Rumours of Production Cuts Spread! Will Winter Befall the Lithium Battery Industry Soon?

SHANGHAI, Nov 17 (SMM) - Recently, there has been a lot of talk in the market about the production reduction by a leading global power battery company.

SMM believes that this rumour may not be groundless evidenced by the slowing demand growth in the Chinese automobile market amid multiple influencing factors such as the current economic downturn, high battery material prices, as well as the expected cancellation of new energy vehicle (NEV) subsidies. According to statistics, 446,000 units of new energy passenger vehicles were insured in October, a sharp increase of 53% from 291,000 units in the same period last year, but a 17% drop from September. OEMs such as GAC, Geely, NIO have all reported a sharp drop in sales, and even BYD, which beat the headwinds several times, experienced its first MoM sales retreat in more than half a year.

The fourth quarter this year is the last season before the NEV subsidies are full cancelled. Coupled with the traditional production rush around the end of the year as well as advanced demand in the first quarter of 2023, the demand should have been revived in the fourth quarter. However, the sales of new energy vehicles seem to have encountered a bottleneck based on the historical data, and is hard to break through the 500,000 mark. And the traditional seasonal high has failed to achieve its glory. 

As the industry has been highly optimistic about the NEV market, OEMs and some downstream battery cell companies have built large stocks of raw materials in response to the expected traditional seasonal high. However, when the actual demand has shown signs of weakening momentum, some OEMs are challenged by lack of strong new orders after the delivery of backlog orders, including renowned brands like Tesla and XPeng. Therefore, the OEMs and battery makers, in order to mitigate the risks, have decided to reduce the purchases of raw materials and digest their in-plant stocks first.

Some power battery cell companies generally have about 4 months of battery cell and raw material inventory. A number of top-tier battery cell companies have expressed intensions of significantly reducing the purchases of cathode active materials and electrolyte, with a reduction of more than 20% according to some. In addition, the follow-up purchases will also be maintained at a low level except for the procurement on rigid demand as the battery companies mostly have abundant stocks. 

At present, most leading ternary cathode materials and LFP enterprises are pessimistic about the demand outlook after November, and the uncertainties concerning procurement, production and sales have greatly aggravate. As such, the material manufacturers are also cautious about building finished material stocks and purchasing raw materials. As far as the current and near-future picture is concerned, the winter may befall the lithium battery industry soon.