Dawning of low profit era for lithium batteries as Chinese manufacturers scramble for market share

China’s battery cell manufacturers including Amperex Technology Limited (ATL), Coslight Group and others are gradually gaining ground, and more active than Japanese and Korean manufacturers in production capacity, according to research by EnergyTrend, a research subsidiary of TrendForce. A hidden worry accompanying the rise of Chinese packers in main supply chains is profits will continue to fall in the lithium battery industry.

Chinese battery on the rise as supply chain expands

Lithium batteries are a critical component in handheld consumer electronic products, and from 2000 onwards were widely adopted in cell phones. Starting in 2004, Korea quickly picked up in laptop battery assembly , and in the wake of Japan’s battery safety issues, China entered the battery supply chain in 2008. This transformed the lithium battery supply chain from being dominated by Japan to being divided among Japan, Korea and China.

In terms of development threshold for lithium batteries, cell phones, cameras and other consumer products tend to have low electricity consumption due to the product’s small size. These products only require a single battery cell as the power source, and have a simple battery assembly   process. In general, price/performance ratio is the key in these applications, with Japan, China, and Korea taking over the sector’s supply chain. In contrast, higher electricity consumption in laptop systems tends to use multi-cell to reach the required voltage and electric current resulting in higher safety thresholds. The market is mostly led by Japan and Korean battery manufacturers at the moment. 

China’s large labor force and quickly growing domestic demand is cultivating the domestic lithium battery industry that covers upstream battery materials manufacturers, midstream cell manufacturers to downstream battery assembly for both consumer products and power products.

At the moment many important consumer devices have chosen China as their battery assembly base, which has drawn a large number of cell or packer to settle down in China. Japanese and Korean battery manufacturers have established production bases in China, which in turn increased China’s battery industry yield rates. As polymer battery production expansion eases, Chinese cell manufacturers are still actively implementing expansion plans. The market potential for Chinese cell manufacturers should not be underestimated. Even the highly popular Apple smart phone supply chain has recently added Chinese cell manufacturers. 

      Source: EnergyTrend

Arrival of low profit era with vertical integration of midstream and downstream manufacturers

In response to the gradual drop in cell prices, cell manufacturers, such as Sony, Samsung, LG Chem, ATL, BYD and others, are also changing management strategy and shifting roles in the supply chain towards battery assembly. Other prismatic battery and polymer battery are completely dominating the single battery assembly supply.

The current rate of cylindrical battery manufacturer’s in house assembly has reached more than 50%, and for Japanese battery manufacturers the rate has exceeded 70%. Prismatic battery mostly applied in cell phones are nearly 100% assembled by cell manufacturers. Due to high levels of customization, almost all polymer battery is assembled by cell manufacturers, and the only time they are handed over to packers   is for multi-cell applications. Cylindrical batteries mostly use multi-cell , with a majority assembled by professional pack makers.

To cross into the battery assembly supply chain, cell manufacturers sometimes will lower cell prices to attract battery assembly orders, since they control key components for single-cell and multi-cell applications. Looking at the long term development of oversupply, battery cell prices are expected to fall for consecutive quarters. In terms of battery assembly profit developments cell and packer  manufacturers are expected to enter a vicious cycle that will forcefully change the upstream and downstream relationship between cell and pack manufacturers to an increasingly cooperative and competitive relationship.

Currently, cylindrical battery price performance in 3Q reflects a downtrend in high-capacity cell. Objectively, this shows increased usage of high-capacitycell. The pricing trend also reasonably reflects dropping prices correlated with large product volume. The proportion of high capacity batteries continued to rise in the polymer battery sector. With many new tabletsto be released on the market in 3Q, many are abandoning multi-cell to improve the product’s outer appearance. Many have switched to using higher capacity single-cell deployment due to cost concerns. Competition is also more intense in high capacity battery cell with a quarterly decline of 3.3%, about the same drop as last quarter. The decline in low capacity battery has been gradual, and reflects fewer end-market applications. As a result battery prices have dipped only slightly.