To implement the "lithium mine rebate" plan for car companies, "Ningwang" is anxious?

Recently, a news that CATL is implementing the "lithium mine rebate" plan for car companies has caused a huge shock in the market.

The news pointed out that the plan is for many strategic customers such as ideal, NIO, Huawei, and Zeekrypton, and the core clause is: in the next three years, the price of lithium carbonate for some power batteries will be settled at 200,000 yuan / ton, and at the same time, the car companies that signed this cooperation need to commit about 80% of the battery purchase volume to CATL. After the signing of the cooperation, it will be implemented in the third quarter of this year, and some car companies are already in the process of signing the cooperation.

In response to the above plan, the media tried to contact the relevant person in charge of CATL, but did not receive a reply as of press time. However, a number of car companies and industry chain insiders revealed that the situation is basically true.

Why the "Lithium Mine Rebate" program?

Before exploring why CATL will implement the "lithium mine rebate" plan, let's disassemble the core appeal points of the plan.

It is reported that according to the relevant price agreement, 50% of the batteries supplied by CATL to some key strategic cooperative car companies (the proportion will be dynamically adjusted) will be calculated at the price of 200,000 yuan / ton of lithium carbonate material (the latest quotation of battery-grade lithium carbonate is 429,000 yuan / ton), and the rest will be calculated according to the market price, and the difference will be returned to the main engine factory. At the same time, the main engine factory that accepted the concession purchased no less than 80% of the battery within three years, and the supply volume in the fourth to fifth year was not lower than the previous year.

In this regard, some analysts pointed out that from the perspective of trading mechanism design, the essence of the "lithium mine rebate" plan is actually "large-scale procurement + binding buyers", which is more similar to the discount promotion of platform stores.

As the power battery brother that occupies an absolute dominant position in the domestic market, it is rare for CATL to take the initiative to implement the "discount promotion" program, and this move is not unrelated to the shrinkage of its market share.

According to the statistics of the China Automotive Power Battery Industry Innovation Alliance, CATL's installed capacity in 2022 will be 142.02GWh, a year-on-year increase of 76.4%, although the total still ranks first, but the market share fell below 50% to 48.2%, and its market share in 2019, 2020 and 2021 was 50.57%, 50% and 52.1% respectively.

Looking at competitors, in 2022, BYD's market share will increase by 7.25 percentage points, and the market share of China Innovation Aviation will increase by 0.63 percentage points, in addition, Sunwoda, EVE Lithium Energy, and Funeng Technology have increased their market share to varying degrees, and this part of the growth comes from the incremental demand of the new energy vehicle market, as well as the market share of the Ningde era.

According to Soochow Securities Research Report, in the first three quarters of 2022, the top five customers of CATL were Tesla, Geely, NIO, GAC and Xpeng, of which the installed capacity accounted for less than 10% except for Tesla's installed capacity. Specifically, among major customers, Tesla's growth slowed down, selling 1.31 million vehicles last year, falling short of its target of 1.5 million units. At the same time, Tesla, Xpeng, GAC and NIO have all added new power battery suppliers in the past two years. GAC and NIO have announced that they will develop and produce their own batteries. Another big customer, Li Auto, is also working with Sunwoda to develop batteries, and the two may reach a supply agreement.

In summary, in order to consolidate its market share, it is not surprising that CATL planned to launch a "lithium mine rebate" plan at the beginning of 2023. In fact, in order to enhance the core competitiveness, the actions of CATL do not stop there. In 2023, it announced an organizational restructuring around the manufacturing system, that is, a new regional structure on top of each production base to more agile to respond to customer changes, pull resources and orderly expansion.

The implementation of the "lithium mine rebate" plan by the head companies of power batteries is naturally welcome for relevant car companies.

As the industry knows, in 2022, the high price of power batteries will make a number of new energy vehicle companies "complain for days". Zeng Qinghong, chairman of GAC Group, once complained: "The cost of power batteries has accounted for 40%, 50%, and 60% of the cost of electric vehicles, so aren't we working for CATL now?" Zhu Huarong, chairman of Changan Automobile, also said bitterly: At present, the cost of batteries exceeds 40%-50% of the cost of the whole vehicle, which seriously affects the achievement of product benefits and causes great fluctuations in the operation of enterprises.

After entering 2023, the domestic Tesla took the lead in reducing prices, and domestic new energy vehicle companies had to be "forced" to follow up. However, for Tesla, the price reduction is only a matter of making less money, even after the price reduction, it still has a gross profit margin of about 20%, but for the domestic new energy vehicle companies (except BYD) that are already in a loss-making period, it is a road of no return. The arrival of the "lithium mine rebate" program is like a timely rain.

