The power battery industry chain is undergoing a major reshuffle due to the phasing out of government subsidies, the imbalance between supply and demand, and the rising prices of upstream raw materials. The industry is reshaping its landscape.
Looking at the lithium battery market landscape this year, several significant changes have emerged: First, amid a surge in investment, capacity expansion, mergers, and acquisitions, competition among leading companies has intensified; second, the application of ternary lithium batteries has increased dramatically; and third, international multinational corporations such as Panasonic and LG Chem are entering China to seize future market share.
Industrial development faces numerous contradictions
Despite the significant synergistic development effect of the battery industry's key raw materials, equipment manufacturing, and other industrial chains, problems such as weak overall R&D capabilities and insufficient international competitiveness still exist.
On December 24, an expert in the field of electric vehicles told a reporter from 21st Century Business Herald: "The policy system for the new energy vehicle industry is not well matched and integrated with the power battery industry; the coordinated development of the new energy vehicle industry and the power battery industry has not yet been well established; the power battery industry ecosystem has not entered a healthy development stage, especially in recent years, the rise in raw material prices has brought a significant negative impact."
However, adjustments to subsidy policies and improvements in technical specifications have imposed stringent requirements on energy density and battery costs. Under these multiple factors, the competitive advantages of leading battery companies such as CATL and BYD will become more pronounced, the industry will shift from fragmentation to consolidation, and the connection between batteries and automakers will become closer.
Lithium iron phosphate batteries, which once dominated the market, have struggled to meet energy density standards. Due to the increasing advantages of ternary lithium batteries, they are now becoming the mainstream technology for new energy passenger vehicles. According to industry experts, my country's total demand for power batteries next year is estimated at approximately 43.9 GWh, a year-on-year increase of 41.4%. Of this, the demand for ternary lithium batteries is expected to be approximately 24.6 GWh, a year-on-year increase of 83%; and the demand for lithium iron phosphate batteries is expected to be 19.3 GWh, a year-on-year increase of 9.7%.
However, the biggest factor restricting the large-scale development of battery companies is the cost of raw materials and manufacturing. Affected by the reduction of subsidies and overcapacity at the beginning of 2017, the price of power batteries entered a downward channel. Although the average price of power batteries in the first half of the year was more than 20% lower than in 2016, the prices of upstream materials such as lithium carbonate and cobalt continued to rise.
However, the aforementioned person optimistically estimates that with the continuous progress of domestic power battery technology in recent years, the rate of battery cost reduction is accelerating. "Within two years, the cost of power batteries will reach 1 yuan (per watt-hour), and the specific energy will be above 200 Wh/kg, which will determine that electric vehicles have a cost-performance advantage compared with fuel vehicles."
Meanwhile, price fluctuations and differentiation in the midstream sector have a significant impact on the industrial chain. Therefore, in order to enhance their competitive advantage, industry leaders have begun to extend their reach to the upstream and downstream industrial chains, and cooperation cases between them are gradually increasing.
"A battery must consist of a complete material system including a positive electrode, a negative electrode, an electrolyte, and a separator. A breakthrough in a single dimension will not lead to a breakthrough in the entire battery product. For example, using nanomaterials or other technologies for the negative electrode may seem to significantly increase capacity, but it is still limited by the positive electrode material. Both the positive and negative electrodes are limited by the separator, and safety issues must also be considered. The higher the energy density of the material, the less safe it is, and the lower the energy density, the safer it is." Pan Xiaofeng, founding partner and managing director of GSR Ventures, said in an interview with 21st Century Business Herald on November 11 that breakthroughs in power battery technology are very complex and require careful coordination and consideration.
Of course, while the new energy vehicle market is developing rapidly, the competition among the weak is also becoming increasingly fierce. On December 15th, a draft of the 2018 new energy vehicle subsidy plan was leaked. In addition to the accelerated reduction of new energy vehicle subsidies, the thresholds for each subsidy level have also been raised accordingly.
