Once the biggest trend in electrification, now operating at a 36% capacity, with prices dropping to 30 cents

36%, this is the average capacity utilization rate of domestic battery production enterprises in 2023.

By comparison, during the same period, the capacity utilization rate of China's manufacturing industry was 75.3%, with the capacity utilization rate of the automobile manufacturing industry at 74.6%.

It can be seen that the trilogy of layoffs, shutdowns, and closures is not only happening in more than one automobile manufacturer, and the capacity utilization rate of the power battery industry is not even as good as that of the automobile manufacturing industry, yet it still claims to be "alive".

I. Overcapacity, Power Batteries Enter the Era of 0.3 Yuan/Wh

On July 4th, EVE Energy held a global partner summit in Changzhou. At the meeting, Xinlu Information General Manager Lian Ping shared a set of data.

She stated that in 2023, key links in the domestic lithium battery industry chain all have a situation of low utilization rates. "Due to China being the main supply market, with a concentration exceeding 85%, the demand both domestically and internationally has driven relatively high capacity utilization rates for the negative electrode and diaphragm links; however, the situation of oversupply is more obvious in the positive electrode materials, electrolyte lithium salts, and even battery links, with fierce market competition."

Specifically, the operating rate of the negative electrode link can reach 62%, and the diaphragm can reach 57%. However, in terms of positive electrode materials, whether it is lithium iron phosphate or ternary materials, the capacity utilization rate is only 43%. The capacity utilization rate of the lithium carbonate link is 44%. The lowest link in the entire lithium battery industry in terms of capacity utilization rate is the battery, at only 36%.

Regarding the overcapacity in the lithium battery industry, EVE Energy's Chairman and CEO Yang Hongxin bluntly stated: "This is the root cause buried in 2022. At that time, there was a crazy rush to build factories nationwide." This wave of national overcapacity in the lithium battery industry is expected to be digested by 2026.

With overcapacity in the lithium battery industry, coupled with the slowdown in downstream electric vehicle sales growth, the most direct result of oversupply is the decline in battery prices.

The data displayed by Yang Hongxin's PPT shows the following: from December 2022 to June 2024, in about a year and a half, the price of soft pack ternary power battery cells decreased from 1.15 yuan/Wh to 0.47 yuan/Wh; the price of square ternary power battery cells decreased from 1.1 yuan/Wh to 0.4 yuan/Wh; and the price of square lithium iron power battery cells decreased from 1 yuan/Wh to 0.32 yuan/Wh.

In other words, domestic power batteries have accelerated to the era of 0.3 yuan/Wh.

According to IEA data, the price reduction range of the entire lithium battery industry chain in 2023 is at least 10% and up to 65%; in 2024, it is at least 5% and up to 25%. For example, the price reduction of batteries in 2023 is more than 40%, and in 2024 it is 5%-10%; the price reduction of diaphragms in 2023 is 20%-30%, and in 2024 it is 15%-25% Yang Hongxin said, "In the past, second and third-tier battery factories competed on prices to gain more market share. Now, the industry leader has started to lower prices, causing the entire industry to follow suit."

On stage, he told the suppliers offstage, "We are forced to lower prices, and you need to lower prices with your suppliers, creating a chain reaction. ... Our conclusion is that the price reductions you offer us cannot keep up with the price reductions we offer to the whole vehicle factories." Yang Hongxin said that if not controlled, this trend will quickly spread overseas.

II. Adding Difficulty to Difficulty

As the entire industry chain lowers prices, profits are squeezed, and some companies even go bankrupt.

In the first quarter of 2024, the average profit margin of the entire lithium battery industry chain, except for lithium battery equipment and recycling, has decreased to varying degrees compared to 2023. Among them, the positive electrode material has the lowest profit margin, already as low as -6.45%, the negative electrode material is close to 0%, batteries around 3%, electrolytes at 5%, mining at 6%, and separators at the highest, 10%.

The market is undergoing accelerated reshuffling. The number of power battery companies is decreasing year by year. In 2020, there were still 72 power battery companies supporting vehicle production, but by 2023, only 52 remained, and as of January to May this year, there are 48 left. Energy storage companies are expected to eliminate 50% by 2024.

