In 2021, the price of upstream raw materials continued to soar, putting severe pressure on the power lithium battery industry; meanwhile, the production and sales of downstream new energy vehicles increased by nearly 1.6 times year-on-year, leading to a surge in demand for power lithium batteries. Faced with these severe challenges, can the power lithium battery industry maintain its stability? The annual financial reports disclosed by relevant companies may offer some insights.
Revenue and Profit
Overseas markets are a bright spot, but rising costs are eroding profits.
In 2021, the production and sales of new energy vehicles increased significantly, which boosted the net profits of leading power lithium battery companies.
CATL recently released its 2021 financial report, showing that its revenue exceeded 100 billion yuan for the first time last year, reaching 130.356 billion yuan, a year-on-year increase of 159.06%; net profit attributable to the parent company was 15.931 billion yuan, close to the sum of the four years from 2017 to 2020, a year-on-year increase of 185.34%. Among them, the power lithium battery system contributed approximately 91.49 billion yuan in revenue, accounting for more than 70% of the total revenue.
CATL's lithium battery sales reached 133.41 GWh last year, a year-on-year increase of 184.82%; among which, the shipment volume of power lithium battery systems was 116.71 GWh, a year-on-year increase of 162.56%; the global market share of power lithium battery installations reached 32.6%. However, affected by factors such as rising raw material prices, CATL's gross profit margin declined. In 2021, the gross profit margin of power lithium battery systems was 22%, a year-on-year decrease of 4.56 percentage points.
Sunwoda also achieved growth in both revenue and profit. According to its annual report, in 2021, Sunwoda's revenue reached 37.359 billion yuan, a year-on-year increase of 25.82%; net profit attributable to the parent company was 916 million yuan, a year-on-year increase of 14.18%. Looking at its core business, the power lithium battery business saw a year-on-year increase of 584.67% in 2021. In November 2021, it entered the top ten globally in power lithium battery installations for the first time, and rose to ninth place globally in December. In 2021, Sunwoda's power lithium battery products focused on square aluminum-cased cells, covering application markets such as pure electric vehicles, plug-in hybrids, and 48V mild hybrids.
EVE Energy also achieved double-digit growth in both revenue and profit last year. Financial reports show that in 2021, revenue exceeded 10 billion yuan for the first time, reaching 16.9 billion yuan, setting a sales record in nearly five years, with a year-on-year growth rate of 107.06%; net profit attributable to the parent company was 2.906 billion yuan, a year-on-year increase of 75.89%. Among them, revenue from the power lithium battery business reached 10 billion yuan, a significant year-on-year increase of 146.25%, mainly due to the continued release of new production capacity for soft-pack ternary batteries in the passenger vehicle sector, resulting in a sustained increase in shipments.
Similar to CATL, rising raw material prices eroded EVE Energy's gross profit margin in its battery business. In 2021, the gross profit margin of lithium batteries decreased by 7.11 percentage points to 19.02%; costs increased by 145.8% year-on-year, accounting for 77.26% of operating costs. Declining gross profit margins are a common phenomenon in the battery industry. Meanwhile, its overseas markets are making an increasingly significant contribution to revenue. In 2021, revenue from overseas accounted for more than half, increasing by 123.65% year-on-year, higher than the 92.24% from domestic sources.
In addition, many companies are facing the predicament of increased revenue but decreased profits. Guoxuan High-Tech's financial report shows that in 2021, the company achieved revenue of 10.356 billion yuan, a year-on-year increase of 54.01%; however, net profit attributable to shareholders of the listed company was approximately 102 million yuan, a year-on-year decrease of 31.92%. In 2021, Guoxuan High-Tech achieved sales of approximately 16 GWh of power lithium batteries, with revenue from power lithium battery products reaching 9.765 billion yuan, a year-on-year increase of 55.57%. However, in 2021, the increase in raw material prices for Guoxuan High-Tech's key business segment led to a decline in gross profit margin. Specifically, the price of raw materials for power lithium batteries increased by 75.20% year-on-year, and the gross profit margin of power lithium batteries was 17.88%, a year-on-year decrease of 27.67%. Besides domestic business, Guoxuan High-Tech's overseas business also achieved rapid growth in 2021. Last year, its overseas revenue reached 528 million yuan, accounting for 5.10% of operating revenue, a year-on-year increase of 232%.
