Analysis: CATL's 'price war' shows its power, and China's EV edge

CALB

26/02/2023 23:00

SHANGHAI/LONDON, Feb 27 (Reuters) - CATL  300750.SZ ,
the world's largest battery maker, has offered to cut costs for
Chinese automakers, a move that demonstrates its market power
and could also widen China's cost advantage in electric
vehicles.
    China's CATL has offered smaller domestic electric-vehicle
makers discounted prices on batteries, according to four people
with knowledge of the terms. 
    The discount offers included a clause that shocked the auto
industry after a year of rising prices: a built-in assumption
that prices of lithium carbonate, a key component in auto
batteries, would more than halve, three of the people said.
    The move shows CATL's cost advantage from its investments in
lithium mining and refining, and its determination to knock back
the challenge from smaller Chinese rivals such as CALB  3931.HK 
and EVE Energy  300014.SZ  which have factories ramping up this
year, analysts said.
    "It's very much a market share game," said Caspar Rawles,
chief data officer at Benchmark Mineral Intelligence. "This is,
I think, in part, a price war."
    The offer to automakers, including Nio  9866.HK  and Geely's
Zeekr unit, that was reported by Reuters earlier this month came
with a catch: in exchange for the discount, the automakers would
have to pledge most of their battery supply contracts to CATL,
according to the three sources.
    In some cases that share would be as high as 80% of their
business for CATL, they said. The EV makers are still
negotiating the offers with CATL, the people, who asked not to
be named because the matter is private, said.
    Contemporary Amperex Technology Co Ltd - more widely known
by its initials - is the dominant global supplier with a 37%
share of the EV market. The company did not respond to a request
for comment.
    Nio did not respond to a request for comment. Zeekr declined
to comment.
    CATL has faced some pushback from Chinese automakers for its
market dominance and pricing. It was not immediately clear how
China's regulators would view CATL's offer of lower prices in
exchange for a fixed share of future orders.
    China's government cost and price regulatory agency said on
Thursday its officials had visited CATL earlier this month and
said it would "strengthen cooperation" with the company, without
providing further details.
    CATL's offer follows a downturn in lithium prices linked to
a slowdown in EV sales in China, which accounted for two-thirds
of all battery-powered cars sold in 2022. 
    For consumers, that could bring prices down after a year
when manufacturers struggled with supply chains and rising
prices for batteries, the largest single cost in an EV.
    Tesla  TSLA.O , the global EV leader, slashed prices by up
to 20% in early January globally. 
    
    
    END OF SUBSIDIES
    Battery prices had been falling for more than a decade
before turning higher in 2022. That began to reverse late last
year in China. 
    "There's a price war going on. We've seen it some weeks ago
at the vehicle level. We're now seeing it at the battery level,"
Eric Norris, president of Energy Storage at Albemarle Corp
 ALB.N , the world's largest producer of lithium for EVs, told
Reuters.
    CATL, he said, was looking to try to take advantage of its
integration "to cut prices to gain share".
    Spot prices for lithium carbonate in China have dropped by
about 30% since their peak last year, as inventories were sold
down on concern the end of national EV subsidies in China would
slow growth. That happened, as predicted, in January.
    For CATL, the discount is a way to head off a bid by Chinese
EV makers to seek alternatives.
    Li Auto  2015.HK  has said it will use SVOLT batteries in
its new L7 SUV. Xpeng  9868.HK  has developed a fast-charging
battery with Sunwoda  300207.SZ . The company said last year
that CATL was no longer its largest battery supplier.
    In a move that would lessen its reliance on CATL, Nio is
planning to build a new battery plant with annual capacity to
produce enough to power about 400,000 long-range EVs, Reuters
reported on Friday.
    SVOLT, among CATL's smaller rivals, has also offered
discounts on battery supplies, Chinese media have reported.
SVOLT declined to comment and Reuters could not confirm those
reports.
    Electric vehicle demand in China has slowed, with the
leading industry association predicting 35% growth in 2023,
compared to 90% in 2022.
    Outside China, CATL, which is building new battery plants in
Germany and Hungary, is expanding rapidly and has deals to
supply Ford Motor Co  F.N  and BMW  BMWG.DE . CATL batteries
power Volkswagen's  VOWG_p.DE  I.D. series and Tesla's Model 3
and Model Y built in China. Nearly 40% of those Teslas were
shipped to overseas markets in 2022.
    Battery cell prices for EV makers rose about 24% last year,
said Prabhakar Patil, a battery industry consultant based in
Detroit. The CATL offer would represent a total discount of
about 6% from prevailing prices in China, if an automaker used
it to lock in half of planned purchases, according to an
estimate by Changjiang Securities.
    "The reductions that CATL is offering would help the Chinese
EV industry," said James Frith, a principal at battery-tech
focused venture capital group Volta Energy Technologies. "From
the Chinese viewpoint, with China having the dominant electric
vehicle market, they don't want to lose that momentum."
    He added: "If some of those EVs with discounted batteries
end up in Europe, it could cause trade tensions."

 (Reporting by Zhang Yan and Brenda Goh in Shanghai, Siyi Liu in
Beijing, Nick Carey in London, Ernest Scheyder in Houston and
Paul Lienert in Detroit; Editing by Kevin Krolicki and
Muralikumar Anantharaman)
 ((Zoey.Zhang@thomsonreuters.com;))