Wed, 07/07/2010 - 14:03
GUEST COLUMN: China's lithium battery industry outlook and its two big challenges
by By Joe Zhu
In this week's Interfax guest column, Joe Zhu, an analyst with Frost & Sullivan's Automotive and Transportation Practice, discusses the outlook of China's power lithium battery industry and the hurdles it must surmount as it faces a capacity surplus and an influx of foreign companies.
Translated from the original Chinese by Li Xin
Shanghai. July 7. INTERFAX-CHINA - Amid growing calls to reduce carbon emissions worldwide in recent years, China has emerged as a strong advocate of developing a low-carbon economy. The expansion of the country's electric automobile industry is at the core of this push to go green and with it comes the potential for significant growth. I believe the next 10 years will be a crucial period for China's auto industry to successfully switch from using fossil fuels to electric power.
As the industry undergoes this transformation, domestic lithium battery manufacturers have a great opportunity to rapidly develop. Power lithium batteries are a key component of electric vehicle proliferation and account for 50 to 70 percent of total assembly costs. However, with these opportunities come obstacles that domestic companies must overcome in order to be successful in the coming years. I believe that China's power lithium battery industry faces two urgent challenges: a production capacity surplus and pressure from foreign capital.
A serious production capacity surplus
As auto manufacturers, traditional auto parts and accessories suppliers, conventional battery producers, and upstream lithium materials companies all began lithium battery production at around the same time, the industry's production capacity surged to 2 billion ampere hours as of this year. Of the production output, about 700 million ampere hours comes from the southern Pearl River Delta Region and between 300 million and 400 million ampere hours each from the Yangtze River Delta, three northeastern provinces and the Jing-jin-tang economic area, where much of the country's auto industry is located.
Investment in the industry will substantially increase by 2015, as the production bases of whole-car manufacturers like Beijing Pride Power System Technology Ltd., and Shanghai Jieneng Automotive Technology Co. Ltd. go into operation over the next few years. Tianjin Lishen Battery Joint-Stock Co. Ltd. and Boston Power, Inc. have announced plans to begin constructing lithium battery production bases soon as well. Furthermore, Wanxiang Group Corp., China Lithium Energy Power Group, and BYD Co. Ltd. have all announced capacity expansion plans at their respective plants. As such, many analysts at Frost & Sullivan predict that the production capacity of the power lithium battery industry will reach 3.9 billion ampere hours by 2015. By then, the demand for both passenger and commercial electric/plug-in hybrid vehicles will reach 120,000 per year. With this relatively low demand, lithium battery consumption will only reach 900 million ampere hours, or 23% of the production capacity during that period.
Pressure from abroad
Apart from the production capacity surplus, China's power lithium battery industry faces intense competition from its counterparts abroad. Many foreign companies entered China's lithium battery production market through supply contracts and by jointly developing factories with domestic producers this year.
Among these enterprises, U.S.-based lithium ion battery producer A123 Systems, Inc. reached an agreement with Shanghai Automotive Industry Corp. to jointly construct a lithium ion battery production plant beginning this year. Furthermore, in December 2009, A123 Systems and SAIC Motor Co. Ltd. set up Shanghai Jiexin Power Battery Systems, Ltd. for around $20 million in order to jointly develop, manufacture and sell power lithium battery systems.
Along with Denmark's LynxCar, South Korea's SK Energy Co. Ltd. and LG Chem Co. Ltd. entered the whole-car supply market by signing supply contract agreements various domestic companies. Furthermore, South Korean electric car manufacturer CT&T Co. Ltd. and SK Energy signed an agreement earlier this year with Beijing Automobile Works to jointly produce electric vehicles in Beijing, with SK Energy supplying the lithium batteries.
This February, Changan International Corp. signed an agreement with LG Chem to begin providing batteries for their hybrid vehicles beginning in the second half of the year, after which time it will begin supplying the company's electric vehicles as well.
In April, China's Geely Motors Holding Group signed a long-term battery supply contract with LG Chem. LynxCar also signed an agreement with Geely, in which Lynx will provide lithium batteries for Geely's first batch of electric vehicles to be put on the European market during this summer's trial runs. In a word, the data clearly shows that foreign lithium batteries companies have set their sights on electric auto parts and accessories market in China. As they continue to gain further advantages in the market, Chinese suppliers will be faced with even more unprecedented challenges.
The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.
