Power battery will face overcapacity in the near future

1. The power battery industry is vigorously expanding production
2. Shrinking demand for new energy vehicles
3. Structural excess of power battery industry chain
4. Power battery development forecast

Driven by the surge in sales of new energy vehicles in China, the power battery track has experienced an unprecedented investment boom. Since the beginning of this year, more and more new power battery projects have been started. In addition to more production and sales, the scale of investment has also been expanded.

According to statistics, at least 75 investment plans have been announced in the field of power batteries this year, with a total investment of more than one trillion RMB, and nearly half of them have an investment scale of more than 10 billion RMB. And, industries such as CALB and SVOLT have been listed or are close to listing.

However, the huge expansion plan also brings hidden worries of overcapacity. Experts pointed out that the growth rate of new energy vehicles in China’s local market is likely to decline in 2023, coupled with the release of new production capacity of power battery companies, there will be excess battery supply. VEV also made it clear that it is expected that there will be overcapacity in the entire industry chain in the next year at the latest.

The capital market has already begun to worry that if the downstream demand, especially the sales of new energy vehicles, falls short of expectations and the production capacity of power batteries exceeds the needs of the development of the new energy vehicle industry, a fierce price war will be inevitable.

Signs of a slowdown in the sales of new energy vehicles have appeared since October this year. This is a fact that the power battery industry cannot solve and must face.

The power battery industry is vigorously expanding production

The special industrial structure of the industry has led to fierce expansion of production capacity. The fierce expansion of the power battery industry is fundamentally due to the rapid development of the new energy vehicle industry.

In the past two years, the outbreak of China’s new energy vehicle track has far exceeded expectations. At the end of 2020, the retail penetration rate of new energy vehicles in China has been unable to break through 6%.

However, driven by carbon neutrality, the new energy vehicle market has experienced explosive growth, and the penetration rate will rise to 13.4% in 2021.
Especially in 2021, the explosive growth of the new energy vehicle market will bring huge demand to the upstream power battery track in a short period of time.

For a while, the market fell into a battery shortage. The CATL with the largest production capacity will break through a trillion RMB market value in 2021. Until the beginning of 2022, Chinese head battery companies are almost at full production.

The prosperity of the downstream market has greatly stimulated the expansion of power battery manufacturers. From the perspective of the industry itself, the special industry competition pattern is also an important reason for the crazy expansion of power battery manufacturers.

In the past six years, CATL has been the leader in China’s power battery industry, accounting for nearly half of the market. BYD’s Fudi battery only began to be supplied to the outside world this year.

According to the data, taking 2025 as the time node, the capacity planning of CATL is 839GWh, the capacity planning of BYD is over 600GWh, the capacity planning of SVOLT is 600GWh, the capacity planning of CALB is 500GWh, and the capacity planning of Gotion High Tech is 300GWh.

In addition, the strong scale advantage of the power battery industry and the slowdown in technological progress in the industry since 2020 have stimulated power battery factories to set higher and higher production targets.

Shrinking demand for new energy vehicles

The performance of the new energy passenger vehicle market in the traditional peak season at the end of the year was not as good as expected. However, while power battery manufacturers are busy expanding production, another situation has emerged.

According to the data, the cumulative sales of new energy vehicles in China in October exceeded 550,000, a year-on-year increase of 74.9%, but a month-on-month decrease of 9.2%. The month-on-month decline in sales has led to a decline in the overall installed capacity of many power battery manufacturers. .

According to data from China’s automotive power battery industry, China’s power battery installed capacity in October was 30.5GWh, a year-on-year increase of 98.1%, but a month-on-month decrease of 3.5%, the first decline in nearly three months. Many new energy car companies are still far from their sales targets at the beginning of the year.

At present, the sales of new energy vehicles in China are mainly driven by high-end and low-end vehicles, and mid-range models are not ideal. But the mid-range model market is where the largest increase in new energy vehicles will be in the future. If the product power of new energy vehicles cannot exceed that of fuel vehicles, the penetration rate of new energy vehicles will hardly be greatly improved, which will also affect the power battery market.

However, it is not only the Chinese new energy vehicle market that affects the demand for power batteries, but also the new energy vehicle and power battery markets in other countries, as well as other markets such as commercial vehicles and two-wheelers.

According to the data, from January to October 2022, China’s cumulative installed capacity of new energy vehicle power batteries will be 193.6GWh, and the export volume will reach 105.3GWh. For Chinese power battery manufacturers, exporting to other countries has become an inevitable destination for crowded production capacity. Whether they can further open up markets in other countries is of great significance for digesting production capacity.

Structural excess of power battery industry chain

In fact, not only the market demand for power batteries, but also many uncertainties in terms of supply.

According to the data, as of October this year, China’s power and energy storage battery capacity planning has exceeded 6480GWh, including 248 projects of more than 80 battery and automotive manufacturers such as CATL, Fudi Battery, and SVOLT. Here is a detailed ranking and introduction of energy storage battery manufacturers in China for you.

However, according to forecasts, by 2025, the annual installed capacity of power batteries in the world will only be slightly higher than 1000GWh. In the Chinese market, experts said that in 2025, there will be excess battery capacity in China’s battery capacity, and the corresponding 3000GWh capacity may only be 1200GWh shipments.

Under the huge disparity between demand and supply, power battery manufacturers will not rashly expand production capacity, and some production capacity must not be able to be implemented normally. Enterprises have room to adjust at any time according to actual market demand.

The planning goal is made on the basis of the greatest development possibility, and is mainly used for competition publicity and striving for local preferential policies, while the actual development goal is realistic and should correspond to specific models and specific power battery specifications.

In addition, unlike the photovoltaic industry and wind power industry chains, the power battery industry chain has strong technical requirements. At present, many third-tier power battery manufacturers have empty production capacity, but their technology is backward and they cannot enter the supply chain of mainstream car companies. Among the production capacity of existing second-tier power battery manufacturers, there is also a considerable part of backward production capacity.

For example, Gotion High Tech has introduced low energy density and outdated iron-lithium batteries in the past few years, but they cannot meet the requirements of new energy passenger vehicles. As a result, in 2021, when the battery is in short supply, its capacity utilization rate is only about 30%. In the same period, the capacity utilization rate of CATL was as high as 95%.

Therefore, if there is overcapacity in the future, the low-cost advanced production capacity will still maintain strong competitiveness in the market. The backward production capacity is likely to face the situation of being eliminated. This structural surplus will test the technical level and cost control ability of manufacturers.

EVE said that there will be no surplus of high-quality and cost-effective battery products. China’s lithium battery industry has entered the Red Sea stage. In the future, second- and third-tier power battery manufacturers with insufficient experience in large-scale supply may experience overcapacity.

Power battery development forecast

CATL predicts that the installed capacity of power batteries in the world will reach 4,800GWh in 2030. Based on the current 1GWh battery value of about 1 billion RMB, this is a market competition of nearly 5 trillion RMB.

According to this, there will be about 10 major power battery manufacturers left in the world in the future, and in addition to CATL and BYD, China’s second-tier power battery manufacturers also have a great chance to become the top 10.

From this point of view, the current vigorous expansion of production by China’s second-tier power battery manufacturers is actually vying for the world market share. The possible cyclical excess capacity of power batteries, industry changes, and the failure and demise of second- and third-tier manufacturers are all inevitable.

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