Foreign battery companies exacerbate competition and power battery industry enters reshuffle period

With the rapid development of new energy vehicles, the power battery plant has begun to expand its production, coupled with the international battery giants have invested in the Chinese market, the competition in the power battery industry is further intensified, the battery industry is about to enter the reshuffle period.

According to Liu Yanlong, secretary-general of China Chemical and Physical Power Industry Association, the current expansion of power batteries is expected to reach 228 GWh by the end of 2017, an increase of 125% year-on-year. In the first three quarters of this year, the output of domestic power batteries reached a cumulative total of 31.5 billion watt-hours, but the installed capacity of new energy vehicles was about 1.47 billion watt-hours. Therefore, “the power battery industry does have a large inventory, and the industry is highly competitive. Many companies have to sell at a lower price. The expansion of production capacity will further cause a serious excess of industry capacity.”

Foreign battery companies exacerbate industry competition

China's new energy vehicle market has attracted large international battery giants in China. As early as 2015, Samsung SDI's power battery plant built in Xi'an High-tech Industrial Development Zone was officially put into operation. LG Chemical's new energy battery project in Nanjing was also completed by the end of 2015. Panasonic has not only built a lithium battery factory for automobiles in Dalian. Last year, the company also strategically invested in Beijing Linkage Tianyi Technology Co., Ltd., and both parties cooperated in power battery systems for passenger vehicles, low-speed electric vehicles and logistics vehicles, battery systems for energy storage, and solutions.

However, domestic battery companies still occupy a major share of the Chinese market.

The "China's New Energy Vehicle Industry Development Report (2017)" shows that the total amount of foreign battery companies in 2016 was 480 million Wh, accounting for only 1.7%, while the share of domestic enterprises accounted for 98.3%, which was 27.66 billion yuan. Wh. “The new energy vehicles that are mainly equipped with batteries from foreign companies have failed to enter the recommended catalogue, which has led to the exclusion of foreign-funded battery companies from the mainstream market. At this stage, it is mainly to allow domestic battery companies to fully compete with each other. Excess, some small and scattered battery companies will face the situation of being eliminated." Cui Dongshu, secretary-general of the National Passenger Vehicles Association, told the First Financial reporter.

Compared with foreign battery companies, due to the advantage of labor resources, domestic battery companies can use semi-automated production lines that are mainly manpower, and their manufacturing costs are relatively low, thus offering competitive advantages with low manufacturing costs. In addition, due to the rapid development of China's new energy vehicles, China has formed a relatively complete industrial chain of lithium-ion batteries, and also has a certain advantage in the matching of lithium-ion battery materials. In the absence of liberalization of industrial policies, foreign companies want to enter the Chinese market to reduce costs above the high-tech level. Taking Panasonic's battery and Beijing Alliance Tianyi strategic cooperation as examples, Panasonic can reduce costs by purchasing local raw materials, which is conducive to opening up the production situation, and to a certain extent, it also does some basic preparations for subsidizing and entering into the catalog.

“We mainly do batteries and energy storage systems. Panasonic has 5% of the shares. We have a customer base, and China’s battery market is large. Panasonic wants to enter. Choosing to work with us is a way Panasonic has entered the Chinese market.” Tianyi chairman Zhai Zidian told the First Financial reporter that Tianyi has now established a production base in Wuxi, Jiangsu province, which mainly involves research and development of batteries and modules, EV power systems, and energy storage systems. “Panasonic also participated in our fund for the upstream and downstream of the automobile industry chain. This is Panasonic's first time doing LP.”

"If the cost of foreign-funded battery companies is reduced, it will intensify competition among battery companies, which will also force local battery companies to upgrade their technologies." Cui Dongshu told reporters that the battery capacity is facing a surplus situation, and some small battery companies will be eliminated.

Battery industry entering the reshuffle period

"China's battery capacity will certainly be surplus in the future, but excellent ones will never be." Zhai Zidian told CBBC that there will be no more than 10 battery companies with competitive advantages in the future.

Taking a lithium battery plant as an example, the cumulative installed capacity of lithium batteries in the first 10 months of this year was 18.1 GWh, an increase of 31.43% over the same period of the previous year. A total of 76 battery manufacturers formed an effective installed capacity, which is 3 more than the previous 9 months. The number is about 80. "Last year was 109, which means that there will be 30 or so battery factories may collapse this year and the industry reshuffle has been fully opened." Secretary-general of the New Battery Technology Innovation Alliance of Zhongguancun publicly stated in Qingjiao.

In addition, battery companies continue to expand production capacity. According to public information, in the first half of 2017, nearly 20 power battery companies have expanded their production capacity and their total production capacity has exceeded 65GWh. Among them, the Ningde era expanded to 50GWh in 2020, BYD expanded to 26GWh in 2018, and Guoxuan Gaoke expanded to 6GWh in 2020. If a new energy vehicle is equipped with a 55 kWh battery, it will be equivalent to 2.78 million vehicles. If 40 kWh/vehicle is used, 3.82 million vehicles can be assembled. According to relevant plans, it is expected that by 2020, the sales of new energy vehicles in China will reach a scale of 2 million vehicles, and the overcapacity of power batteries in the future is a foregone conclusion. It is worth noting that both the Ningde times and BYD have occupied half of the market share, which means that some small battery companies are bound to be eliminated.

At present, domestic power battery companies are still facing the pressure of upstream and downstream companies. On the one hand, downstream car companies are facing subsidy and declining slope requirements for battery companies to reduce their matching prices. On the other hand, upstream raw material prices have also increased pressure on battery companies in recent years. For example, the American car battery manufacturer A123 went bankrupt from the IPO in just three short years, mainly because the battery cost is still high and the order quantity has not kept pace. "In addition to these battery companies, such as the Ningde era and BYD, some small battery companies will face greater pressure in the future," said Cui Dongshu.

In fact, domestic battery companies are still relatively lacking in core technologies. "The gap between China, Japan and South Korea's power batteries is not in R&D. Our chemical systems and even the materials used are the same, but the yield and consistency of batteries manufactured are the same. There is a large difference in sex, which is due to our manufacturing capacity and management level. Compared with Panasonic, Samsung SDI, and LG, there is still a significant gap between Chinese companies.” Partner and President of the New Energy Automotive Venture Capital Sub-Fund of the National S&T Achievement Transformation Fund Fang Jianhua said in an interview with the media that foreign companies entering the Chinese market will have an impact on local battery companies. “In the future, the policy on foreign-funded battery companies will also be liberalized, which will speed up the elimination of second and third-tier battery companies.”