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China Lithium-ion Batteries Market Report 2016

Li-ion's Share of the Market

The latest assessment of China's Lithium ion battery market in 2015 is released March 2016. Please contact lps@gcis.com.cn for inquiry.

China’s electric vehicle future and the development of its battery industry.

On the face of it, all the ingredients for electric vehicle dominance exist in China. The country has a colossal, thriving lithium-ion battery industry that saw over 2.5 billion unit sales last year, generating an unsurpassed US $ 3.5 billion in revenues; an automotive industry which, in any given year, exceeds GDP growth by at least a factor of two; and an infrastructure-focused government with deep pockets and an even deeper commitment to meeting the nation’s long term energy needs. But speed-bumps and pot-holes lie ahead.   

Strongly influenced by trends towards compactness and low cost, lithium-ion technology isn’t quite ready for mass-marketed electric vehicles. Vast investment in factory capacity has enabled Chinese companies to lead the field in the micro-batteries that power the droves of consumer gadgets churned out by local factories. But ensuing overcapacity, estimated in research recently published by GCiS at 30-35%, is inhibiting investment needed to similarly compress the costs of the larger cells for the bikes, hybrids and battery powered cars waiting in the wings. The result is that costs for lithium-ion electric vehicles remain high in this price-conscious market.   

Pricing isn’t the only factor keeping lithium-ion off the road. Electric vehicles need greater energy density, safety and charging speeds than what’s currently on offer. Battery management must be improved and integrated, powertrains must be developed, electric control systems optimized and a whole set of regulatory standards agreed upon - any of which presents a financial risk for the manufacturers in the existing value chain.  

But once commercialized, the potential gains are massive. For most Chinese, owning a car ranks nearly top of the list of ‘must haves’. Nine million passenger cars were sold last year, on top of an estimated 50 million base, and China still has a low rate of private car ownership compared to the West. Small wonder then, that despite the obstacles, there’s a race by lithium-ion manufacturers to get the first commercially viable car battery to market.

Wheels of the economy
Also stacked in favor of electric vehicles is the widely expected removal or drastic reduction of government fuel subsidies. Currently a lose-lose situation for the government (they take the blame for rising prices, and take losses on open market purchases), the NDRC is reportedly keen to give the market a bigger role. If and when it happens, such a move will make using an internal combustion engine, which makes up 60% of all product fuel consumption in China, an expensive prospect.   

The country’s twelfth Five Year Plan, due to be announced at the end of this year, will use electric vehicles to tackle environmental degradation, which, along with energy security, is a significant concern. Some of the specific plans already known are a set of subsidies, tax breaks and streamlined approvals to support the “20 Cities – 1,000 vehicles” initiative, aiming to increase the number of public and private electric vehicles by 1,000 in 20 Chinese cities[1] each year, with an eventual aim of a million electric vehicle sales in the year 2015.  

It is a lofty ambition but progress is being recorded. Shenzhen, for example, is experimenting with a fleet of 50 electric taxis, built by BYD, a local pioneer of electric vehicles and lithium-ion stalwart, though the batteries are made by Toshiba. On the national level, captains of 16 major state-owned enterprises[2] have been asked to submit plans for an all-China electric vehicle industry alliance. While there is a Potemkin-esqe element to these projects, they show that local governments and state-corporations, which have significant discretionary power, want to provide evidence that they support the government’s strategy. 

The terminal is just the beginning            
Commercially speaking, there are three competing chemistries for electric vehicles: Lead-acid, Nickel Metal Hydride (NiMH) and Lithium-ion. Lead-acid has been the traditional choice, but is being phased out due to its poorer power-to-weight ratio and effect on the environment. NiMH is currently used in hybrids like the Prius but in China, much of this technology has been kept offshore and away from local producers (Chevron acquired a patent on large NiMH batteries, its control of which had led, unfairly, to accusations of ‘suppressing the electric car’).

Within the lithium-ion universe, lithium-ion with a phosphate cathode has been acknowledged by market participants to be the best game in town. Lithium-ion phosphate, unlike more common chemistries lithium-ion cobalt and lithium-ion manganese, uses less lithium per Watt and enjoys a lower operating temperature. This greatly reduces the risk of explosions caused by overcharging, puncture, crushing and shorting; all of which may occur in the bump-and-grind of everyday motoring. While cobalt and manganese lithium-ion were designed to replace Ni-cad, lithium-ion phosphate is a direct attempt to take on the lead-acid battery.

