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Battery Battle

Battery suppliers and automakers are vying to secure their own supplies of lithium as prices increase and supplies drop amid tremendous demand for electric vehicles

By Chen Weishan , Xu Ming Updated Sept.1

Tianqi Lithium, a Shenzhen-listed top Chinese supplier of key materials used in batteries for electric vehicles, raised about US$1.7 billion in its Hong Kong IPO on July 13, the city’s biggest listing this year, as lithium carbonate used to make EV (electric vehicle) batteries becomes a hot commodity and its price hit new highs. The next day, the company announced in its financial statement that its net profits for the first six months of 2022 had surged nearly 111 times year-on-year.  

The company’s information release on the Hong Kong Stock Exchange cited a Wood Mackenzie Report saying it is the world’s second-largest supplier of battery-grade lithium carbonate and one of the world’s top-10 suppliers of battery-grade lithium hydroxide in terms of production in 2021. It is also the second-largest shareholder in SQM, the world’s largest battery-grade lithium carbonate producer in Santiago, Chile.  

The price of lithium carbonate, a lithium salt and essential raw material for most EV batteries, has risen continuously for over a year since the middle of 2021, as EV sales rebound both at home and abroad with the release of pent-up demand, coupled with the pandemic-affected supply of lithium. The price, which peaked at 500,000 yuan (US$74,650) per ton in March, 10 times that of a year ago, declined in April due to output reduction and manufacturing halts in China’s major auto-making hubs of Shanghai and Jilin Province due to Covid lockdowns. But it edged up as work and production resumed in May. The price of lithium hydroxide, another lithium salt used for EV batteries, also rocketed to over 470,000 yuan (US$70,077) per ton in June, a year-on-year increase of over 420 percent.  

The sky-high prices mean that most links in the EV manufacturing chain are suffering, except for upstream raw material extraction. Downstream businesses, from battery material producers to EV makers, have been hit hard, in turn causing a spike in EV prices. The price rises changed the way companies stock goods and take orders. Meanwhile, as enterprises downstream grow more insecure about raw material supply, more are seeking to exert control by taking over extraction firms or establishing their own battery factories. 

Over Charged 
Consumers were not affected by the surge in lithium salt prices until the first quarter of 2022 when EV makers began raising retail prices. Tesla raised its prices three times in March, each time by 15,000-30,000 yuan (US$2,240-4,479) on some models, before it raised the price for its popular Model Y in the middle of June in China and the US.  

Tesla is not alone. Since March, nearly 30 Chinese EV makers announced price increases, basically covering all mainstream products. In the first quarter alone, over 20 EV makers raised the prices of over 40 models, observed Zhang Xiang, director of the research center for new energy vehicle at Jiangxi New Energy Technology Institute.  

Some auto makers halted production of certain models or turned to alternative power solutions using fewer batteries, such as plugin hybrid vehicles. Ora, an EV brand made by China’s Great Wall Motors, stopped taking orders for two of its models in February. CEO Dong Yudong revealed its Black Cat model lost 10,000 yuan (US$1,493) for every unit sold because of rising costs.  

Li Xiang, who founded Li Auto, an EV manufacturer headquartered in Beijing, said in a Weibo post in late March that auto brands that have announced price rises are those who already know how much their battery prices will rise. The rest will follow, after figuring out the specific increase in battery cost.  

Lithium-ion batteries are widely used in electric cars and portable electronic devices. A battery comprises an anode, cathode, separator, electrolyte and two current collectors, positive and negative. The cathode is a type of metal oxide, and the anode is porous carbon. The electrolyte and separator carry the charge from the anode to the cathode in different directions according to whether the battery is being used or charged.  

There are two common types of lithiumion batteries based on the materials used to make the positive electrode: Nickel Manganese Cobalt (NMC) or nickle manganese aluminum (NMA), and Lithium Iron Phosphate (LFP). Lithium carbonate is the key material to make LFP and some NMC/ NMA batteries, while lithium hydroxide is used in some NMC/NMA batteries.  

NMC/NMA batteries dominated the global market for years because of their high energy density, or the amount of power according to weight. However, as cobalt is expensive and supply is unstable, in the past two years EV giants, including Tesla, shifted to LFP batteries, with their better performance in safety, cost, lifespan and progress in energy density.  

