Consolidation in China's Battery Market: A Turbulent Transformation

The consolidation of the Chinese battery industry has gained momentum, leading to decisions to halt operations and withdrawals by smaller players, while market leaders CATL and BYD are steadily advancing their expansion plans. According to the London-based research firm Benchmark Mineral Intelligence, 19 battery gigafactory projects in China were either canceled or postponed in the first seven months of this year. This accelerates the ongoing decline in investments in battery factories, as electric vehicle manufacturers (primarily in Europe) struggle with decreasing sales. "In China, a great deal of consolidation has occurred in the plants, where low prices and yield issues have led many companies to abandon their plans," stated Evan Hartley, an analyst at Benchmark. Hartley estimates that these cancellations will reduce China's battery gigafactory capacity by three percent by 2030. The upheavals are hitting a global market in which the growth in electric vehicle sales has slowed. According to consultancy firm Rho Motion, growth rates in Europe and North America are expected to drop to six and seven percent, respectively. The Chinese automotive industry is also bracing for a similar shakeout after benefiting from an investment boom in recent decades. Estimates suggest there are about 50 Chinese EV battery groups producing in the world's largest automotive market. These now face increased competition for technology and stringent government regulations, intensifying their struggle for survival. The Chinese market is sharply divided between major players like CATL and BYD, which dominate the global EV battery market, and many smaller competitors grappling with less financial strength and cost efficiency. "In China, a new round of competition driven by technological innovation and capacity expansion has begun," said Kevin Shang, principal analyst at Wood Mackenzie. "Fundamentally, those who cannot keep up will gradually be pushed out of the market." Beijing has also introduced new regulations to combat overcapacity, causing several local battery manufacturers to recently halt projects both in China and abroad. In June, China's Ministry of Industry and Information Technology finalized revised guidelines for the country's lithium-ion battery industry. These set higher standards for energy intensity, power density, cycle life, and other battery specifications. Due to these developments, new market entrants have struggled. For instance, Nanfang Black Sesame Group announced in April that its planned $3.5 billion battery project in Jiangxi Province was suspended due to "profound changes" in the new energy market. SVolt Energy Technology, a spinoff from Great Wall Motor, announced in May the cancellation of plans to build a battery plant in eastern Germany. Planning uncertainties, tariff and subsidy issues, and the loss of a major customer were cited as reasons. Companies across various segments of battery manufacturing and raw material extraction have reported declines in profits due to falling battery prices. Combined sales and net profits at 107 listed companies in the lithium battery supply chain in Mainland China amounted to 293 billion RMB and 17 billion RMB in the first quarter, representing year-over-year decreases of 18 percent and 50 percent, respectively. Despite this downturn, leading battery manufacturers are expected to emerge stronger from the consolidation and continue to increase their investments. Recently, Amplify Cell Technologies, a joint venture of Eve Energy, Cummins, Daimler, and Paccar, commenced construction of a new battery plant in Mississippi. Eve Energy also announced a 3.3 billion RMB investment in a new factory in Malaysia, while Gotion High Tech is investing $1.3 billion in a gigafactory in Morocco, and Sunwoda plans to invest up to 2 billion RMB in a facility in Vietnam. Nevertheless, Chinese manufacturers still face challenges abroad. "Chinese companies want to expand overseas, but they are becoming more realistic," said Shang. "It's much more complicated than simply replicating success in China.