The Survival Logic of Lithium Power Enterprises under the soaring Price of Lithium Carbonate by expanding production with left hand and hoarding Mine with right hand

Since the beginning of the year, the lithium industry has attracted much attention.

On the one hand, the overall trend of the new energy industry continues to improve, with production and sales of new energy vehicles reaching new highs in 2021. The agency predicts that sales in 2022 are expected to break through the 5 million vehicles mark, with a penetration rate of 20%. On the other hand, the price of upstream raw materials has repeatedly hit record highs. Battery-grade lithium carbonate, as a battery cathode material, has been rising continuously since 2021, and its average price in March 2022 is more than 500000 / ton, an increase of nearly 70% over the beginning of the year. Some people in the industry mocked the increase: "this is the only time I've ever seen it in my life."

The soaring price of lithium carbonate is also causing a series of shocks in the industry. From the "battery shortage" that was intensively reported in the media last year; to this year, a number of car companies announced price increases or even suspended orders in an attempt to stop losses; and then to recent rumors that Ningde and BYD would no longer purchase lithium carbonate and resist price increases. It can be said that the supply of raw materials has affected the development pattern of the entire lithium power industry, the tail enterprises with low bargaining power have to face the risk of last elimination, while the head enterprises face the cost pressure to seek a balance in ensuring supply and capacity expansion.

Left-hand capacity expansion and right-hand Lithium Mine hoarding

Since the beginning of 2021, in the face of the booming and promising lithium market, the capacity planning of various power battery companies has obviously speeded up. By the end of 2021, the capacity planning (incomplete) statistics are as follows: 670GWhin 2025 in Ningde era; 600GWhin 2025 in BYD; 430GWhin 2025 in BYD; 300GWhin 2025 in Guoxuan Hi-Tech; 500GWhin 2025 in Zhongchuangxin Airlines; 600GWhin 2025 in Honeycomb Energy; 202GWhin Lithium Energy. Lishen 2025 100GWh.

In the coming era of TWh, 100GWh has become the basic unit of production capacity in the lithium electricity industry. As a reference, the total installed capacity of power batteries in China in 2021 is 154.5GWh. Based on the consumption of 500t lithium carbonate for 1GWh, 50000 tons of lithium carbonate is needed for every 100GWh production capacity. According to the forecast of SMM, China will produce about 280000 tons of lithium carbonate in 2022. The capacity supported by LCE, is not enough for 600GWh.

With the shortage of lithium carbonate supply, how can enterprises ensure the supply of raw materials and stabilize the impact of price increases on the return cycle of investment in production expansion? At present, when "those who get lithium get the world" has become the consensus of the industry, power battery enterprises directly layout upstream, investment in mining is bound to become a long-term way out. At present, there are not many enterprises with mines at home due to various conditions. Among the top enterprises in the industry, only a few enterprises, such as Ningde era, Guoxuan Hi-Tech, Honeycomb Energy and Yiwei Lithium Energy, have seized the first opportunity.

For power battery companies, how important is ore grabbing? Take Guoxuan Hi-Tech as an example, the company announced at the 2021 supply chain conference that by the end of 2022, Guoxuan's production capacity is expected to reach 100GWhh, and plans to put into production more than 50GWh. According to this calculation, Guoxuan Hi-Tech will need 25000 tons of lithium carbonate in 2022. If the supply cannot be guaranteed, the performance will be dragged down.

However, Guoxuan Hi-Tech seems to have devised strategies. According to the information released by various channels, the cumulative production capacity of the three lithium carbonate projects of Yichun Kefeng, Fengxin Guoxuan and Yifeng Guoxuan in Yichun, Jiangxi Province is planned to reach 120000 tons per year. Among them, Yichun Kefeng has an annual production capacity of 20,000 tons of battery-grade lithium carbonate project, which may be put into production in April, with an estimated annual production capacity of 10,000 tons. In addition to self-production and self-supply, Guoxuan also worked out long-term supply agreements with Jiangte Motor and Salt Lake shares through strategic cooperation in the second half of last year. Coupled with the lithium carbonate resources obtained by Guoxuan through the material recovery channel, it is known that the total supply of lithium carbonate has basically ensured the production plan for 2022.