"From the perspective of the industry as a whole, the revenue and profits of power lithium battery companies have become polarized," Chen Xintong, a researcher at the New Energy Materials Research Center of Guangdong University of Technology, told my country Automotive News. He explained that in 2021, facing new challenges such as repeated outbreaks of the pandemic, sharp rises in raw material prices, and a more complex product structure, the ability to achieve a double increase in revenue and profits was largely due to the advantages of its product and customer structures. For example, CATL not only has mid-to-high-end batteries but also a correspondingly broad customer base (mainly low-end products).
Chen Xintong stated that companies that increase revenue but not profit also face the difficulty of absorbing rising raw material prices. However, their customer base is relatively homogeneous. For example, Guoxuan High-Tech's major customers include SAIC-GM-Wuling, JAC, Chery, Changan, Great Wall, and Leapmotor, etc., and it mainly produces A00 and A0-class electric vehicles. Due to the low selling price of these models, the profit margin on batteries is meager, which affects the profitability of power lithium battery companies.
Expansion and Investment
Projects were launched in quick succession and production expanded several times this year.
Financial reports show that with increased market demand, CATL accelerated its capacity expansion in 2021, increasing its annual battery production from 69.10 GWh in 2020 to 170.39 GWh in 2021, an increase of approximately 1.47 times. Capacity utilization reached 95%, and an additional 140 GWh of capacity was under construction. In 2021, CATL established production bases in Zhaoqing, Guangdong; Yichun, Jiangxi; and Guiyang, Guizhou, based on market demand. In addition, along with its financial report, CATL announced another project, the Xiamen CATL New Energy Battery Industrial Base, with a total investment not exceeding 13 billion yuan. Construction is expected to commence within 26 months for each phase, with a planned land area of approximately 1,900 mu (approximately 120 hectares). CATL will continue to expand its production capacity in the coming years. Currently, CATL has 15 production bases globally, including 10 self-built bases and 5 joint ventures with automakers. According to the announced production plans, CATL's output will exceed 670 GWh in 2025.
Besides the negative impact of the pandemic, CATL's expansion plan also faces the dual pressures of battery raw material shortages and rising costs. In recent years, the prices of key metal raw materials such as lithium, cobalt, and nickel have soared, leading to a tight supply-demand relationship. CATL and other power lithium battery companies have been actively expanding their domestic and international lithium mining resources through self-construction, joint ventures, and mergers and acquisitions. Financial reports indicate that in 2021, CATL's nickel-iron production project in Indonesia commenced operation, adding to its lithium battery material production capacity.
EVE Energy is also accelerating its capacity expansion, with new projects launched in Huizhou, Jingmen, Chengdu, and other locations in 2021. In November 2021, EVE Energy signed a strategic investment agreement with the Jingmen Municipal People's Government. The company and its subsidiaries plan to invest 30.521 billion yuan in fixed assets in Duodao District, Jingmen City, acquiring approximately 3,000 mu of land to construct the Jingmen Power Lithium Battery Industrial Park project with an annual production capacity of 152.61 GWh. According to incomplete statistics, EVE Energy's announced production capacity under construction and planned reaches 300 GWh.
In March and December 2021, Sunwoda announced two projects: a 5 billion yuan investment in the Sunwoda Smart Hardware R&D and Production Base project, and a 7 billion yuan investment in the Weng'an County "Mineralization-Chemical Integration" New Energy Materials Circular Industry Project. In August 2021, Sunwoda signed an agreement with the Nanchang Economic and Technological Development Zone Management Committee to jointly build the Nanchang Power Lithium Battery Production Base project, with a planned total investment of approximately 20 billion yuan. In December 2021, it signed a project investment agreement with the Zaozhuang High-tech Zone Management Committee to build projects including a 30GWh annual production capacity power lithium batteries, with a total investment of approximately 20 billion yuan, of which approximately 15 billion yuan was fixed asset investment. Data shows that Sunwoda's announced production capacity under construction and planned reaches 145GWh, and Sunwoda has established eight major production bases across China, including those in Shenzhen Bao'an and Shenzhen Guangming.
In 2021, SVOLT Energy adjusted its production target three times, from 200GWh in the first half of the year to 320GWh in early September and then to 600GWh in early December, expanding its capacity by about 3 times; Guoxuan High-tech also adjusted its 2025 production plan from 100GWh to 300GWh; Farasis Energy's target production for 2025 is 120GWh.
