[SMM Analysis]2024 H1 Lithium Battery end users and Key Material Market Review & Future Outlook

Part One: Lithium Battery End-Users

NEV market:

According to SMM data, from January to June 2024, global NEV sales reached 7.025 million units, up 21% YoY. Among them, sales in the Chinese market were 4.337 million units, with a cumulative YoY growth of 35%, exceeding expectations. However, the European and American markets experienced lower-than-expected performance. NEV sales in the European market were 1.182 million units, down 14% YoY, while sales in the US market were 787,000 units, with a cumulative YoY growth of only 14%.

Looking at the global NEV market, the Chinese market, driven by continuous subsidies and price cuts, has gradually increased the market share of NEVs, gradually eroding the market share of fuel vehicles. In the context of the overall car market growth in China being lower than expected, NEVs have broken through, with domestic penetration reaching a historic high.

However, due to geopolitical and trade protection, export restrictions were quite severe. In H1 2024, the export growth rate of China's NEVs was only 9.7%, and it is expected that there will still be some pressure on exports in the future. In the European market, high local manufacturing costs make it difficult to replace the domestic supply chain's dependence on the overseas supply chain in the short term. Meanwhile, U.S. domestic car companies continued to cut spending on electric vehicles, and the delay in new models was severe, leading to sluggish growth in the U.S. market.

Despite this, considering the global market performance in H1, SMM still forecasts annual NEV sales to reach 16.85 million, with a YoY growth rate of 23%.

From the weekly data in July, NEV sales in the first to third weeks were 171,000, 185,000, and 195,000, respectively, showing an increase of about 1% compared to June. The weekly penetration rate exceeded 50% for two consecutive weeks. NEVs continue to squeeze the market share of fuel vehicles, and we look forward to sustained market momentum after August.

Energy Storage Market:

In the first quarter of 2024, domestically, due to the high inventory of battery cells in the energy storage sector at the end of 2023, coupled with China entering the project planning phase after the concentrated grid connection at the end of 2023, orders for energy storage battery cells saw a slight decline.

Overseas, the first quarter was winter, with low temperatures, resulting in a low operating rate for installation workers.

Overall, the European market is still digesting inventory, the installation progress in the US market has been delayed, and the contribution of other emerging markets to demand is limited. Overall, overseas energy storage demand remains sluggish.

In Q2 2024, the energy storage market rebounded beyond expectations, with the domestic energy storage market performing strongly. Looking back at 2023, the tender volume in the energy storage market exceeded expectations, indicating that the mid-2024 grid connection process would drive significant demand for energy storage battery cells, thereby rapidly increasing domestic power storage orders in Q2. Meanwhile, the decline in battery cell prices and the implementation of subsidies for industrial, commercial, and independent energy storage across various regions also steadily boosted industrial, commercial, and independent energy storage orders in H1 2024.

In the overseas market, according to SMM's observations, the newly installed capacity in the United States rose significantly from the end of Q1 to the beginning of Q2, mainly benefiting from the optimization of the grid connection process, which allowed some previously delayed projects to achieve grid connection.

According to SMM statistics, the cumulative grid-connected capacity reached 2.83 GW in the first five months of 2024, up 269.7% YoY. In Europe, after the initial destocking phase, household energy storage demand rebounded in Q2. However, some regions in Europe still face challenges such as the gradual cancellation of subsidy policies and low electricity prices. Therefore, in the absence of significant favorable policies, the demand for household energy storage remains relatively stable.

H2 2024, domestic bidding volume is expected to remain highly prosperous. According to SMM statistics, in H1 2024, the cumulative awarded capacity of China's energy storage projects reached 59.56 GWh, up 93% YoY.

The commercial and industrial and independent energy storage markets will benefit from the decline in battery cell prices and the implementation of subsidy policies, significantly improving their economics.

Overseas market, the grid connection delay issue in the United States is expected to ease, coupled with the impact of the election, the energy storage installed capacity in the U.S. in H2 may exceed expectations.

Part Two: Battery Cell End

Power Battery Cell:

According to SMM data, in H1 2024, the production of power battery cells in China (including all battery makers located in China, as well as the Chinese bases of overseas battery makers) was 361.32 GWh, with a cumulative YoY growth rate of 15.7%, which is lower than the growth rate of power end-users.

On one hand, power battery cells were in a destocking cycle in H1 2024, with the inventory-to-sales ratio dropping from 2.15 months in January 2024 to 1.94 months in June 2024. On the other hand, due to the contraction of the overseas NEV market, the import demand for battery cells weakened, impacting the overall scheduled production of Chinese producers.

SMM has ranked the production of power battery cell companies in H1 2024. CATL is far ahead, with both ternary and LFP making significant contributions. BYD follows closely, while EVE Energy and CALB also continue to maintain their leading positions.

Energy storage battery cell:

According to SMM, in H1 2024, CATL remained the leader in China's energy storage battery cell production, with an output close to 40GWh. EVE Energy and Xiamen Hithium ranked second and third, respectively, while BYD's ranking dropped to sixth.