According to the Battery Corporation Union under the China Electronic Energy Saving Technology Association, in the first five months of the year, output of LFP batteries accounted for 61 percent of total EV batteries manufactured in China, with NMC batteries only 39 percent. Newly installed capacity of LFP batteries on EVs stood at 59 percent of the market, leaving 41 percent for NMC/NMA batteries. The growth of output and newly installed capacity of LFP batteries far exceeds those of NMC/NMA batteries, meaning very strong consumption and demand for lithium carbonate. Given this, lithium carbonate prices have had a much greater impact on the EV market than lithium hydroxide prices in the past two years.  

In the lithium-centered industrial chain, lithium carbonate and lithium hydroxide, collectively called lithium salts, are produced from lithium minerals, the least-dense metal on the periodic table. Battery material factories refine the raw material and sell positive electrode materials (NMC/NMA or LFP) to battery factories.  

The surge in lithium salt prices is transferred along the entire production chain, from producers of lithium salts to battery material factories, battery producers and automobile manufacturers. 

Lithium prices rose because of increased demand from a surge in global EV production, and a lithium production slump after a general downturn in the auto industry. The surge in demand caught producers off guard, so when lithium prices spiked, some started hoarding.  

Data from Shanghai Metals Market (SMM), a metals information provider, shows that the price of battery-grade lithium carbonate reached 469,000 yuan (US$70,022) per ton on June 22, almost tenfold that in January 2021, after it had risen for over a year.  

Li Jigang, general manager of a positive electrode material producer in Tianjin, told NewsChina that lithium carbonate prices rose only moderately in 2021, which was within expectations. But entering 2022, “it began to jump. In January, prices rose by 30,000- 50,000 yuan (around US$4,500-7,500) in just one day. Some lithium producers became reluctant to sell and rejected offers,” Li said.  

But in 2021, the rising cost of lithium carbonate had already affected battery production for consumer electronics that also use lithium-ion batteries. “By the end of 2021, some struggling battery factories and battery material producers had already given up. Some simply halted production while others maintained only one-third of their usual capacity to cover the cost of labor and the depreciation of equipment,” a lithium battery manufacturer based in Shenzhen, Guangdong Province told NewsChina, on condition of anonymity.  

Li Jigang noted that battery suppliers for consumer electronics are more sensitive to price changes, so this pressure is transferred downstream more quickly. In the automobile sector, though, the process takes longer, so for a while the pressure caused by rising lithium carbonate prices was limited to battery materials.  

“It takes about six months for the price pressure to go downstream along the [whole battery] industrial chain from lithium carbonate, battery materials, batteries and finally to the vehicle. At first, every link has to swallow the pressure itself,” Li noted.  

Before this round of price hikes, lithium carbonate accounted for one-fifteenth of the cost of producing a lithium battery. But now it accounts for one-third of the entire cost, according to an industry insider who declined to be named.  

Under pressure, in November 2021, battery suppliers including BYD and Hefei-based Gotion High-tech, became the first to announce price increases. Contemporary Amperex Technology Co Ltd (CATL), a battery giant in China whose clients include Tesla and BMW, has been more cautious in raising prices. But its executives also revealed during its Q1 earnings call on May 5 that CATL has reached agreement with customers about price adjustments based on metal prices.  

In Q1, CATL’s revenue was 48.7 billion yuan (US$7.3b), an increase of 153.79 percent year-on-year, but its net income dropped by 23.62 year-on-year. This is mainly because the company swallowed the rising cost of raw materials in the first quarter, explained its directors on the earnings call. Similarly, in Q1, almost all battery companies witnessed a net income decrease of about 20-30 percent.  

Electrode producer Li Jigang told NewsChina that battery material manufacturers are in a similar situation. “The entire chain has been suffering from shrinking profits caused by rising lithium carbonate prices,” Li said. 

Fighting for Supply
The surging lithium salt prices forced companies to act. Since prices started going up in early 2021, upstream players are hoarding stock while downstream players are increasing their inventory.  

“Producers of lithium carbonate and lithium hydroxide, in particular, are reluctant to sell, excusing their behavior by claiming they need to overhaul equipment or there’s a shortage of materials for extracting lithium from salt brine,” a manager of a large anode material supplier told NewsChina on condition of anonymity.  

The processes to mine lithium are costly and resource intensive. Brine extraction from geothermal wells and oil-well brines with new direct lithium extraction technology has attracted more attention than mining lithium from hard rock, particularly in the US and Europe, mainly because it is more cost effective and uses less fresh water. However, most of the world’s commercial lithium production still comes from ore mining in Australia, where it is found in the mineral spodumene, and the “lithium triangle” of the salt deserts in Chile, Argentina and Bolivia. 