"The primary reason for power lithium battery companies to expand production is to meet the demand brought about by the continuous increase in the production and sales of new energy vehicles downstream," Xie Yuzhong, consultant of the Shandong Battery Industry Association, said in an interview with my country Automotive News. He added that it is understandable to expand production in a planned and step-by-step manner when there is demand, but lessons should be learned from the past blind expansion in the new energy vehicle industry. It is crucial to avoid blindly expanding low-end and mid-range production, and to pay attention to controlling the total amount to prevent excessive debt or insolvency.
Innovation and R&D
Technological competition accelerates, R&D revenue ratio surges
Looking at the power lithium battery industry, most of the companies with strong profitability are those that continuously launch mid-to-high-end new products, increase R&D investment, and continuously innovate, which has become an important factor in maintaining the profitability of power lithium battery companies.
In 2021, CATL's R&D investment reached RMB 7.691 billion, a year-on-year increase of 115.48%, accounting for 5.9% of the company's total revenue. The company's R&D personnel reached 10,000, a year-on-year increase of 80.24%, of which 5,793 were young R&D personnel under the age of 30. Enhanced innovation capabilities accelerated the launch of new products. In July 2021, CATL officially announced its first-generation sodium-ion battery, and at the same time, its innovative lithium-sodium hybrid battery pack also made its debut. As another milestone in the industrialization of CATL's innovative technologies, sodium-ion batteries will provide a new solution for clean energy and electric transportation, promoting the early realization of the "dual-carbon" goal.
The financial report shows that CATL has formed a unique innovation system. In terms of R&D direction, the first is to take "electrochemical energy storage + renewable energy power generation" as the core to achieve the replacement of stationary fossil energy and get rid of dependence on thermal power generation; the second is to take "power lithium battery + new energy vehicle" as the core to achieve the replacement of mobile fossil energy and get rid of dependence on oil in the transportation sector; and the third is to take "electrification + intelligence" as the core to promote integrated innovation in market applications and provide sustainable, popular and reliable energy sources for various industries.
EVE Energy is also focusing on "strengthening its internal capabilities." Financial reports show that its R&D expenses surged from 684 million yuan in 2020 to 1.31 billion yuan in 2021, accounting for 7.8% of its revenue, an increase of more than 90% year-on-year.
In 2021, Sunwoda's R&D investment reached RMB 2.327 billion, accounting for 6.2% of revenue, an increase of 28.81% year-on-year; the number of R&D personnel reached 6,973, accounting for 19.30%; 540 new authorized patents were granted, including 53 invention patents; 8 standards were formulated and 5 standards were published.
The race for technological innovation is accelerating. Financial reports show that in the field of power lithium batteries, Great Wall Motors' subsidiary, SVOLT Energy, has mastered core technologies such as battery materials, cells, modules, PACKs, and BMS. It was the first globally to launch cobalt-free and quaternary material cell products, and is also the world's first battery manufacturer to successfully develop cobalt-free batteries. In 2021, SVOLT Energy ranked among the top ten globally in power lithium battery shipments. In 2021, SVOLT Energy obtained 878 published patents.
It can be seen that the R&D-to-revenue ratio of power lithium battery companies is rising rapidly, generally higher than that of most automakers (5%). "R&D and innovation have always been crucial for power lithium battery companies to participate in market competition," Lin Shuwen, a researcher at the East China Automotive New Materials Technology Research Institute, told a reporter from *my country Automotive News*. He noted that it's easy to see that the more intense the market competition, the better the returns for high-efficiency and energy-saving new products, all of which rely on continuously increasing R&D expenditures and technological strength. The significant increases in R&D expenditures from power lithium battery companies such as CATL and Guoxuan High-Tech also demonstrate that R&D spending is becoming a fundamental support for power lithium battery companies to continuously enhance their competitiveness.
Market and Expectations
The overall pressure is severe and there is a shortage of raw materials with no solution in the short term.
Currently, the domestic power lithium battery industry presents a pattern of "the strong getting stronger and the weak getting weaker," which is mainly reflected in the fact that the market share of power lithium batteries is constantly being eroded by leading companies. For example, CATL's share of domestic power lithium battery installations has reached 50%, and BYD's market share of power lithium batteries is also rising rapidly, reaching 20.3% in the first quarter of this year.