Adding to the difficulty is the deteriorating financing environment in the lithium battery industry.

"In 2021, there was a capital frenzy, but now it is difficult for new energy companies and industry chain companies to go public in the primary market." Yang Hongxin said, "Recently, some new energy companies that were under review may have to withdraw because they are defined as industries with overcapacity, and the country no longer encourages raising funds through the secondary market to expand capacity. In the primary market, a large amount of investments that were unable to exit through the secondary market are now trapped, and their valuations are shrinking."

Looking back at the lithium battery investment frenzy in 2021 and the construction frenzy in 2022, in just two to three years, the tide came and went quickly.

III. Year of Adjustment

"In 2021, Honeycomb Energy released the '600' strategy, setting a capacity target of 600GWh. At that time, it was a capacity competition, and blind expansion led to a huge capacity burden. Now, many decisions are seen as problematic." Reflecting on the past, Yang Hongxin addressed the supply chain partners.

Honeycomb Energy has a keen sense of the current industry changes, and Yang Hongxin refers to 2024 as the year of lithium battery adjustment. The main content of this conference is what he said, "How do we internally view the industry, competition, ourselves, and how to survive."

"Since the beginning of this year, Honeycomb Energy has undergone significant changes, from the withdrawal of the IPO in December last year to losses last year, and this year we have made a series of adjustments, with a very significant intensity and scope "Yang Hongxin bluntly stated, 'Now we are entering a period of operational transformation and adjustment, with the goal of improving profitability, reducing costs and increasing efficiency, to cross the growth gap and profit gap.'"

Starting from January 1st this year, within six months, Honeycomb Energy has done four things:

Firstly, business focus. Streamlining the business to focus on battery cells, modules, PACK, and BMS.

Secondly, cost reduction and efficiency improvement. Setting a target of 10% direct material cost reduction, as well as a target of 1.4 billion RMB for annual manufacturing cost improvement; improving management efficiency, reducing 5,000 employees from January to June, but the output per person increased threefold year-on-year.

Additionally, there is a focus on improving quality and technological innovation.

How to reduce costs through technological innovation in response to price wars? Zhang Fangnan, Senior Vice President and Director of the Technology Center at Honeycomb Energy, demonstrated the cost reduction effect brought about by technological iteration.

At the battery cell level, cost reduction is achieved through material and structural innovation. For the negative electrode, using three-dimensional porous materials reduces costs by 15%; for the separator, adopting high-strength composite coating separator technology reduces costs by 25%; for the cover plate, the application of minimalist cover plates and extreme column cold heading processes reduces costs by 5%-20%.

At the PACK level, key component cost reduction is achieved through the application of new technologies, materials, and processes. For example, roller-pressed steel replaces aluminum profiles, reducing costs by 10%-30%; laser welding is used for water-cooled plates instead of traditional brazing, resulting in a cost reduction of over 15% year-on-year.

Furthermore, Honeycomb Energy also achieves scale cost reduction through the commercial strategy of creating large single products.

Honeycomb Energy's five major single products include three blade-shaped battery cells and two square battery cells, covering PHEV (15-45kWh), EV (400-800V voltage platform, 30-100kWh range). From January to May this year, these five major single products accounted for over 60% of Honeycomb Energy's shipments.

Four, Targeting Opportunities

The growth rate of the power battery industry is slowing down, but there are opportunities in the crisis. Yang Hongxin sees three opportunities:

Firstly, the volume of fast-charging models, with a penetration rate of over 20% in the B-level and above markets for 800V. "800V and 400V fast charging will soon change from 1.6C to standard 2.2C. I estimate that next year, whether it's iron-lithium or ternary, there won't be any 1.6C left on the market, all will be switched to 2.2C, and it will be increased in quantity and reduced in price."

Secondly, the increase in the proportion of hybrid vehicles. Not only PHEVs and extended-range vehicles, but also the proportion of HEVs is significantly increasing.

Thirdly, overseas layout implementation. Southeast Asia, Eastern Europe, and South America are the main landing areas.

Therefore, he believes that attention should be paid to the overseas, PHEV, and 800V markets, "at least in the next few years, their growth rates will be higher than the industry average."