In this draft, the subsidy coefficient for 2018 remains linked to energy density. Specifically, passenger vehicles need a system energy density >140Wh/kg to receive the highest 1.1 times subsidy (the 2017 requirement was >120Wh/kg); non-fast-charging pure electric buses also need a system energy density >140Wh/kg to receive the highest 1.2 times subsidy (the 2017 requirement was >115Wh/kg). This means that a system energy density higher than 140Wh/kg has become a major threshold for obtaining high subsidies.
Therefore, for battery companies, improving battery energy density is an urgent task. Battery companies with system energy density below 120Wh/kg will be eliminated, while battery suppliers with energy density above 140Wh/kg will be highly sought after by automakers.
When will the "international war" break out?
From a global perspective, the power battery industry has formed three main clusters for R&D and industrialization worldwide: Germany, the United States, and East Asia, including China, Japan, and South Korea. However, for a long time, China, Japan, and South Korea have held a dominant position in technology and market share in the field of small lithium-ion batteries for consumer electronics, and the production of lithium-ion power batteries is currently mainly concentrated in these three countries.
Narrowing the scope to the East Asian market, Japan and South Korea are more developed than my country. As of November this year, in the latest global ranking of power battery shipments, Panasonic of Japan ranks first, followed by companies such as CATL and BYD.
In January of this year, Tesla announced the mass production of the 21700 power battery jointly developed with Panasonic. After improvements, the battery has an energy density of 300Wh/kg and a price of $170/kWh. Calculated at an exchange rate of 6.8, this is equivalent to about RMB 1.15/Wh. This has basically achieved my country's 2020 target, which is to achieve a power cell specific energy of more than 300 Wh/kg and reduce the cost to less than RMB 1.5/Wh.
Meanwhile, Samsung SDI and LG Chem are also developing high-energy-density, low-cost batteries. In January next year, LG Chem will develop a battery with a usable energy density of 640Wh/L, a cycle life of 1000 cycles, and a cell cost of $100/kWh.
It is worth noting that since 2009, LG Chem has successively cooperated with international automakers such as Hyundai, GM, Renault, Ford, Volvo, and Nissan, becoming one of the mainstream suppliers of power batteries.
Data shows that LG Chem ranked third in global power battery shipments from January to September 2017, behind only Panasonic and CATL.
However, although China holds an advantage in the power battery market and has increased its R&D efforts in high-energy-density battery technology, it still lags far behind Japanese and South Korean companies in terms of the speed of technology implementation. Moreover, before domestic competition has even officially begun, Japanese and South Korean battery companies have increased their investments in China, building factories and waiting for market opportunities.
In late October of this year, after news broke that Tesla had urgently contacted Samsung and LG for external assistance due to insufficient battery production capacity, Panasonic, Tesla's largest battery supplier, officially announced a cooperation agreement with Toyota Motor after seeing Tesla's unsatisfactory demand. The two parties are considering jointly developing electric vehicle batteries.
On the other hand, Panasonic began to increase its investment in the Chinese market in the first half of this year. In April, Panasonic started production at its Dalian plant, and a month later announced that it would build a power battery plant in Jiangsu. In October, it announced that it planned to invest 100 billion yen to increase battery production.
LG Chem's investment strategy in China focuses primarily on production lines for advanced materials such as polarizers and new energy batteries. To date, LG Chem has invested a total of US$3.3 billion in China and has established 8 subsidiaries and 11 factories globally. Among them, the LG Nanjing New Energy Battery Plant, which began operation in October 2015, can meet the power needs of over 50,000 pure electric vehicles and over 180,000 plug-in hybrid electric vehicles (PHEVs). However, its progress was previously hampered by policy factors. With the reduction of subsidies and WTO regulations, LG Chem's constraints in China are dissipating.
However, European manufacturers, who have traditionally been cautious about investing in electric vehicles, are beginning to recognize the importance of the battery industry. On the one hand, they are seeking high-quality battery suppliers; on the other hand, they worry that if they cannot fill the gaps in energy storage technology, major European industries may fall behind other countries. In October of this year, the EU was actively discussing the creation of a battery company alliance.
