Last year, among the top ten global power battery manufacturers, Chinese companies occupied six seats; the remaining four seats were occupied by Japanese and South Korean companies. Among the six Chinese companies, the top two, Ningde Era, BYD, and China Innovation Airlines (6th) and Everweft Lithium (9th), showed an increase in market share.

It is an indisputable fact that lithium battery production capacity is overcapacity and low prices in the industrial chain. The unit price per Wh dropped all the way from 8-9 maos at the beginning of last year to 4-5 gross, which can thrill support the price war. Judging from the companies currently publishing annual reports, only Ningde Times and BYD have 1/3 of the scale advantage of the industry, while the other is self-produced and sold.

However, the profits of companies in the second tier of scale, such as China Airlines, did not increase but declined as their share increased last year. This is the normal state of affairs that can truly represent the industry's excessive fighting and the shift in voice in the industrial chain.

01

Against the backdrop of price cuts across the industry last year, China Innovation Airlines, as the third-generation lithium battery company, faced a slowdown in revenue and a decline in profits. This financial report draws a dividing line for power batteries.

The company achieved revenue of 27 billion yuan in 23, up 32.5% year on year; gross profit margin increased by 2.68 percentage points year on year by 13%; net profit was 294 million yuan, down 57.4% year on year. This is the first decline in nearly four years.

In 2023, the company's domestic installed capacity reached 32.9 GWh, and its market share increased by 1.96%. Currently, there is a gap of about 4% between Ning Wang and BYD, and Everweft Lithium Energy, which is in fourth place.

Judging from the revenue structure, China Airlines has not gone headlong with the development of the energy storage market. The energy storage battery business accounts for less than 20%, contributing relatively little to overall profits. However, the impact of the price war on the main power battery industry is already very obvious. Installed capacity increased by more than 80.9%, while revenue increased by only 21.4%. This difference in growth rate and the fact that revenue is slowing down fully shows the impact of falling battery unit prices.

In 2023, the prices of lithium iron phosphate batteries (power type) and ternary batteries (power type) dropped from 0.825 yuan/Wh and 0.92 yuan/Wh at the beginning of the year to 0.43 yuan/Wh and 0.515 yuan/Wh at the end of the year, respectively, by 47.88% and 44.02%, respectively.

However, in the company's shipping structure, the ratio of lithium iron phosphate (54.4%) and ternary batteries (45.7%) is relatively balanced, so this also reduced the average unit price (0.676 yuan/Wh) by only 29%, which is better than the industry as a whole.

China Innovation Airlines's largest customer is Guangzhou Automobile, accounting for nearly 30% of the company's revenue; Xiaopeng Motor is the second largest customer, accounting for 20% of total revenue. Other customers include Changan, NIO, Zero Run, SAIC-GM-Wuling, GAC, and Geely.

However, the current situation that the entire industry is generally facing is that they cut prices to grab customers. Cheap is never enough for car companies to naturally buy three, and they are starting to develop their own batteries one after another. This gives them more bargaining power when dealing with power battery companies.

As reflected in the data, we can see that China Airlines accounts receivable and notes increased to 6.83 billion yuan last year, up 28.3% year on year, while accounts payable and notes fell to 19.06 billion yuan, down 7.8% year on year. The growth rate of contract debt also began to slow, increasing by only 26.5% to 620 million yuan.

This shows that the oil and water on the upstream material side has almost been squeezed out, and the willingness of end customers to pay in advance is also declining. Profit margins can no longer rely on the idea of material costs. In order to enhance product competitiveness, the company increased R&D expenses by 50% last year, leading to the promotion of differentiated products.

However, by this year, power battery companies still need to reduce their scale to deal with the threat that the unit price will exceed 0.3 yuan/Wh in the future. Many companies will choose to participate in the energy storage market, which is also the hardest hit area of the price war. Some companies have chosen to go overseas; up to now, few have done a good job.

Ning Wang's overseas installed capacity reached 92.6 GWh last year, with a year-on-year growth rate of 100%, far exceeding that of the domestic market of 17.6%, which surprised us very much. Compared with the old three, China Innovation Airlines's overseas revenue is only 650 million, accounting for very little, and its installed capacity is not squeezed into the top ten.