Based on the industry cost price of 150000 yuan and the market price of 500000 yuan per ton, Guoxuan Hi-Tech has its own lithium carbonate gross profit of about 350000 yuan per ton. In other words, regardless of other costs, Kefeng's 10, 000-ton production capacity can save 3.5 billion yuan in raw material costs for Guoxuan Hi-Tech in one year. According to the current market estimates, the layout of lithium carbonate in Yichun, Jiangxi Province, including Kefeng, Yifeng, and Fengxin, has a total production capacity of 120000 tons, and 42 billion yuan can be saved one year after all is put into production.

The advance layout of the supply chain does not take place overnight.

Apple's ability to control the supply chain is one of the important reasons why the company has become the most valuable company in the world. Although the lithium supply chain is not as complex as the consumer electronics supply chain, the layout of the supply chain from mines to raw materials to cathode materials not only involves all aspects, but also has a long layout cycle. If a battery company wants to have a stable material supply chain, it can not be completed overnight, in addition to the need for strong financial support, but also tests the forward-looking strategic vision and thinking of enterprise leaders.

An interesting example shows the intensity of the "ore-grabbing" war in the lithium industry. In 2021, a four-month "ore war" broke out between Ningde era and Ganfeng lithium industry. In July of that year, Ganfeng Lithium planned to buy Canadian Millennium Lithium for no more than C $353 million (about 1.837 billion yuan), but it was killed in the Ningde era with the intention of increasing the price by 7%. Unexpectedly, after several reversals, in the end, the American lithium industry realized the acquisition of the millennium lithium industry, and the Ningde era was defeated.

Even if you succeed in buying the mine, you still have to face uncontrollable market risks, and if you have bad luck, it will still be difficult to achieve the expected results. For example, in 2018, Tianqi Lithium Co., Ltd. added $3.5 billion in M & A loans to buy shares in SQM23.77%, resulting in a sharp increase in the company's asset-liability ratio, causing the company to fall into a difficult period for a long time.

All these have led to the fact that there are few leaders in the industry to start the layout of the whole industrial chain before the market is hot in 2020. Some once ranked top ten battery companies because of the lack of strategic vision in the upstream layout, the action is one step behind, resulting in only breast-beating and repeated regret. Looking at China's power battery enterprises, there are still few enterprises that can achieve closed-loop supply chain industry. Take Guoxuan Hi-Tech as an example, the company's supply chain layout since 2016, can be described as step by step, steady.

In February 2022, the negative electrode project with an annual capacity of 400000 tons was started in Wuhai City, Inner Mongolia, and the layout was graphitized.

In December 2021, the Yifeng Guoxuan project officially broke ground. The project is divided into an annual capacity of 50, 000 tons of battery-grade lithium carbonate and an annual production of 7.5 million tons of lithium ore, which is expected to be completed and put into production in the fourth quarter of this year.

In November 2021, Guoxuan Kefeng has an annual production capacity of 20,000 tons of battery-grade lithium carbonate project to complete the preparatory work. It is estimated that by April this year, it will be able to produce 10,000 tons of battery-grade lithium carbonate per year.

In August 2021, Guoxuan Hi-Tech invested in lithium carbonate projects in Yifeng County and Fengxin County, Jiangxi Province. After all the projects reach production, it is estimated that the annual output of lithium carbonate will be 100000 tons, with an annual output value of more than 10 billion yuan.

In April 2021, China Aluminum New Materials Co., Ltd. was jointly invested with North China Aluminum Co., Ltd., which laid out the R & D and production of lithium aluminum foil.

In March 2021, increase investment in Jiangxi Yunwei, layout the R & D and production of lithium hydroxide;

In March 2021, we invested in the construction of a series of power battery industry chain projects in Feidong, Hefei, laying out lithium battery recycling business and anode material R & D, production and sales business.

In February 2021, we signed a strategic cooperation framework agreement with the people's Government of Yichun City, laying out industrialization projects such as lithium carbonate production and supporting materials for lithium batteries.

In July 2020, the project with an annual output of 30,000 tons of high-nickel ternary cathode materials landed in Lujiang, Hefei.

In March 2020, strategic investment in copper crown copper foil, layout of copper foil materials

In October 2017, China Metallurgical Group and Caofeidian Development Investment Group jointly invested in the establishment of a new material project for MCC to lay out the R & D and production of cathode material precursors.

In June 2017, we acquired BASF American electrolyte Laboratory and related patents to deepen the layout of electrolyte materials.