China’s lithium battery market scale reached 324 GWh in 2021, four times that in 2017, making it the world’s largest consumer of lithium batteries for five consecutive years, shows a May report by CCID Consulting, a research institute under the Ministry of Industry and Information Technology (MIIT) of China. But for a long time, China has relied on imports. Between 2010 and 2020, mined lithium resources in China totaled 41,500 tons, accounting for only 2.8 percent of its exploitable resources, making it depend on exports for 67 percent of its lithium resources on average. In 2021, 72 percent of its lithium carbonate relied on imports, according to CCID Consulting.  

Research from the US Geological Survey shows that Chile has the world’s largest confirmed lithium deposits, followed by Australia and Argentina. In terms of commercial production, Australia is the world’s largest supplier, with Chile and China ranking second and third.  

China has been slow to exploit its own reserves, coming mainly from salt brines which are of lower quality compared to those in Australia and Chile, and they are technically difficult to mine due to location in the ecologically fragile area in the Qinghai-Tibet Plateau. The uncertainties in lithium imports, caused by pandemic-affected capacity reductions in Chile and shipping problems, aggravated the supply-demand imbalance.  

This caused battery material and suppliers to hoard. “Every company is stocking up and trying to control as much materials as possible via locking in orders or signing long-term supply agreements,” Li Jigang said.  

Li Jigang said that he has experienced lithium carbonate price hikes several times before, so his company stocked up enough for six months at 180,000 yuan (US$26,874) per ton at the end of 2021. “Usually, we only prepare a month’s worth of materials. We haven’t run out yet,” he said. 

Battery material producers and battery manufacturers sign contracts to lock in lithium resources. For example, battery manufacturers pay material suppliers in advance so they can secure lithium carbonate resources from mining companies. “We need to negotiate with buyers first and buy lithium carbonate only when they accept the high prices, or we simply stop supplying,” said the anonymous anode material company manager.  

But locking in upstream goods in advance means increased costs, Li Jigang told NewsChina. “Battery material or battery producers that are not financially strong enough to lock in raw materials at lower prices will become uncompetitive or may go bankrupt,” Li said. 

Workers check batteries at a factory for Zhonghe Power New Energy Technology Company, a lithium battery producer, in East China’s Anhui Province, April 19, 2021

Mining the Future 
In response, battery companies and automakers are moving up the industrial chain by buying, establishing or taking stakes in firms producing battery materials, lithium salts and new lithium mines around the world.  

In April 2021, CATL’s subsidiary Ningbo Brunp CATL acquired a stake in the Kisanfu copper-cobalt mine in the Democratic Republic of Congo (DRC). Five months later, it invested US$240 million in Manono, a lithium-tin mining project also in the DRC in exchange for 24 percent equity. The project slated for 2023 boasts inferred reserves of 400 million tons of lithium and a design capacity of 700,000 tons of lithium oxide a year.  

Other leading Chinese battery suppliers including Gotion High-tech, BYD, CALB, EVE and SVOLT are busy securing lithium resources. Besides securing mining rights overseas, they have invested more in lithium exploitation in the past two years in lithium-rich regions in Yichun, Jiangxi Province and Sichuan Province. In April, CATL obtained the rights to a mine in Yichun for 865 million yuan (US$129.1m). In May, Gotion High-tech secured the rights to a lithium-bearing mine in Yichun for 460 million yuan (US$68.7m).  

In April, Tesla CEO Elon Musk tweeted that Tesla might enter the lithium mining and refining business as the price of lithium “has gone to insane levels.”  

In 2020, Tesla obtained lithium mining rights in Nevada, the state where its first Gigafactory is located. In December 2021, Volkswagen signed an agreement with Australian lithium supplier Vulcan Energy Resources Ltd to purchase battery-grade lithium hydroxide (or zero-carbon lithium) for its first battery cell factory. Ground broke on the first part of its new “Salzgiga” global battery hub in Salzgitter, an industrial center in Germany, on July 7, Bloomberg reported. Major automakers have either established or are setting up their own battery factories to cut out the middlemen.  

“If lithium prices are stable, battery manufacturers don’t need to get involved in upstream business because that will only increase costs. But because of the surge in lithium carbonate prices since 2021, they feel it’s necessary to control core supply in the upstream,” Zhang Xiang said.  

But investing in mines does not necessarily lead to reductions in cost. Several interviewed battery industry insiders suggested that companies might have an advantage when the prices of raw materials surge. But once prices fall back to normal, the upstream resources they bought at high prices become a burden. “In auto making, if a company is self-sufficient in all spare parts, the cost of manufacturing a car might be higher. Only sufficient division of labor could bring about cost reduction,” Zhang said. It is cheaper for manufacturers to assemble components bought at scale from other producers rather than make them all themselves.  

