has a market share of 27% in Europe, second only to LGES (LG Energy Solution). In addition to the European continent, North America has also become the choice of more and more Chinese battery manufacturers. Given that U.S. President Joe Biden strongly supports the development of electric vehicles, the U.S. is regarded as another potential market after China and Europe.
Among the Chinese power battery manufacturers going overseas, many companies are targeting Asia, especially Southeast Asian countries. For example, CATL went to Indonesia, EVE Battery went to Malaysia, and Gotion High-Tech went to Vietnam and Thailand.
On the whole, compared with previous years, the pace of Chinese battery manufacturers' exports, overseas factory construction or investment will be significantly accelerated in 2022. Most companies choose to build factories overseas because they have won large orders for batteries from overseas auto companies, and they choose to build factories nearby for matching. As more and more multinational auto companies transform their factories to produce electric vehicles, the scale of Chinese power battery manufacturers going overseas may further expand in the future.
Chinese battery companies have also put forward requirements for their upstream material and equipment suppliers to provide nearby supporting services for the release of overseas capacity construction, driving a group of upstream lithium battery companies with competitive advantages in subdivided fields to go overseas. For example, Tianci Materials (天赐材料), Senior Technology (星源材质), etc. have set up subsidiaries in Europe. Easpring Material (当升科技), Cngr (中伟股份) and Finnish Minerals Group are actively deploying upstream production capacity. Chinese power battery companies have become an important force affecting the European power battery industry chain.
Lithium battery overseas challenges
While actively going overseas to build factories, domestic battery companies are also facing challenges such as strict local policies and regulations, high investment costs, and lack of international talents. Especially at the level of policies and regulations, the EU-UK Free Trade Agreement requires the localization of power batteries and upstream materials; at the same time, the European Chemicals Agency (EHCA) proposed to classify lithium carbonate, lithium chloride and lithium hydroxide as harmful to the human body. Materials that are harmful to health will have stricter requirements on battery production, processing, packaging and storage.
In the face of international trends and challenges, power battery manufacturers need to consider the key issues of overseas location selection, overseas market introduction mode, and post-market management when planning overseas business. Factors such as geopolitics, policies and regulations, and investment costs need to be considered when selecting a site.
At the same time, the company needs to formulate detailed overseas market introduction strategies based on its own strength and business planning, including independent models, joint venture/strategic cooperation models or technology licensing models, overseas business management models and systems, etc.