Analyzing the ranking changes, CATL continued to lead the market due to its stable customer structure, early brand layout, and diverse product matrix. EVE Energy, relying on its product advantages, saw rapid growth in H1, surpassing BYD to take the second spot. Other second and third-tier companies also gradually increased their presence in the volatile energy storage market. Despite being a new entrant, Sunwoda achieved significant performance in H1 due to its battery cell technology reserves and increased investment. BYD's performance in the energy storage sector was relatively weaker, but its frequent announcements of overseas expansion plans might bring impressive results in H2.

SMM believes that current battery cell prices are nearing the bottom, and industry consolidation is accelerating. Meanwhile, the iteration process of large battery cells is also speeding up, with the widespread adoption of 314Ah battery cells becoming inevitable. Battery cell companies with mass production capabilities and stable customer relationships are expected to achieve profit and market share growth by increasing the shipment proportion of 314Ah battery cells.

Overall, in H1, the total output of power and energy storage battery cells in China was 468.96GWh, up 16.5% YoY. SMM estimates that in July 2024, the output of power and energy storage battery cells in China will be 89.7GWh, down 2% MoM. The August output is estimated to be 95.2GWh, up 6% MoM.

Additionally, SMM believes that whether battery companies can establish extensive sales channels, build brand image, and improve product quality will be key factors determining their success, as the global transition to new energy continues to advance.

Part Three: Cathode Materials

NCM:

Price side, in H1 2024, NCM prices first rose and then fell. The average price of 523 polysilicon material in H1 was 115,107 yuan/mt, down 53% compared to the average price in H1 2023. In early March, a structural mismatch caused by tight nickel supply and increased downstream demand drove up nickel prices, while lithium carbonate prices rose synchronously, collectively pushing up the manufacturing cost of NCM, leading to an increase in their prices. Subsequently, NCM prices remained stable overall until after June, when the prices of lithium carbonate, nickel sulphate, and cobalt sulphate continued to decline, and intense market competition caused NCM prices to keep falling. It is expected that in H2, NCM prices will remain at a relatively weak level.

Supply side, according to SMM statistics, China's NCM production reached 330,000 mt in H1 2024, up 14% YoY. During this period, the operating rate of NCM producers was around 40%. In February, production declined due to the Chinese New Year off-season. In May and June, as lithium prices continued to weaken, downstream battery cell manufacturers reduced their purchase orders, leading to a significant drop in production. Additionally, many material producers opted for cautious production and destocking to meet mid-year financial report requirements and reduce inventory impairment risks, resulting in an overall decline in production. From the perspective of material types, 5-series materials accounted for 24%, 6-series materials for 30%, and 8/9-series materials for 42% in H1. In terms of market competition, Ningbo Ronbay ranked first in H1 with a market share of over 15%. The overall market CR3 was 39%, CR5 was 54%, and CR10 was 79%.

Moreover, the profitability of NCM companies is becoming increasingly difficult. Due to the continuous decline in raw material prices, severe inventory impairment issues at the material end, together with the diminishing advantage of technology premiums, and the pressure of continuously falling settlement prices, the profitability and profit margins of NCM companies are becoming increasingly challenging.

LFP Material:

According to SMM statistics, from January to June 2024, the total production of LFP reached 861,530 mt, a significant increase of 60% YoY. Overall, after the traditional market off-season in January and February, LFP production saw a notable recovery in March and April, peaked in May, and began to decline in June due to downstream inventory clearance.

From the supply-demand balance chart of LFP cathode from January to June 2024, it can be seen that the monthly supply of LFP cathode consistently exceeded the demand for LFP battery cells. Although the market in H1 was driven by favorable factors such as price wars among car manufacturers, the promotion of new models, grid connection in the energy storage market, and the resumption of overseas demand, leading to a surge in LFP production and shipments. However, the battery cell procurement orders from new energy vehicle manufacturers usually do not match the actual car sales. Car manufacturers often prepare slightly more battery cell orders to prevent shortages in case of a sudden increase in sales. This results in inventory accumulation of either complete vehicles or battery cells, and it takes time to clear these inventories. Consequently, there is an oversupply from car manufacturers to battery cells and from battery cells to cathodes, leading to inevitable price wars when production exceeds demand.

Similarly, in the LFP price system, the price of lithium carbonate is relatively fixed in the formula. When the price of lithium carbonate declines, the price of LFP follows suit. Cathode material plants and battery cell manufacturers mainly negotiate the processing fee for LFP. Typically, leading battery cell companies conduct semi-annual and annual bidding and order negotiations. These companies have strict cost control measures, which inevitably leads to new LFP producers competing for market share with low prices. The winning processing fee often surprises by breaking the price floor. Leading LFP producers, due to their large capacity and advantages in product, cost, and technology, as well as stable financial and supply chains, are in a better position than smaller plants. They can negotiate higher processing fees and have a greater potential for long-term development in a competitive environment.