Based on an understanding of future industry demand, Honeycomb Energy has released multiple new blade battery products this time.

For the pure electric vehicle market, two products are introduced: a 5C lithium iron phosphate blade battery cell, reducing charging time by 10%-80% to 10 minutes, which will be mass-produced in December this year; and a 6C ternary ultra-fast charging cell, meeting both ultra-high endurance and ultra-fast charging experience, charging for 5 minutes, with a range of 500-600 kilometers Cobalt Hive Energy has launched the 4C hybrid short sword battery cell for the PHEV market - the "800V Hybrid Ternary Dragon Scale Armor", suitable for the 800V platform architecture, inheriting the Dragon Scale Armor thermoelectric separation technology, and will be mass-produced in July 2025.

At this point, Cobalt Hive Energy's fast charging products have fully covered 2.2C to 6C, and are fully compatible with passenger car models with different power forms such as PHEV and EV.

For the future evolution of battery technology, Yang Hongxin has made four judgments: the combination of short sword and flying stacking is the ultimate state of lithium battery evolution; the second generation short sword is the best solution for 10-minute fast charging in the future; the second generation short sword battery is the optimal solution under the 800V architecture; the future of energy storage lithium batteries must be stacking.

From a technological perspective, Cobalt Hive is the pioneer of short sword flying stacking. An indisputable fact is that more and more manufacturers in the industry are choosing the short sword stacking route, including CATL, Contemporary Amperex Technology, GAC, Geely, and more, with over 10 related companies.

Zhang Fangnan revealed that the GWh equipment investment of Cobalt Hive Energy's third-generation stacking technology "Flying Stacking" is already lower than that of winding technology.

V. A Sample

On May 8th this year, the Ministry of Industry and Information Technology publicly solicited opinions on two documents, "Lithium Battery Industry Standard Conditions (2024 Edition)" and "Management Measures for Lithium Battery Industry Standard Announcement (2024 Edition)" (draft for comments).

Among them, it is explicitly stated that "guide companies to reduce manufacturing projects that simply expand capacity, strengthen technological innovation, improve product quality, and reduce production costs." Specifically, companies are required to spend no less than 3% of their main business income on research and development and process improvement each year; when applying, the actual production volume of the previous year should not be less than 50% of the actual production capacity of the same year.

For a considerable period in the future, cost reduction and efficiency improvement will still be the main theme of the power battery industry. Cobalt Hive Energy is a sample of how companies navigate and shift during the industry adjustment period.

After some adjustments, in the first half of this year, Cobalt Hive Energy's total shipments of power batteries and energy storage batteries reached nearly 10GWh, with a year-on-year growth of over 150%, revenue close to 7 billion yuan, and a year-on-year growth rate of 110%. At the same time, manufacturing costs have decreased by around 40%, production line yield has reached 96%, and production capacity utilization has reached 80%.

In terms of market expansion, Cobalt Hive Energy has accumulated over 30 customers. In addition to BMW MINI and Stellantis, which have been mass-produced, new overseas customers include the UK clean energy company WAE, industrial application energy storage company Enersys, and North American machinery company Caterpillar In the first five months of this year, Honeycomb Energy ranked 6th in the domestic power battery company's installed capacity, 3rd in the domestic ternary power battery company's installed capacity, and 8th in the lithium iron phosphate power battery company's installed capacity. At the same time, whether it is the new energy passenger vehicle market or the new energy commercial vehicle market, its market share is on the rise. According to forecasts, the company's power battery shipments in 2024 will increase by over 120% year-on-year.

Nevertheless, Honeycomb Energy is not complacent at all. It has set cost reduction targets for the second half of 2024: a 10% reduction in cell material costs, a 7% reduction in PACK costs, and a 7% reduction in electronic and electrical costs.

"The PACK cost of EVs must be less than 0.4 yuan/Wh," Yang Hongxin stated that this target "must be achieved next year." He must also lead the team to cross the gap that lies ahead of the company.

Author: Tu Yanping, Source: Automotive Business Review, Original Title: "Once the Biggest Boom in Electrification, Now Operating Rate at 36%, Unit Price Drops to 0.3 Yuan"