Meanwhile, players from other fields are entering the middle and upstream arena of lithium battery-making. A lithium ferro phosphate battery manufacturer told NewsChina that some companies previously engaged in industries like animal feed and cement are investing in battery materials to capitalize on the rising demand for EVs. He revealed that this year, the increased planned capacity for iron phosphate alone, a key raw material for producing lithium iron phosphate batteries, totals 6 million tons. 

A taxi driver has his car maintenanced at a battery-changing station, Chenzhou, Hunan Province, August 7, 2021

Excess Capacity 
The sudden increase in output might result in excess capacity and oversupply in the upstream, said a battery industry insider. “Factories that were not producing at full capacity earlier are stepping up production after the price surged. New firms will be put into operation as well,” he said. He predicted the price for lithium carbonate would fall back to 200,000 yuan (US$29,860) per ton by the end of 2022.  

“The cost of extracting lithium from salt brines is only 20,000-30,000 yuan (around US$3,000-4,500) per ton, after all.”  

But it is unlikely in the short term, given the robust demand for EVs. According to the China Association of Automobile Manufacturers (CAAM), the production and sales of EVs in May both rose nearly 50 percent over April in China, and by 110 percent year-on-year, despite rising prices and declining auto sales across all types. BYD, a leading EV maker in China, sold 114,000 vehicles in May, an increase of over 260 percent year-on-year.  

Market demand is replacing supporting policies as the primary force driving China’s EV market as consumers grow more receptive to new energy vehicles, a CAAM official noted in January. Meanwhile, more stimulus policies, both at the national and regional levels, are coming out to promote all vehicle sales in the wake of a pandemic-induced consumption slump. Beijing, for example, will halve the vehicle purchase tax for electric vehicles purchased between June 1 and December 31 sold for below 300,000 yuan (US$44,753). Cities in provinces like Henan, Hubei, Shandong, Fujian and Jilin are offering subsidies ranging from 1,000 yuan (US$149) and 15,000 yuan (US$2,236) for EVs and petrol vehicle purchases in the latter half of 2022, although more subsidies are provided for greener vehicles. CAAM predicted the EV market will continue its high-speed growth, with total sales of 5 million units in China this year.  

In an analysis published in late June, Zhongtai Securities pointed out that as the end-user demand for lithium rebounded quicker than expected against the tight supply of lithium carbonate and lithium hydroxide, prices are expected to rise again. CITIC Securities also predicted in June that prices will remain strong, as factors that once suppressed price increases gradually disappear and the price of lithium-bearing spodumene concentrate continues to climb. The robust demand in the domestic EV market is expected to keep prices at a high level, if not push them even higher.  

In an interview with Securities Daily, Xuan Jiyou, an analyst with Qianmen Fund, an asset management company, predicted huge market demand for EVs in the latter half of 2022, yet supply shortages seen from the current capacity of major lithium carbonate and lithium hydroxide factories at home will continue. “We do not exclude the possibility that Q3 lithium prices will go up or even reach record highs in the latter half of the year, surpassing the previous peak of 500,000 yuan (US$74,650) per ton,” Xuan said.  

In February, analysts from investment bank Citigroup raised their forecast for battery-grade lithium carbonate to $60,000 per ton in 2022, citing higher EV production and sales expectations.  

Zeng Yuqun, founder of CATL, called for quickened exploitation of domestic lithium resources and securing of supply chains in March as supply and demand for lithium challenges industry development.  

In response to worries over supply, Guo Shougang, an official with the MIIT, acknowledged the high prices of lithium carbonate during the China Auto Supply Chain Conference held in Wuhan, Hubei Province from June 27-29, pledging the ministry will help upstream and downstream enterprises build long-term and stable cooperation, accelerate efforts to develop domestic resources and encourage leading companies to exploit overseas resources based on international rules, and enhance battery recycling.  

Li Zhen, chairperson of Gotion High-tech, is optimistic. He said at the company’s 2021 earnings call in May that China’s shortage of lithium resources will end in the next five years with the fast-growing lithium exploitation in Yichun, the improvement in lithium extraction technology in Qinghai Province, and the exploitation of lithium-bearing spodumene and technology improvements in battery recycling. “The demand for imported lithium resources will decrease dramatically,” Li said.  

But for now, at least for this year, players down the industrial chain probably still face an uneasy time.