China’s main phosphate companies are Henan Huanyu, BAK, Zibo Dison, B&K, Tianjin Lishen and BYD, collectively controlling around 60% of the Li-ion phosphate market. These companies are also the leaders of the overall lithium-ion batteries market, their growth fueled by the explosion in demand for Chinese mobile phones, consumer electronics and power tools. They have seen the share of electric vehicles in their li-ion phosphate market grow from zero to over 50% in the last five years. 

Revenues by End-user Industry and Product Segment (2009)
Li-ion Battery Revenues by End-user Industry and Product Segment (2009) - GCiS China Market Research
Source: GCiS

Change in Annual Growth in Li-ion and Core End-user Industries*
Change in Annual Growth in Li-ion Battery and Core End-user Industries - GCiS China Market Research
Source: GCiS
*Indexed to 2003

There is still a lot of growing to do. Firstly, the lead-acid battery market is around ten times that of Li-ion phosphate. A separate study by GCiS estimates that US $ 3.5 billion will be spent on lead-acid batteries by the end of 2010 as compared with US $ 350 million for Li-ion phosphate. There is also a pricing gap: a 1.2 Kw lead-acid battery costs around $ 250, compared with around US $ 600 for a lithium-ion phosphate product of the same size.     

A more strategic focus is required of these companies too. Built around the notion that whatever the customer specifies, they just mass produce cheaply, China’s lithium-ion companies are being asked to contribute to the finished product. This is turning the traditional form of Sino-foreign joint ventures on its head. Tianjin Lishen, for example, secured the funding for its partnership with Coda, a California based electric car start-up, that will see the automotive grade batteries that it has co-developed, produced in Ohio. In other words, Chinese capital and knowhow is being used with US manufacturing for access to the North American market.     

E-volution
The electric vehicle industry needs business models, both for China and the global market that it will, to some extent, be supplying. Much of this will come from the type of electric vehicles that are adopted. The likely path that electric vehicle evolution will take starts with electric bikes, a low cost product used by those who would otherwise be riding a bus, and for which a vast ecosystem of deliverymen, handymen (in Asia, they’re still predominantly men) and other service-oriented travelling has grown or parted from motorbikes.

Hybrid cars, which are still very expensive, are the next rung on the ladder. These are well suited to a gasoline enabled transport infrastructure as the battery can be recharged by the engine. BYD brought its F3DM car, which has around 60 miles of full electric drive, to the domestic market. Priced at USD 22,000, it is comparable to domestic brands but cheaper than foreign cars (and significantly below the price of a Prius). Car makers, like Mitsubishi, are building production lines in anticipation of the widespread adoption that hybrids will have in five years’ time.

The full electric car could be mass-produced in as little as six years from now. Much will have to change between now and then, both in terms of the car and the grid that fuels it. The nature of available infrastructure will, for example, determine whether charging a car will resemble filling it with electrons from a pump, or swapping depleted cells for fully charges ones. As the superior form of power storage on the market, lithium-ion batteries will greatly influence, and be influenced by, this process.     

Indeed, strong fundamentals support the development of a strong lithium-ion powered electric vehicle industry in China. It will require additional risk and investment as well as the decoupling of the notion related to the roles Chinese companies play in the global market. There will be periodic explosions and crashes that scare some consumers away from electric vehicles and the market inefficiency that result when the inevitable monopolies are formed around charging networks and retail outlets, not to mention the increased need for coal-fired power stations. But next to a reduced need for gasoline, these are nice problems to have.


[1] The 20 cities are Beijing, Tianjin, Tangshan, Changchun, Dalian, Jinan, Hefei, Shanghai, Suzhou, Wuhan, Chongqing, Hangzhou, Nanchang, Kunming, Chanzhutan, Xiamen, Shenzhen, Guangzhou, Haikou.

[2]These companies are: China FAW Group Corporation, Dongfeng Motor Corporation, China's Chang'an Automobile Group Co., Ltd. , China Dongfang Electric Group Co., Ltd., China South Locomotive Co., Ltd., China National Offshore Oil Corporation, Beijing Nonferrous Metal Research Institute, China Aviation Industry Corporation, China Aerospace Science and Technology Corporation, China Aerospace Science and Industry Corporation, State Grid Corporation, China Putian Information Industry Co., Ltd., China National Petroleum Corporation, China Petroleum & Chemical Corporation, China Southern Power Grid Corporation, China Poly Group Corporation.

About GCiS China Strategic Research

GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.

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