Industrial reshuffle after subsidy cuts to keep NEV, battery sluggish in Q3

SHANGHAI, Jun 14 (SMM) – China’s new energy vehicle and related battery sector is expected to remain weak in the third quarter, in anticipation of an industrial reshuffle amid sharply lower subsidies and a traditional low season.

NEV production in May expanded at its slowest pace since 2018, with a year-over-year increase of 16.9%, showed data from the China Association of Automobile Manufacturers (CAAM) on June 12. Growth in sales, meanwhile, sharply slowed to 1.8%, from 18.1% in April. 

Downbeat expectations of a new subsidy scheme to come in start of 2019 drove NEV makers to begin their production rush from the end of last year, and slowed demand in recent months. Sales promotion to clear inventories ahead of new vehicle emission standards also diverted some car buyers, dragging on NEV sales.

On the backdrop of falling subsidies, balancing between cash flow issues and technological development would be the key and urgent problem that confronts NEV battery producers this year.

In May, installed capacity of power batteries grew at the second slowest pace since 2018, of an annual rate of 22.3%, to stand at 5.68GWh, with ternary batteries accounting for 66.1% and lithium iron phosphate (LFP) batteries for 30.5%, according to SMM data.

Installed capacity of LFP batteries climbed 3.2% from April to 1.73GWh, while that of ternary batteries fell 6.7% to 3.75GWh.

As electric buses enjoy greater subsidies compared to passenger vehicles, buses producers appeared keener to ramp up production before subsidy cuts take effect after June 25, which accounted for the increased LFP battery installed capacity.

Particular concerning was that installed capacity of composite lithium battery continued to grow since 2019, and stood at 64.4MWh in May. Battery producers are attempting to add lithium manganese oxide (LMO) materials to ternary materials for cathode materials in batteries to lower costs and improve security.

SMM learned that the leading battery producer CATL has ventured into the development of composite lithium batteries, and is likely to achieve mass production in the second half of this year.

In terms of market shares, the rankings, except for the top three, CATL, BYD and Guoxuan Hi-tech, largely changed in May, suggesting an ongoing reshuffle across the NEV battery industry.

Imminent subsidy cuts and reported fire incidents in May also took a toll on NEV battery materials producers, and they have yet to see clear signs of a demand pick-up. Fewer orders led to production cuts across producers in Beijing, Zhejiang, Jiangsu and Hunan.

SMM data showed that production of ternary materials shrank 5% from April to stand at 20,500 mt in May, up 64% from a year ago. The share of high-nickel materials climbed to 11%.

Output of LFP across China came in at 8,400 mt in May, down 0.1% month on month and up 78.9% year on year. Power batteries remained the major consumer of LFP materials.

For LMO, production nudged up 0.1% from a month ago and 16.7% from a year ago to 5,400 mt in May. Low energy density and prices led to the major application of LMO in consumer batteries. SMM expects the greater application of composite lithium batteries to bolster high-end LMO in the long term.