In terms of market structure, Hunan Yuneng's market share remains far ahead. The second tier includes Shenzhen Dynanonic, Changzhou Liyuan, Hubei Wanrun, and Youshan Technology. The CR5 market share is 61%, and the CR10 market share is 81%, indicating a high market concentration, with major capacity and shipments concentrated among leading companies. Due to significant loss pressures, many LFP cathode material plants have low actual operating rates despite having sufficient capacity, as they are unwilling to incur substantial losses.

Currently, the cost and profit of LFP are inversely related in the long run. Although the H1 earnings results of listed companies are not yet available, the Q1 reports indicate that the LFP industry is facing significant risks, intense competition, and heavy burdens. At this stage, the most fundamental wish of each company is to survive in the future market environment. However, opportunities and challenges coexist. SMM believes that LFP producers will focus on cost, supply chain, management, and technological research and development. Some companies are also looking overseas, as LFP material technology iterations and updates are gradually being recognized abroad. In the future, this could form a low-cost, strong-technology, multi-directional, and broad-field hard strength.

Part Four: Lithium Salt

Lithium Carbonate:

According to the SMM survey, the total domestic output of lithium carbonate in H1 2024 was 298,000 mt, up 46.8% YoY; the total import volume was 108,000 mt, up 47.9% YoY. The main drivers for the increase in domestic lithium carbonate output in H1 were the demand from end-users and the commissioning of expanded lithium salt production by producers. According to SMM statistics, the total demand for lithium carbonate in H1 was approximately 344,000 mt LCE, up 31.3% YoY. During this period, the price of lithium carbonate experienced significant fluctuations. The lowest price was 91,000 yuan/mt, and the highest price was 113,000 yuan/mt. The turning points of the two price fluctuations were both due to supply-demand mismatches. The current situation of oversupply in the lithium carbonate market is difficult to reverse, and the price of lithium carbonate still has a downward trend.

During this period, the price of lithium carbonate experienced significant fluctuations. The lowest price was 91,000 yuan/mt, and the highest price was 113,000 yuan/mt. The turning points of the two price fluctuations were both due to supply-demand mismatches.

In late February this year, lithium carbonate experienced its long-awaited "spring" amidst the winter chill. The price war among NEV companies began, and various car companies started to release new models one after another. The demand for NEVs surged significantly, and the demand for lithium carbonate from material plants also saw a notable increase. The demand market was optimistic, but the supply side appeared somewhat sluggish. After the Chinese New Year, environmental protection inspections began in Jiangxi, impacting the production of lithium salt plants in the region. The operating rate of lithium salt plants was low, and some could not resume production. At the same time, a leading lithium salt plant in Sichuan was undergoing maintenance, and together with the still cold weather after the holiday, lithium extraction in the salt lake areas of Qinghai could not proceed, significantly affecting the total domestic output of lithium carbonate. With weak supply and strong demand, the price of lithium carbonate soared, increasing by nearly 20,000 yuan/mt. Lithium salt plants were reluctant to sell due to the price trend, while material plants were eager to stock up, providing strong support for the continuous rise in lithium carbonate prices.

In the blink of an eye, lithium carbonate, which had not climbed far, encountered a downhill path. The price war among NEV companies and the concentrated release of new models had prematurely consumed the sales for May and June, causing the demand from the end-users in the NEV market to gradually weaken starting in May. On the supply side, the end of environmental protection inspections in Jiangxi and the warming weather led to an increase in salt lake production, resulting in a strong supply and weak demand situation for domestic lithium carbonate. The rise in total output also increased the supply from battery makers to material plants. Therefore, with the dual factors of reduced downstream orders and increased supply from battery makers, the demand for spot purchases of lithium carbonate by material plants continued to weaken. The continuous increase in supply and the weakening demand created a stark contrast, causing lithium carbonate prices to drop again, reaching the lowest point in H1.

According to the SMM survey, the total domestic output of lithium carbonate in H1 2024 was 298,000 mt, up 46.8% YoY. The main drivers for the increase in total domestic output of lithium carbonate in H1 this year were the end-user demand and the commissioning of expanded lithium salt production capacities.

By raw material: Spodumene contributed approximately 130,000 mt of lithium carbonate production (43.6%); lepidolite contributed around 80,000 mt (26.8%); salt lakes contributed about 57,000 mt (19.1%); and recycling contributed around 32,000 mt (10.7%). Operating rate: Lithium salt plants from salt lakes had the highest operating rate, exceeding 60%; followed by spodumene, with an operating rate above 55%. Due to the impact of previous environmental protection inspections, together with the subsequent decline in lithium carbonate prices, the operating rate of lithium salt plants in Jiangxi, where the losses issue is severe, continued to drop, remaining around 30%.

The previous soaring lithium carbonate prices led many producers to enter the lithium carbonate industry. Although the overall operating rate is currently not high, domestic lithium carbonate capacity is still in an increasing phase. Many lithium salt plants have ongoing and planned expansion projects. It is expected that the total domestic lithium carbonate output will still have significant room for growth, and the total output in H2 may exceed the 400,000 mt mark.

SMM New Energy Industry Research Department