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With the development of social economy, people pay more attention to the concept of life and environment, and the application of new energy receives more attention. Among them, new energy vehicles have gradually become an important part of green and sustainable development, and with policy support, they have become a new choice for most people to travel daily. According to data, in 2021, China's sales of new energy vehicles exceeded 3.3 million, and its passenger vehicle market penetration reached an astonishing 16%.

The development of new energy vehicles has also changed the supply chain system of traditional vehicles, bringing new challenges to the restructuring of the automotive industry. At this stage, the upstream and downstream industrial chains of new energy vehicles mainly involve the fields of batteries, electronic controls, motors, electric drive components, and new energy vehicle charging equipment. As one of the core components of new energy vehicles, batteries have also developed rapidly with the rise of the industry. In recent years, driven by various policies, markets, and other factors, various automobile manufacturers have gradually increased their investment in energy storage technologies such as lithium batteries. On the one hand, they have continuously promoted the development of the automotive lithium battery industry, and on the other hand, they are also experiencing pressure from the upstream industry chain.

The global demand for lithium (a raw material for lithium batteries) has been surging. According to Roskill's prediction, the global demand for lithium will reach 1 million tons by 2026. Since 2021, the price of lithium has continued to rise, with the price of lithium carbonate doubling over the same period, and the rising cost has caused significant pressure on the production and manufacturing side. Some industry chain related companies have begun to explore upstream lithium resources. For example, TSLA has negotiated with SQM, the largest lithium producer in Chile, promising to establish a factory locally, and has signed a Strategic Cooperation Agreement with Ganfeng Lithium and its wholly-owned subsidiary Ganfeng International in China to purchase battery grade lithium hydroxide products; Yixin Development, a subsidiary of Great Wall Motors, acquired the exclusive right to sell some products of the Pilgangoora Lithium Project; CATL subscribes to equity interests in North American Lithium Industry and Australian Lithium Mining Companies. The vertical integration trend of these battery companies is becoming increasingly evident.

01. Competition for Lithium Battery in the Industry Becomes Incredible

Leading companies: CATL, BYD

CATL, formerly known as Ningwang, is a leading global new energy innovation technology company. In August 2022, it just released its semi-annual report. During the reporting period, it achieved operating revenue of 112.97 billion yuan (unit: RMB, the same below), up 156.32% year-on-year, and net profit attributable to shareholders of listed companies was 8.17 billion yuan, up 82.17% year-on-year. From the data, this significantly exceeded market expectations.

In the lithium battery market, CATL's share is firmly ranked first in the world, which is a recognized fact. According to statistics, CATL's battery installed capacity has been ranked first in the world for 5 years. Firstly, the huge investment in research and development is a necessary reason for the company to become the leader of the industry. Currently, CATL and its subsidiaries have a total of 5480 patents, with the total number of patents increasing by more than 20% in half a year, excluding more than 7000 patents currently being applied for.

Secondly, a complete production and supply chain is also a strong cornerstone of the company. Currently, CATL has nine battery production bases in China, located in Ningde, Fujian, Xiamen, Liyang, Jiangsu, Xining, Qinghai, Yibin, Sichuan, Zhaoqing, Guangdong, Lingang, Yichun, Jiangxi, and Gui'an, Guizhou. In addition, overseas, except for the production base in Thuringen, Germany, in August 2022, CATL disclosed that it planned to build a new battery industry base in Hungary, with a total investment of approximately 7.34 billion euros (approximately 50.8 billion yuan), and a planned battery output of 100 GWh.

In addition, production efficiency will be constrained by logistics. CATL focuses on intelligent construction of on-site logistics based on the production characteristics of lithium batteries. Intelligent equipment such as AGV and stereoscopic warehouse have joined forces to form characteristic applications such as intelligent logistics planning for assembly and baking furnace sections, and intelligent warehouse establishment for raw material warehouses and finished product warehouses.

BYD, which ranks second, is now facing CATL head-on. On the new energy track, BYD and CATL are the only new energy companies in China with a market value exceeding trillion yuan. In 2022, BYD's battery business has made rapid progress.

Under the current power lithium battery technology of new energy vehicles, BYD is good at lithium iron phosphate batteries, while CATL has more advantages in ternary lithium batteries, and will later lay out lithium iron phosphate batteries. From the perspective of battery technology route, it seems that the advantages of BYD's main lithium iron phosphate battery have become increasingly obvious. According to data, in July 2022, BYD's lithium iron phosphate battery load jumped to the top, reaching 6.01 GWh, accounting for 41.9%, followed by CATL, accounting for 37.37%.

In addition, BYD reached a partnership with TSLA in 2022, and its lithium iron phosphate battery will be launched on the TSLA Model Y production line, which broke the monopoly position of CATL on TSLA power supply in Chinese companies. The news also caused BYD's stock price to rise 3.98% on the same day.