The feasibility of the "lithium rebate" program

In addition to its own needs, downstream customers need, and the upstream market has also given CATL the feasibility of implementing the "lithium mine rebate" plan.

Looking back at 2022, the sales of new energy vehicles have soared, which has led to an increase in the price of raw materials for power batteries. Data show that on January 4, 2022, the average price of domestic battery-grade lithium carbonate was 278,000 yuan / ton, and jumped to 600,000 yuan / ton by mid-November, more than double the price at the beginning of the year.

In 2023, with the accelerated release of lithium mineral energy, the price of lithium battery materials began to enter the downward range.

According to data from Shanghai Steel Union, as of February 21, the price of battery-grade lithium carbonate was 429,000 yuan / ton, down 16,800 yuan / ton from February 17, down 12.45% from 490,000 yuan / ton in early February, and nearly 30% lower than the high of 600,000 yuan / ton in mid-November 2022.

Although the emergence of "sky-high lithium mines" is suspected of speculation, in the final analysis, the price is determined by the supply and demand market, and lithium resources are no exception. "Lithium prices have returned to about 450,000 yuan / ton, I estimate that in the second half of this year may be 350,000 to 400,000 yuan / ton, the overall balance of supply and demand throughout the year, next year may be overall excess." Ouyang Minggao, academician of the Chinese Academy of Sciences, professor of Tsinghua University and vice chairman of the 100 People's Association, said at the expert media exchange meeting of the China Electric Vehicle 100 Forum (2023) held recently.

The industry expects that China's new energy vehicle market is expected to continue to grow, but compared with the doubling of the previous two years, the growth rate of the industry will slow down significantly. The price of battery materials that previously soared because demand could not meet supply will also return to calm due to the improvement of supply and demand.

Ouyang Minggao also pointed out that lithium prices will continue to return in the next few years, but they cannot be as low as before, and a more reasonable price balance point may be about 200,000 yuan / ton. "Lithium prices that are too low are not profitable to recycle. Therefore, if we want to develop battery recycling, the price of lithium cannot be too low."

Another analysis pointed out that compared with other battery companies, the reason why CATL can "rebate", in addition to having a strong bargaining power facing the upstream of the industrial chain, is also related to the lithium resources in the upstream of its early layout have now entered the capacity release period.

Image source: CATL

On the one hand, as a large customer with a large enough procurement volume, CATL is negotiating with the lithium salt plant at the same time, which can further reduce the purchase price negotiations within the year. It is reported that while the "lithium mine rebate" plan was exposed, CATL also proposed a price reduction of about 10% to upstream lithium mining enterprises.

On the other hand, in order to ensure the supply and price stability of upstream raw materials, CATL has already laid out "buying mines" at home and abroad, such as it has invested in lithium and nickel mines in Argentina, the Democratic Republic of the Congo, Australia, North America and Indonesia, and invested in lithium mica mines and spodumene mines in Jiangxi, Sichuan and other places. At the same time, CATL also laid out resource recycling, and in addition to its holding subsidiary Guangdong Bangpu, it also bought out the Jiangxi 414 tailings. With the gradual supply of its own lithium mines, there is a little more space for CATL to implement "rebates".

The "price war" of power batteries is about to break out

The "lithium mine rebate" plan of the Ningde era can be described as having a variety of favorable conditions such as "timing, location, people" and so on, in the face of this, how will domestic power battery manufacturers respond?

According to rumors, at the same time as the rebate plan of the Ningde era, Hive Energy also launched a 10% price reduction plan, and some suppliers have received emails from Hive Energy requesting to cooperate with the price reduction.

On February 20, EVE mentioned in the investor relations activity record table that downstream customers are basically still not profitable, so as a major supplier, the company will give certain strategic support and partially benefit downstream in terms of profits. From this point of view, the company is less pursuing higher profit margins in power batteries this year; On the other hand, as the company's production capacity is also expanding, it is also hoped that the market share of the client can be increased.

However, the relevant person in charge of Funeng Technology said that the price change will be linked according to the change of raw materials, and the price of raw materials is falling, but the price transmission is lagging. "Different customers also have different price adjustment cycles, and we pay attention to the plans of friendly companies, but we will not deliberately adjust prices."

Obviously, at this stage, some manufacturers are still in a wait-and-see state, and once the CATL rebate plan is implemented, relevant companies will definitely take action, and a "price war" in the field of power batteries will be inevitable. If this is the case, new energy vehicle companies may get rid of the worries of "Guidian" in 2023.