Overseas market expansion is lagging behind, which is also a risk point for the company's current competition. In fact, second-tier players such as Guoxuan, Yiwei, and Sunwoda may be replaced at any time; it just depends on whether they have the guts to take over the lower price.

A financial report from the top three companies in the industry is enough to debunk the general situation where revenue is not increasing in profit in the entire industry. In fact, most second- and third-tier power battery manufacturers are facing a double decline in market share and profit levels, in line with valuation pullbacks. This kind of double killing silenced those who burst into the market and frantically scrambled for a full two years...

02

Comparing the loading volume data of previous years, it can be seen that the market share of battery companies was further concentrated last year. Last year, a total of 52 battery companies participated in the photodynamic battery package, a decrease of 5 compared to the same period in 2022.

Cell prices completed the shift from cost to demand pricing in just one year. Although the production schedule for the next two quarters seems to have improved, the supply-side conflict over demand for a long time requires the industry to have a long and painful clean-up process. Currently, the speed has not accelerated.

This is because the new production capacity added last year was still stacked up steadily. According to incomplete statistics from Battery Network, the battery new energy industry chain invested in 403 (newly announced) projects in 2023, with an average investment amount of more than 4.3 billion yuan per project; 377 projects were started and put into operation; and 142 trial production projects were put into operation.

Looking only at the electric vehicle market, according to data given by the chairman of Changan Automobile last year, it is estimated that power battery production capacity will only be about 1,000 GWh to meet demand by 2025, while the planned production capacity of the industry has reached 4,800 GWh.

The top three companies in the industry alone have a planned production capacity target of 1,800 GWh by 2025, which can meet the needs of 36 million 50-degree electric vehicles.

So will there still be so many battery companies needed to support vehicle loading in the future? This is an obvious question. Many companies have actually decided the end. The cost advantage is unmatched, and there is no way to sell. In the end, they can only transform or disappear silently, and not as vigorously as Weimar and Gaohe.

In the top ten, apart from LG New Energy, there are still Honeycomb Energy and Zhengli New Energy that have yet to be listed for financing. There is no shortage of experimentation. For example, Honeycomb submitted a prospectus to the Shanghai Stock Exchange as early as November 2022, but until the end of last year, Hive's listing application status had changed to “terminated.”

The financing is more for expansion to support more models, and the product competitiveness of C-end cars fundamentally determines the pattern of battery manufacturers. The success or failure of many power battery companies is actually determined by their customers. If car companies sell well, they eat meat and drink soup; if they don't sell well, their share will decline.

For example, GAC Aian, which is tied to China Innovation Airlines, was still leading the new car-building force last year, with a growth rate of 77%; there is also Deep Blue Auto, which fought back into the list with a 440% growth rate.

Meanwhile, Guoxuan Hi-Tech and Ruipu Lanjun, car companies that mainly supply small and mini electric vehicles, experienced a serious waterloo in sales last year. The micro electric vehicle market has gradually become saturated, and sales of Hongguang MINIEV have declined from a maximum of 50,000 units in a single month to less than 20,000 units for several consecutive months in 2023.

Furthermore, with the transition of automobile selling points from electrification to intelligence, car companies' attention has turned to how intelligent driving, smart cockpit, and vehicle systems can bring greater differentiation to cars, leaving room for battery upgrades to achieve fast charging and greater battery life. Apart from cooperating with external battery manufacturers, car companies have also embarked on the path of self-developed batteries.

There is BYD's own production and use as an example. The shadow of 600,000 yuan per ton of lithium carbonate in 2022 is forcing car companies to consider supply chain safety in a longer period of time. In particular, car companies are also fighting price wars for share, and they would prefer to have a back-up guarantee.

Of course, it is impossible for car companies to completely close the supply chain and reject lower costs and better technology. However, the situation where battery companies and car companies are tied to each other and are highly dependent has quietly changed.

As batteries are upgraded in the direction of higher capacity, it will almost become a reality when the price of a single Wh enters 3 cents in the future.

