China’s lithium battery industry is experiencing rapid growth amid sky-high demand from the electric vehicle and renewable energy industries. However, reliance on imports for essentials leaves the industry vulnerable to falling prices and uneven development within the domestic procurement sector. The government is now calling on regional authorities and industry players to address issues such as high cost of goods, inconsistent quality, and low supply and demand.
China has been the single largest consumer of lithium-ion (or li-ion) batteries for five consecutive years. It is also the world’s undisputed king of battery manufacturing, with China’s largest battery manufacturer Contemporary Amperex Technology Co. (CATL) alone held 35% of the Li-ion battery market in the first quarter of 2022. In the solar battery field. modules, Chinese companies account for 71 percent of the global market.
The new electric vehicle (NEV) industry and the decarbonization-driven solar industry are contributing to China’s continued demand for batteries. However, despite China’s great position in manufacturing, the country continues to rely on the export of key products and parts of their production, which makes the industry vulnerable to falling prices and the collapse of the chain.
In addition, issues within the domestic industry, such as slow industrial development, imbalances in supply and demand, environmental protection, and quality inconsistencies are hindering the healthy growth of the industry. This inefficiency is likely to increase the demand for batteries in industries such as NEV and solar, which may slow down the growth of these industries.
To address these issues as soon as possible, China’s Ministry of Industry and Information Technology (MIIT) and the State Administration of Market Regulation (SAMR) issued a notice containing a number of proposals to improve the Li-ion market. These range from increasing capacity in areas that are lacking to improving quality control to encouraging collaboration between industry players.
Below, we look at the growth of China’s li-ion battery industry and the current obstacles to the growth of the industry and discuss how the government hopes to overcome the current challenges.
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Growth of China’s lithium-ion battery industry
Despite the current headwinds, China’s Lithium-ion battery industry has achieved many years of double-digit growth. In 2021, the total li-ion batteries reached a peak of 324GWh, an increase of 106 percent from last year, according to data from MIIT. 2022 is set to reach a new record, with total output in the first half of the year already at 280GWh, an increase of 150 percent from the first half of 2021.
Among the output in H1 2022, the output of energy storage li-ion batteries reached 32GWh, while the installed electric power of NEVs reached 110GWh.
According to the 2021 China Lithium-Ion Battery Industry Development Index White Paper published by the China Electronic Information Industry Development (CCID) Group, a research organization under MIIT, China’s electric battery production capacity accounts for 70% of the world and Chinese. companies account for six of the world’s top 10 lithium-ion battery manufacturers.
China lithium imports and rising lithium carbonate prices
China is rich in natural resources, including many of the resources needed to produce li-ion batteries, such as lithium, cobalt, and nickel. However, in many cases, China’s strength in these industries is not in the amount of resources and the scale of extraction, but in its processing and refining capabilities. China only held around 7.9 percent of the world’s lithium reserves at the end of 2020, according to BP’s Statistical Review of World Energy 2021. However, the country is estimated to have 60 percent of the world’s lithium reserves.
For this reason – and the high demand for batteries – China still relies on imports for many of these items. China’s main sources of lithium carbonate are countries such as Australia, Chile, and Argentina.
Reliance on imports makes China’s battery industry vulnerable to falling raw material prices, and due to high demand and limited production, prices for other materials skyrocket.
The price of battery-grade lithium carbonate, one of the key ingredients for making li-ion batteries, reached a record high of RMB 597,500 (US $89,019) per ton on November 11, according to data from Shanghai Ganglian E-Commerce Holdings, a. metal information service provider. The average price in November 2022 at the time of writing this article (November 28) was RMB 580,676 (US $86,513) per ton, a year-on-year growth of 201.08 percent.
Rebalancing the li-ion supply chain
On November 10, 2022, the MIIT and SAMR issued a notice on achieving systematic and sustainable development of the lithium-ion battery industry supply chain. This notice is not a policy document, but a recommendation to various government departments and industry groups to take steps to address the above-mentioned problems.
Specifically, the announcement seeks to address five key issues in the li-ion supply chain, which we will discuss below.
Factors such as the explosion of low demand and industrial growth, the difficult and constantly changing epidemic situation, and the increase in the economic slowdown are causing the recent imbalance between supply and demand and the increase in the prices of some intermediate products and domestic lithium-ion products. battery industry supply chain. In addition, coordination between upstream and downstream industries is insufficient, and hoarding and unfair competition have been observed in some areas. Production capacity has increased exponentially in some fields, while competition for low quality and low prices has been unprecedented.
– Notice on achieving the orderly and sustainable development of the lithium-ion battery industry supply chain
Rebalancing regional development of li-ion battery production
To address the issue of the uneven development of the various links in the supply chain, the announcement calls on the departments responsible for the region to see the development of li-ion production, as well as the development of “primary” materials (such as positive and negative. electrode materials, separators, and electrolytes, among others) and “secondary ” materials (such as battery-grade lithium carbonate and lithium hydroxide) within their jurisdiction. The purpose of this is to determine which areas of these distribution centers may be underdeveloped and which areas are overcrowded and then seek to measure progress through a targeted approach.
In particular, the announcement calls for the development of the industry in accordance with the various 14th Five-Year Plans related to production (plans for the development of products for the period from 2021 to 2025) and the Guiding Vision for Promoting the Development of the Energy Electronics Industry (the ” Guiding Vision”). The Guiding Concepts emphasize the importance of the “orderly movement” of industrial chains and ensuring the balance of supply and demand.
