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Battery Market Trends from China and Beyond: Strategic Insights for Global Industry Challenges

  • Eli Leland
  • June 14, 2024

The Chinese battery market is expected to grow at a compound annual growth rate (CAGR) of more than 7.5% between 2022 and 2027. China, and the current shape of the Chinese battery market, is something we’re all keeping top of mind.

I sat down recently with Kevin Beaty, President at YUNEV LLC, and Tal Sholklapper, PhD, CEO and fellow Co-founder at Voltaiq to discuss the current shape of the Chinese battery market; the balance of aligning production strategies with market realities; the impact of regulatory environments on pricing strategies; and more.

You can watch the conversation on demand here.

Let’s dive into the highlights:

Understanding Overcapacity and Price Wars in China’s Battery Industry

The battery industry in China is currently grappling with significant overcapacity, which is driving intense price wars rather than efficiencies in production.

This situation has destabilized market pricing dynamics, particularly affecting lithium carbonate prices, which are also influenced by factors beyond mere supply and demand, such as environmental and labor regulations.

The industry’s focus on competitive pricing is overshadowing potential cost reductions that could come from manufacturing efficiencies.

Industry analysts use charts and forecasts, like those from Bloomberg New Energy Finance (BNEF), to track price trends over time. However, these reports often conflate cell production costs with sales prices, leading to misconceptions about market realities.

The industry must distinguish between production costs and market prices to strategize effectively, especially in a volatile market driven by price competition rather than true cost efficiencies.

The Importance of Realistic Market Forecasts

Regulatory policies at local and national levels critically shape battery pricing strategies within the industry.

Recent forecasts predicting a substantial drop in battery prices—from roughly $69-$72 per kWh to about $35 per kWh—seem unrealistic. Properly accurate expectations based on historical pricing data and market conditions are required.

That being said, we are seeing dramatic drops in pricing from suppliers in China.

Global pricing will have varying levels of impact on different segments within the battery market and we can expect emerging suppliers with aggressive pricing strategies to expand.

Expanding Markets and Strategic Challenges for Chinese Battery Suppliers

The market has seen the aggressive international expansion of tier-two and tier-three Chinese battery suppliers, driven by overcapacity within China’s domestic market.

These suppliers are pushing into international markets like the United States, adopting sophisticated pricing strategies to establish a stronger presence.

However, these strategies may not be sustainable, especially given the financial strains from selling at potential losses and the challenges of meeting warranty requirements for global OEMs.

There is significant industry consolidation occurring as an inevitable response to these pressures, with many suppliers being potentially forced out of the market.

This consolidation is expected to reshape the competitive landscape, as suppliers must adapt to both financial constraints and evolving market demands, including shifts towards different vehicle technologies.

There is a great need for these suppliers to explore complex market forces carefully, balancing aggressive expansion with the financial realities of their business models to achieve sustainable growth.

Adapting to Evolving Consumer Preferences in China’s Automotive Market

In China’s dynamic automotive market, there’s a significant and growing shift from battery electric vehicles (BEVs) to plug-in hybrid electric vehicles (PHEVs).

This trend, largely driven by consumer preferences for vehicles offering longer ranges without the need for frequent recharging, is reshaping the market landscape. The change reflects a broader consumer behavior shift, with PHEVs increasingly favored for their practicality, especially for long-distance travel during major festivals.

Automakers are responding by reevaluating and modifying their manufacturing processes to meet the surging demand for PHEVs. This adaptation extends beyond technological changes, requiring updates in supply chain management and development cycles to maintain competitiveness in this rapidly evolving market. The ability to remain agile and responsive to these shifts is crucial for manufacturers aiming to retain a competitive edge.

The growth in the PHEV market contrasts with a decline in the BEV sector, highlighting the strong consumer preference for hybrids.

This trend not only suggests a shift in vehicle technology preferences but also indicates potential future dynamics where despite a shift towards hybrids, the overall demand for batteries may continue to increase, albeit at a slower pace.

U.S. Lithium Resources: Challenges and Opportunities

Recent discoveries of lithium deposits in the United States have sparked significant interest due to the strategic importance of lithium in the battery production industry.

However, the market faces major challenges due to the lack of necessary infrastructure for effective extraction and processing. The US will need considerable investment and strategic regulatory adjustments to develop these capabilities and maintain environmental regulatory compliance.

While these resources will go far in strengthening the nation’s position in the global battery market, the US will likely need years to fully leverage these resources, akin to the decades-long journey undertaken by other nations like China.

Evaluating Suppliers and Implementing Agile Strategies in the Battery Market

When it comes to companies reliant on cell suppliers, many mistakenly believe they are dual-sourced when they are actually single-sourced across different platforms.

Diverse sourcing options are essential to mitigate risks related to supplier reliability and market demand shifts.

Market dynamics, including overcapacity and price wars, can jeopardize supplier stability and lead to significant operational disruptions. Dual-sourcing is more important than ever and should include specialized tools and databases to manage sourcing decisions effectively.

Leading manufacturers such as Tesla and BMW have an impressively strategic approach to diversification in sourcing. Their ability to integrate flexible sourcing strategies enables them to manage uncertainties in the supply chain effectively, maintaining competitive advantages in a market characterized by rapid innovation and shifting regulatory landscapes.

Powering Progress: Shaping the Future of Battery Technology

From China’s overcapacity and price wars to the strategic international expansions of battery suppliers and the complexities of managing U.S. lithium resources, the industry is in a constant state of flux as we drive progress forward.

For a deeper dive into the global battery landscape, and what we expect to see in the next 12 months, check out our recent conversation with Volta Foundation on the 2023 Battery Report. [LINK TO BATTERY REPORT]

Watch the full webinar, Battery Market Trends from China and Beyond, on-demand for a deeper understanding of the landscape.

  • Eli Leland
  • June 14, 2024