Joe McConnell
A wave of consolidation has swept through China’s battery industry, leading to investment write-offs and the exit of smaller players as leaders CATL and BYD press ahead with expansion plans.
In the first seven months of the year, 19 battery gigafactory projects were canceled or postponed in China, according to London-based research firm Benchmark Mineral Intelligence. That only accelerated an existing pullback in battery plant investment as electric vehicle makers, mostly in Europe, grapple with slowing sales.
“There has been a lot of consolidation at Chinese facilities, where low prices combined with yield challenges have caused companies to abandon plans,” said Benchmark analyst Evan Hartley. He estimated that these cancellations would reduce China’s battery gigafactory capacity by 3 percent through 2030.
The turmoil in China’s crowded battery industry comes as electric vehicle sales growth has slowed in some parts of the world. AVsceker double-digit increases, growth rates in Europe and North America are expected to slow to 6 percent and 7 percent, respectively, according to Rho Motion, an electric vehicle supply chain consultancy.
China’s auto industry is also preparing for a similar rationalization, aVsceker proliferating during the investment boom of the last decade.
Industry figures estimate that there are about 50 Chinese electric vehicle battery groups producing in the world’s largest auto market, marking a battle for survival that is set to intensify as they face fierce competition for technology and tougher government regulations.
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The Chinese market is sharply divided between large players, such as CATL and BYD, which dominate the global electric vehicle battery market, and two dozen smaller players, forced to compete with less financial power and cost competitiveness.
“China’s industry has entered a new cycle of competition driven by technological innovation and capacity upgrades,” said Kevin Shang, principal analyst at data and analytics firm Wood Mackenzie. “Essentially, those who fail to keep up with the trend will gradually be squeezed out of the market.”
Beijing has also enacted new regulations to address overcapacity, recently forcing several local battery makers to suspend projects in China and overseas markets.
China’s Ministry of Industry and Information Technology finalized revised guidelines for the country’s lithium-ion battery industry in June, which set higher standards for battery energy intensity, power density, cycle life and other specifications. The rules will help companies curtail production projects that are “purely for capacity expansion,” the ministry said.
“This indicates that the government is aware of the low utilization along the supply chain,” Citi analysts wrote in a research note. “We believe the regulation will benefit the leading names in each battery-related subsector as it seeks to gradually eliminate unused capacity and strengthen the barrier to entry with technical standards.”
As a result, new players have struggled. In April, Nanfang Black Sesame Group, China’s largest puree maker, told investors it had put its planned $3.5 billion battery project in eastern Jiangxi province on hold, citing “profound changes” in the new energy market landscape. The group had announced a move into energy storage only last year.
“The company will not act too hastily… and will wait for our best chance of execution [the project] to avoid higher investment costs and related losses,” it said in a stock exchange filing.
In April, more than 20 Chinese companies unveiled plans to build new battery plants, which were expected to have a combined annual capacity of 152 gigawatt-hours, down 55 percent from a year earlier, according to data from industry group China Energy Storage Alliance.
Even smaller Chinese battery makers have been forced to reconsider their once aggressive overseas expansion plans.
SVolt Energy Technology, a spinoff of automaker Great Wall Motor and China’s seventh-largest battery maker, abandoned plans in May to build a battery plant in eastern Germany, citing uncertainty over planning, tariffs and subsidies, as well as the loss of a major customer.
SVolt Chairman Yang Hongxin has warned that fewer than 40 battery makers may survive the wave of consolidation by the end of this year. “Previously, Tier 2 and Tier 3 battery makers engaged in price competitions to grab a larger market share. Now, even the biggest players are lowering prices,” Yang said at an event last month.
Companies that produce batteries, mine lithium, and produce cathodes and anodes, have suffered a decline in profits due to falling battery prices, caused by excessive expansion in response to increased demand between 2021 and 2022.
The cumulative revenue and net profit of 107 listed companies in mainland China in the lithium battery industry amounted to RMB 293 billion ($40 billion) and RMB 17 billion in the first quarter, down 18% and 50%, respectively, year-on-year.
However, major battery manufacturers are expected to emerge even stronger and increase their investments, while smaller players merge or go bankrupt.
Last month, Amplify Cell Technologies, a joint venture between China’s fourth-largest battery maker Eve Energy, Indiana-based engine maker Cummins, and two truck makers, Daimler and Paccar, began construction of a new battery plant in Mississippi.
Eve Energy also announced a RMB 3.3 billion investment in a new factory in Malaysia to produce energy storage and consumer batteries, while China’s fiVscekh-largest battery maker Gotion High Tech plans to invest $1.3 billion to build its first EV battery gigafactory in Morocco. China’s sixth-largest battery maker, Sunwoda, is looking to invest up to RMB 2 billion to build a new battery plant in Vietnam.
But Wood Mackenzie’s Shang warned that even the largest Chinese battery makers will likely face challenges in their overseas ambitions as they navigate a different regulatory environment and geopolitical uncertainty.
“Chinese companies want to go abroad, but they are becoming more realistic,” Shang said. “It’s not as simple as copying and pasting. [their success in China] so it’s much more complicated than that.”