This announcement also provides that government departments help battery companies to set development goals based on the current industry and the state of the local industry to ensure that resources and efforts are invested in the right areas of the industry. Measures include providing adequate investment in R&D and innovation, providing sufficient support funds, increasing the production rate of various products and components according to the needs, optimizing the regional industry structure and preventing “low-level development at the same time” of different fields, so as to prevent inefficiency and uneven growth.
Balancing supply and demand to ensure the stability of the industry supply chain
In order to ensure a stable development of supply and demand, the announcement calls on government departments to promote communication and cooperation between upstream and downstream companies in the li-ion battery industry. These include manufacturers of li-ion batteries (battery cells and packs), primary and secondary companies, companies at the top of resources, such as lithium nickel and cobalt, li-ion battery recycling companies, lithium battery utility companies, and operating companies. system integration, channel distribution, logistics, and transportation of li-ion battery products.
It also calls on companies at the top and bottom of the fields to develop deep and strong relationships by signing long-term contracts for orders, carrying out technical cooperation, and helping to stabilize the market by setting expectations, clarifying product quantities and prices, and guaranteeing the availability of goods.
The notification also states that the industry must comply with the 14th Five Year Green Development Plan (“Green Development FYP”) when it comes to battery recycling. The Green Development FYP wants to improve the rules and regulations for battery recycling and “encourage up and down companies in the industry chain to jointly create shared recycling methods and build a number of centralized recycling services”
Finally, local market regulators are also tasked with increasing oversight and carefully investigating and resolving issues of product ordering, price increases, and unfair competition in the upstream and downstream li-ion battery industry in order to “maintain market order”.
Improving industry data monitoring
A major effort to improve the li-ion battery industry is to improve data management. As such, the notification states that the relevant government departments are required to carry out a “Statistical Survey System for the Electronic Information Manufacturing Industry”. This system tracks the indicators of important electronic information production companies, including major financial and economic indicators, production capacity of major products, sales, inventory, etc. It was created so that stakeholders can gain a precise and timely understanding of different industries in order to effectively manage the industry, to ensure the safety and stability of industrial supply chains, and to provide a basis for decision-making by managers and government authorities.
The announcement clearly states that the relevant government departments are responsible for using these industry statistics, to better assess the production and investment levels in the li-ion battery industry, and to identify factors such as unreasonable price drops, low production levels, and over-investment.
Strengthening supervision and inspection to ensure the supply of high-quality li-ion battery products
In order to improve the overall quality of the i-ion battery industry, the notice calls on regulators to increase monitoring and take measures to ensure that companies and their products comply with industry standards and regulations.
Local industry and information technology authorities and market supervision departments guide lithium battery enterprises to carry out technological innovation, strengthen quality control, improve flow, obtain quality certification, and improve the efficiency of li-ion battery products. It also encourages companies to implement quality systems, such as ISO 9000 (international quality management standards) and Six Sigma (technologies to improve business processes), to improve the one-time inspection of product passes and to ensure product reliability, stability, and. harmony.
Local market monitoring departments are also tasked with conducting product quality monitoring and inspection of lithium battery manufacturers and arranging for manufacturers to self-monitor product quality and publish self-inspection results.
Local authorities are also encouraged to investigate and punish companies whose products do not comply with national quality standards and violate regulations such as Product Quality Law and mandatory national standards. Mandatory national regulations include Safety Requirements for Lithium-Ion Batteries and batteries [No. GB 31241] and Safety Technical Specifications for Lithium-Ion Batteries and Batteries for Stationary Electronic Equipment [No. GB 40165].
The notice also states that SAMR and MIIT may organize inspection and testing organizations to conduct quality checks on li-ion battery products.
Improving the environment to allow industry growth
The final part of the announcement is aimed at breaking down practices and activities that may be hindering the orderly development of the Li-ion battery industry in China. This includes addressing issues such as local protection, unfair competition practices between market players, and the impact of CCIDID-19 measures on companies.
The announcement does not offer concrete ways to overcome these issues, but it calls for local government departments to come together to build “an efficient, standardized, transparent, and fully open national market for li-ion batteries”.
Based on the CCID-19 prevention measures, the announcement states that the CCID-19 prevention measures must be in collaboration with industrial development and that local government departments are required to help companies implement Covid-19 prevention and response measures in order to resolve potential issues. stand up in production, transportation, sales, and other parts of the production process in the event of a COVID-19 outbreak.
Will China be able to stabilize the lithium-ion battery market?
The announcement to improve the Li-ion battery market is just the latest in a series of efforts to achieve systematic development of supply chains for key industries. On August 24, 2022, the MIIT, together with SAMR and the National Energy Administration (NEA) issued a joint statement calling for the systematic management of the photovoltaic industry supply chain. This shows that the government has a desire to correct the errors within the supply chain.
However, there are other factors that could help cool the battery market apart from direct government intervention in the industry. Another decrease is the demand for batteries from other industries, such as solar and NEVs. For example, the continued rise in the price of NEVs could eventually reduce demand, and thus ease demand for lithium. In the long run, the reduction of the Chinese government’s NEV subsidies would increase the demand for car batteries.
In addition to the requests stated in this announcement, China is and will continue to make efforts to increase the extraction of precious minerals, both in China and abroad, in order to meet domestic needs. A combination of increasing the supply of essential minerals and maintaining reasonable demand will be essential in stabilizing the market and ensuring the development of the industry.
China Briefing written and produced by Dezan Shira & Associates. This event helps foreign investors in China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
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