In January 2016, Hefei Xingyuan was jointly invested with Xingyuan material, which laid out the R & D and production of lithium battery diaphragm.

It is not easy to sharpen a sword for six years, one step at a time, and it is not clear in a few words. However, it is worth mentioning that Guoxuan Hi-Tech's lithium mine layout in Jiangxi, from the contact between the two sides to the signing of the contract, took only three months to "grab" time to the extreme, and even negotiations were held during the Spring Festival. Judging from the hot degree of today's lithium carbonate market, these efforts have not been in vain, and the layout of Guoxuan coincides with the best time.

Build a supply chain system to practice carbon neutralization

"on the morning of February 24, the launching ceremony of key projects in Wuhai City, Inner Mongolia Autonomous region in 2022 was held in the low-carbon Industrial Park of Wuhai High-tech Industrial Development Zone, including the 400000-ton lithium-ion battery anode material project of Inner Mongolia Guoxuan Zero carbon Technology Co., Ltd." Recently, a piece of news about the concentrated construction of the Wuhai project made the Guoxuan Wuhai project gradually come to the surface, while Shi Taifeng, secretary of the party committee of Inner Mongolia Autonomous region, and his party inspected the site of the Wuhai Guoxuan project on March 16. From the video reported by the media, we can see that the construction of the Wuhai Guoxuan project plant is in full swing. The content of the on-site exhibition board shows that the material layout of Guoxuan Hi-Tech in Wuhai is an integrated production line project of lithium-ion battery anode materials with an annual output of 400000 tons. The project is located in Wuhai low-carbon Industrial Park in Inner Mongolia, covering an area of more than 2000 mu. The first phase of 100000 tons has already started construction and is expected to be completed and put into production in the second half of this year. According to the calculation of 1GWh=1300 tons of negative graphitized materials, 400000 tons of negative materials just meet the 2025 300GWh target of Guoxuan Hi-Tech.

This also confirms what Li Gong, chairman of Guoxuan Hi-Tech, said at the World Manufacturing Conference in November 2021: the company "intends to deploy new energy for power generation in Wuhai, Inner Mongolia, and create a zero-carbon base for new energy automotive materials. Meet all the negative polarization power needs of the company's graphitized materials."

It seems that Guoxuan Hi-Tech has not only begun to lay out the supply of negative materials in the next five years, but also put forward a feasible way to realize low carbon according to the problem of high energy consumption of negative graphitization and combining with local natural conditions. This layout, which has both industrial development prospects and carbon neutral strategic thinking, reflects an enterprise leader's accurate research on the general trend of the industry, the high-level planning of industrial prospects, and the majestic layout of enterprise development.

It not only solves the thorny problem of external material supply, but also solves the problem of internal supply system. According to Caijing-later, at the beginning of 2019, dozens of first-tier business departments were integrated into three major systems: market, R & D and engineering manufacturing, operation and supply chain. Feng Chunyan and Zeng Rong, co-presidents of the supply chain system, report directly to the chairman, Zeng Yuqun. This also lays the foundation for the accelerated layout of the supply chain system in the later Ningde era.

Coincidentally, during the organizational restructuring in 2021, Guoxuan Hi-Tech also established a global supply chain center, and the person in charge, Sun Aiming, reported directly to the chairman. The global supply chain center divides the original package procurement into two major pieces of procurement and delivery, and sets up a separate material procurement center, as well as a detailed procurement division of key materials in the original business, such as lithium carbonate, iron phosphate, ternary, lithium iron phosphate, etc., to make the process more professional and efficient.

From the production capacity planning of Guoxuan Hi-Tech, 300GWhh in 2025 is not high compared with others. However, it can be seen from the announcement that the company signed a five-year 200GWh with an American company that Guoxuan has explored a business model of accepting advance payments from car companies to build a factory and jointly invest in the upstream and downstream links of the industrial chain, effectively sharing costs and controlling risks, and achieving premeditated and orderly expansion at a time when the industry is constantly questioned about future overcapacity.

If the contradiction between supply and demand persists, coupled with the existence of global instability factors such as epidemic situation and war, there are still variables in the capacity expansion strategy of battery enterprises. According to statistics, from January to December 2021, a total of 58 power battery enterprises have been installed in China's new energy vehicle market, 13 fewer than the same period last year. To be sure, only a steady, step-by-step company can win a place in the increasingly competitive industry.