Huge discounts offered by CATL, the world’s largest electric vehicle (EV) battery maker, to its domestic clients in tandem with falling lithium costs, could spark a price war that will eventually benefit the China’s 200 EV makers and millions of consumers, industry observers said.
CATL, based in Ningde, east China’s Fujian province, last week agreed to offer many of its major clients – including Nio, Li Auto, Huawei and Zeekr – batteries based on the lithium carbonate price of 200,000 yuan (US$29,163) per ton under a three-year contract, according to two industry sources.
The surging price of lithium last year, a major material used in EV batteries, has increased production costs for carmakers, hurting their profitability. Lithium carbonate, which peaked at 597,500 yuan a ton in China in November, has since retreated, dropping to 425,000 yuan per ton last week, about 30 per cent shy of the peak.
CATL’s dominance allows it to lock in prices with some miners at below-market average, the sources added.
“Prices of EV batteries will continue to drop this year because of the lower lithium costs,” said Davis Zhang, a senior executive at Suzhou Hazardtex, a supplier of specialised vehicle batteries. “A downward trend [of EV battery price] is shaping up that will benefit carmakers and buyers.”
CATL did not reply to a request for comment on the price cuts offered to its clients.
China’s premium EV makers have been facing dwindling demand since late last year as consumers, unnerved by worries about job prospects and wages, refrained from buying big-ticket items such as cars.
Sales of new-energy vehicles (NEV), which comprise pure electric plug-in hybrid and fuel-cell cars, slumped 6.3 per cent year on year in January, according to the China Passenger Car Association.
Ouyang Minggao, the chief scientist of China’s government-backed national development programme of NEVs, predicted at an industry conference last Friday that the price of lithium carbonate in China would fall by another 20 per cent this year.
CATL, which had 37 per cent share of the global EV battery market last year, has been surrounded by calls to lower product prices as its customers, most of which are unprofitable, were struggling to manage costs and bolster sales.
The battery producer is also grappling with rising competition in the domestic market, with smaller rivals like CALB and Svolt taking customers away from CATL.
Beijing-based Li Auto is introducing batteries from Sunwoda and Svolt for its new models. Previously, CATL was the company’s sole supplier.
In January, CATL said in an exchange filing that its net profit for 2022 could range from 29.1 billion yuan to 35.1 billion yuan, an increase of 99.4 per cent to 115.7 per cent year on year. CATL’s results are expected on March 10.
Its handsome profit is in a stark contrast to losses reported by China’s three top home-grown producers of intelligent EVs – Li Auto, Xpeng and Nio.
“It is expected that other battery producers will soon follow suit, offering attractive prices of batteries to their customers,” said Gao Shen, an independent analyst in Shanghai. “The lower production costs and prices of batteries will be passed onto car buyers, allowing them to save thousands of yuan.”
Tesla has offered huge discounts to Chinese customers since late October.
On January 6, the US firm slashed prices of the Model 3 and Model Y EVs by as much as 13.5 per cent, after recording a 44 per cent month-on-month drop in deliveries in December. Last month’s price cuts followed discounts of up to 9.4 per cent announced in late October.
The two rounds of cuts brought prices of Tesla’s EVs in China to their lowest levels since the first car rolled off its Shanghai production line in December 2019.