However, in the increasingly fierce competition in the power lithium battery market, even leading companies are finding it difficult to maintain consistent profitability. In the first quarter of this year, under pressure from soaring raw material prices and other factors, many power lithium battery companies experienced increased revenue but decreased profits.
Recent first-quarter financial reports released by some power lithium battery companies indicate that the entire industry is under significant pressure and facing a severe situation. CATL's first-quarter 2022 financial report shows that CATL achieved total operating revenue of 48.678 billion yuan, a year-on-year increase of 153.97%; net profit attributable to shareholders of the parent company was 1.493 billion yuan, a year-on-year decrease of 23.62%; and net profit after deducting non-recurring items was 977 million yuan, a year-on-year decrease of 41.57%. "Since 2021, the price increase of lithium carbonate has put pressure on the company's operations. However, as a leading company in the power lithium battery industry, in order to maintain the development of the industry, we absorbed the pressure of rising raw material prices before the first quarter. However, the price increase of raw materials, represented by lithium carbonate, is indeed very rapid. The company and its customers negotiated to jointly face the pressure of rising raw material prices," explained Jiang Li, Secretary of the Board and Vice President of CATL. He added that since the beginning of this year, the price increase of battery raw materials has exceeded reasonable levels, so the company has also coordinated with its customers to dynamically adjust prices.
In fact, it's not just CATL; many other power lithium battery companies have also reported "increased revenue but decreased profit" in their first-quarter financial reports. For example, EVE Energy's revenue increased by 127.69%, but its net profit decreased by 19.43%; Guoxuan High-Tech's revenue increased by 203.14%, but its net profit decreased by 32.79%; and Farasis Energy's losses widened to 244 million yuan.
Negotiating contract prices with customers has become one of the strategies adopted by power lithium battery companies. Zhang Feng, Senior Vice President and Board Secretary of Farasis Energy, stated that Farasis Energy completed its first round of price negotiations in November and December of last year, with the price increase taking effect on January 1st of this year. However, raw material prices have risen further this year, so Farasis Energy is also conducting a second round of negotiations with its customers, hoping to share the increased cost of raw materials with them.
EVE Energy Chairman Liu Jincheng stated that material prices rose even faster in the first quarter of this year, but the company did not raise prices rapidly at that time. However, with market developments, the company analyzed that prices should stabilize at the current level for a period of time, so it actively negotiated prices with key customers and has now reached a consensus.
Regarding the abnormal rise in the prices of upstream raw materials for power lithium batteries, Ye Shengji, chief engineer and deputy secretary-general of the my country Association of Automobile Manufacturers, believes that this round of price increases is due to both supply and demand imbalances and speculation and price gouging by some intermediaries. He points out that through active coordination by government departments and the industry's own development cycle and inherent laws, the prices of power lithium battery materials will gradually return to normal and rational levels.
On April 19, at a press conference held by the State Council Information Office, a relevant official from the Ministry of Industry and Information Technology stated that the Ministry will appropriately accelerate the development of domestic resources and work with relevant departments to resolutely crack down on unfair competition practices such as hoarding and price gouging, and promote the price of raw materials for new energy vehicles to return to rationality as soon as possible.
In addition, some power lithium battery companies have stated that they can reduce costs through material recycling. "Doing a good job in recycling power lithium battery materials can offset the impact of rising raw material prices. Currently, the proportion of recycled materials we use is gradually increasing," said Fan Wenguang, Vice President of BAK Power Lithium Battery, in an interview with my country Automotive News.
At the company level, CATL is also actively working to reduce raw material prices. For example, CATL continues to expand into the upstream raw material sector, establishing close ties with upstream companies through strategic cooperation, equity investment, and long-term cooperation agreements related to lithium batteries. These partners include developers of mineral resources such as lithium, nickel, and cobalt mines, manufacturers of lithium battery materials such as cathode materials, anode materials, separators, and electrolytes, and suppliers of customized equipment, gradually forming a relatively complete supply chain system. "Currently, CATL is strengthening its cooperation with partners to mine the core minerals for lithium batteries, but mining takes time. As production gradually increases, a price decline is inevitable. We predict that the supply situation of some battery materials will improve in the second half of this year," said Jiang Li.
Xie Yuzhong believes that although raw material prices will decline in the second half of the year, the company should at the same time continuously improve its innovation level, develop new products that use less metal materials, explore material recycling, and solve practical contradictions and problems through multiple channels and paths.