Up to now, BYD has established production bases in Shenzhen, Xi'an, Qinghai, Chongqing, Changsha, and Guiyang. In 2020, BYD signed a new energy power lithium battery production base project in Hefei, with a total investment of 6 billion yuan. It is mainly engaged in the manufacturing of core products such as new energy battery cells, modules, and related supporting industries. This production base will become an important strategic base for BYD's new energy vehicle power lithium batteries in East China. The project is constructed using Industry 4.0 standards, which will further promote the development of the upstream and downstream industrial chains of electric vehicles, energy storage, and batteries. BYD's Qinghai factory was officially put into operation in 2022. The factory covers an area of 1500 mu, with a total investment of over 25 billion yuan, and a planned output of 24GWh. It is composed of nearly 100 robots, intelligent logistics systems, and MES information management systems, realizing automation and informatization of the production line. After all of these are put into operation, it will become one of the largest power lithium battery factories in the world.

In addition, BYD is also very awesome in the construction of modern storage. The 1.5T station driven forward moving truck, 1.6T/3.5T electric counterweight forklift and other products invested and developed by BYD are all equipped with self-developed lithium iron phosphate batteries, and are also equipped with turning speed limit, high speed limit, driving wheel orientation display, height display, cargo weight display and other functions to meet their own on-site logistics needs.

However, winning in the limited stock market also tests the technical and product capabilities of CATL and BYD. Today, there are more than just these two surviving players.

The second echelon followed closely

After entering 2022, the increasingly strong demand in the downstream of the industrial chain has further led to a shortage of battery manufacturers' production, and the second echelon of power lithium batteries represented by China Innovation Airlines and Honeycomb Energy has begun to develop.

On August 5th, 2022, according to the website of China Securities Regulatory Commission, China Innovation Airlines' listing in Hong Kong has been officially approved. As the third largest new energy battery in China, China Innovation Aviation (China's power lithium battery installed capacity data in 2021 shows), the company was founded in 2007, formerly known as China Aviation Lithium, and is mainly engaged in the development, production, and sales of lithium ion power lithium batteries, battery management systems, energy storage battery related integrated products, as well as lithium battery materials. Its products cover two major systems, namely, ternary and lithium iron phosphate systems.

China Innovation Air's customers focus on three companies: GAC Group, Chang'an Automobile, and Xiaopeng Automobile. In 2021 alone, China Innovation Air's revenue from GAC exceeded 50% of the company's total revenue. Currently, China Innovation Airlines' important production bases are located in Changzhou, Luoyang, and Xiamen, with an actual output of 11.33 GWh in 2021. Therefore, in the past two years, China Innovation Airlines has been continuously accelerating the pace of production expansion, and has announced projects to expand production in Changzhou and Xiamen, as well as new production bases in Chengdu, Hefei, Wuhan, and Germany.

In May 2022, China Innovation Airlines and Wuhan Economic Development Zone signed a battery expansion project with a total investment of 12 billion yuan. In this expansion, the planned battery production in Wuhan area of China Innovation Airlines will reach 50GWh. China Innovation Airlines has stated to the outside world that the company's production plan will exceed 500 GWh by 2025.

This dream is not easy to achieve. Let's compare how Honeycomb Energy, which is also experiencing a window period, is doing?

In 2018, Great Wall Motors established Honeycomb Energy and subsequently transferred it. Honeycomb Energy, which originated from Great Wall Motors, has developed like a duck to water in recent years and is currently valued at over 46 billion yuan. Currently, its listing guidance work is being conducted in an orderly manner. In terms of production planning, Honeycomb Energy recently announced the "Leading Bee 600" strategy, announcing that it will increase the global production target to 600 GWh by 2025 (including 450 GWh of effective output).

In addition, in June 2022, Honeycomb Energy signed the "Investment Agreement for the Honeycomb Dazhou Lithium Zero Carbon Industrial Park Project", with a total investment of 17 billion yuan to build the Honeycomb Dazhou Lithium Industrial Park, aiming to create a battery as the core, connect the upstream and downstream lithium battery materials, and achieve the planning goal of industrial ecological cooperation.

If a new energy lithium battery supplier wants to further occupy an advantage in the future market, it is necessary for the company to combine multiple aspects such as research and development, technology, capital, management, and supply chain, and make comprehensive efforts. It is not yet possible to make simple judgments based solely on market share. Focusing on the production side of the supply chain will bring huge business opportunities to the logistics equipment industry. For example, Kellogg Technology recently presented a complete set of battery production intelligent logistics and transportation system solutions at the Asia Pacific Battery Expo, laying out battery technology production and logistics solutions early.

Although the current consumer lithium battery market is becoming saturated and lithium battery companies are entering stock competition, for each player in the industry, accelerating forward is more conducive to maintaining their own advantages. In the future, on the one hand, power lithium batteries and energy storage batteries are becoming one of the areas with the greatest development potential for lithium batteries in the future; On the other hand, as the issue of lithium battery resources becomes more prominent, some companies that have obvious advantages in terms of technical barriers and recycling channels will be more likely to run out of the market.

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