Although lithium carbonate stocks are still surplus despite a sharp drop in lithium prices in 23 years. Currently, battery-grade lithium carbonate has reached 96,200 yuan/ton, and even if the price continues to reach 70,000 to 80,000, it is difficult to open up much profit margin.

On the other hand, car companies that do not build their own battery production lines can use business strategies to lower battery prices. For example, when Zero Sports purchases batteries as a standard, different suppliers supply the same standard batteries, compare prices with battery suppliers every month, and the one with the lower price wins, so as to obtain the right to bargain at costs.

Simply pressing low costs upstream in the industrial chain can no longer meet the cost reduction needs of enterprises, so can batteries still make a premium?

What is more feasible is to seek profits from the manufacturing side, focus on a large battery in demand, and reduce costs by adding a few more standardized production lines to centralize production. As long as there is stable demand, the cost can drop steadily, which coincides with car companies' demand for high-density low-cost batteries.

Whether it is developing batteries around customers or self-research by car companies, this is not a good thing for battery companies, because battery products with different design requirements cannot be standardized, and unless the quantity is large, it will only increase production costs.

According to the CEO of Honeycomb Energy, the big single product strategy can effectively reduce procurement costs, reduce manufacturing costs by 5 cents, and gross profit may create a gap of 8 points. In his opinion, as long as one model has at least two customers and three production lines, it is a big single product.

For example, the Ningde Era is promoting 173ah VDA standard lithium iron phosphate batteries to car companies, equipped with 2.2C fast charging as standard, and following the single-product route. There is no increase in price, and production costs are reduced through the advantage of scale, thereby reducing the production cost of battery cells to less than 4 cents.

03

In a context where new energy vehicles and the domestic market are clearly unable to absorb so much battery production capacity, battery companies are “rolling” into energy storage and overseas markets. Compared to energy storage, where price wars are rampant, last year's export performance was even more prominent.

In 2023, China's total exports of power and other batteries reached 152.6 GWh, accounting for 20.9% of the cumulative sales volume in the first 12 months. Power battery exports totaled 127.4 GWh, accounting for 83.5%, with a cumulative year-on-year increase of 87.1%, far higher than the domestic growth rate.

However, the “Age of Discovery” was accompanied by resistance. On the one hand, European and American car companies previously intended to slow down the full withdrawal of fuel vehicles. Investment and market feedback, especially in the pure electric sector, fell into a negative cycle, which may have an impact on short-term battery demand overseas.

On the other hand, changes in subsidies and environmental protection policies have invisibly raised the threshold for Chinese companies to go overseas. The only way to deal with this is to create localized supporting production capacity, which can reduce investment costs in production lines and speed up the cost recovery cycle.

Are there any new markets?

The recent advent of the low-altitude economy made us first understand the potential of eVTOL in the field of future urban low-altitude transportation. As an electrification tool, Gaogong Lithium Battery proposed that the battery scale used by eVTOL will exceed trillion yuan by 2040.

Extremely high safety requirements make this a higher-end racetrack. Compared with electric vehicles, eVTOLs require higher battery specific energy, high power, safety, fast charging, and long life, and there is also a gap between the battery power ratio required for different types of eVTOL hovering and cruising. The specific energy (energy density) level of the battery determines the range of the eVTOL.

At present, domestic power battery companies have begun to break into this new circuit. Funeng Technology has taken the lead in mass production and delivery. Guoxuan Hi-Tech and Ehang Smart signed a strategic cooperation agreement at the end of 2023; China Airlines and Xiaopeng Motors are deeply bound to develop cutting-edge 9 series high nickel/silicon batteries for Xiaopeng Flying Motors.

Overall, the capital market has a basic consensus on a protracted survival knockout. As the pace of financing slows down, many battery manufacturers have been left behind due to excessive costs and improper business layout, and are facing discontinuation, delisting, or even bankruptcy; companies with cost advantages and good at responding to customer needs have achieved winner-take-all; in the end, the entire market may only be shared by a few battery companies.

How to survive a round of supply-side adjustments and increase profitability while sharing more “cake” will also become the standard for selecting high-quality battery faucets in the future.