Rising levels of China's power battery inventories are becoming increasingly obvious, which is putting pressure on China's electric vehicle (EV) supply chain, according to sources.
Data from Gasgoo revealed that China produced 293.6GWh worth of power battery capacity in the first half of 2023, of which only 51.8%, or 152.1GWh, was installed in vehicles, while 84.8GWh remains in inventory and 56.7GWh was exported. Combined with the 183.2GWh remaining in inventory in 2022, the total in-inventory capacity has reached 268GWh. Based on the current installation progress, this inventory would take eight months to fully digest.
Both China's power battery production and EV market sales account for more than 60% of the global market share. Online competition between Chinese-made and Chinese-sold batteries has exacerbated price competition. Market leaders such as Tesla, which initiated price cuts, have further fueled competition, forcing Chinese EV makers to follow suit.
Upstream prices for lithium battery materials have soared in recent years. The battery-grade lithium carbonate price hit an all-time high in November 2022, reaching CNY600,000 (US$82,405) per ton. Going into 2023, prices fell sharply, with the price per ton recently settling around CNY200,000.
The average price for other materials such as cathode materials and electrolytes has fallen 30% on year. Due to the difference in technology, the price of wet separators has fallen 25% on year, while dry separators have only fallen 5-8%.
Production capacity for batteries in China has continued to expand over the past few years in response to the promising demand outlook for energy storage and EVs; however, materials shortages and soaring prices have posed challenges. Although material costs have dropped significantly in 2023, and more capacity is being utilized, supply growth has outpaced end-demand growth, which has quickly led to oversupply and high inventory levels.
With an oversupply of power batteries in China clearly arising, two paths for Chinese battery markers have emerged - expand overseas or get left behind.
Chinese companies with a competitive edge in overseas markets are tier 1 manufacturers, such as Contemporary Amperex Technology (CATL), BYD, Gotion High-Tech, EVE Energy, Farasis Energy, Envision AESC, Svolt Energy, and Sunwoda Electronic. According to Chinese media, Chinese power battery makers are currently involved in 33 overseas-invested projects, with a total investment of around CNY400 billion.
However, in some regions, such as the US, the threshold for Chinese companies is higher, mainly due to geopolitical reasons. Additionally, entering overseas markets means that Chinese manufacturers will have to take on top global lithium battery players, including Japanese and South Korean companies such as LG Energy Solution, SK On, and Samsung SDI.
Chinese companies unable to expand overseas will remain trapped in competition in China with domestic tier 1s. Chinese media believes the oversupply problem will accelerate an industry "survival of the fittest" among tier 2 and 3 battery makers, and maybe even affect some tier 1s.
It has also been noted that the oversupply issue is a structural one, where the oversupply of low-end batteries is difficult to digest and the capacity for high-end batteries is insufficient, indicating that there is a big gap between the demand for batteries by high-end and low-end new energy vehicles (NEV) in China.
The number of power battery makers in China exploded from just over 40 to more than 200 between 2013-2016, spurred by subsidy policies, according to an analysis by Chinese media. Over time, companies have been eliminated, with 81 companies left in 2017, down to 36 in the second quarter of 2023.
Article translated by Eifeh Strom
