The current overcapacity in the lithium battery industry is a structural differentiation. The capacity utilization rate of first-tier leading enterprises exceeds 70%, which is basically not overcapacity, but rather a moderate advance production to maintain capacity flexibility and better adapt to customer needs. The capacity utilization rate of second-tier or third-tier enterprises is significantly lower than that of first-tier enterprises, even less than 50%. The difference in capacity utilization is related to the product fixed-point mechanism of new energy vehicles.
The automobile fixed-point mechanism protects the market share of first-tier enterprises very well, enabling enterprises to maintain their first-mover advantage and rely on large-scale to maintain cost leadership. The difference between the fixed-point mechanism and capacity utilization also shows that technological advantages play a significant role in the lithium battery industry chain. Head enterprises are often the most advanced enterprises in terms of performance, quality, and technology, and can win the trust of downstream customers, thereby realizing the coordinated development of the industry chain. The fixed-point mechanism is rare in the energy storage battery industry. In the overseas energy storage market, batteries have a strong brand moat, which can achieve the trend of the strong getting stronger. The domestic energy storage battery market is more inclined to the project-based model, and low-price competition can help some second- and third-tier brands compete for a place.
The bidding model of the energy storage market also has an impact on the pattern of the materials industry. In order to ensure the real cycle life, safety performance and market reputation, the leading energy storage battery companies often cooperate with the best material companies; while the battery companies competing at low prices are more diversified in material selection. The clearance of the lithium battery industry is more of a continuous concentration of shares. When the price of lithium carbonate bottoms out and shows a stable trend, except for the ternary positive electrode, the pattern of each link gradually moves towards a structure of CR2>55% and CR4>70%. When the unit profit of the industry bottoms out and rebounds, the market competition also enters a stable stage after the clearance.
The profit level of the lithium battery industry has bottomed out, and the gap between the echelons is obvious
Most raw material prices tend to fluctuate slightly, and the pressure of impairment of the industrial chain is reduced. Since 2023, the price of lithium carbonate has started a rapid decline channel, and the cumulative decline in the past 18 months has reached 85%, falling to 95,800 yuan/ton. Affected by the decline in lithium salt prices, the prices of positive electrode materials generally fell by 47-58% year-on-year, and the price of electrolytes fell by 40% year-on-year. Although the cost and quotation of negative electrode and diaphragm are not linked with lithium carbonate, due to the intensified competition for capacity expansion, the prices of different negative electrode products fell by 13-25% year-on-year, and the prices of diaphragm products fell by 29-43% year-on-year. The prices of various types of lithium battery products fell by 30-50% year-on-year.
The rapid price reduction of raw materials and finished products since 2023 has put a large pressure on inventory depreciation losses on material companies, bringing huge challenges to corporate operations. At present, the prices of the entire industrial chain tend to fluctuate slightly, and the impact of most raw material price fluctuations on the profitability of the industrial chain has been significantly reduced.
Current industry profit analysis
Since 2024, the profit level of all links in the lithium battery industry has bottomed out: second- and third-tier companies are basically in a loss-making state, and the profit level of leading companies is also below the 30% percentile compared with 2022. Recently, some loss-making second- and third-tier material companies have been forced to seek price increases from large battery manufacturers due to operating pressure, and because the supply share they have obtained is small, their price increase demands have also been met. This shows that the profitability of the materials sector has bottomed out, and the current profitability of leading materials companies is expected to be stable and sustainable.
From the perspective of capital expenditure, the current overcapacity ratio of the entire industry is 50-100%, and no more capacity construction is needed. At the same time, the ROIC corresponding to the profitability of the current leading battery, positive electrode, electrolyte, negative electrode, and diaphragm companies has dropped to around 8%-15%. The motivation for industrial capital to enter is not strong, and the long-term supply structure tends to be stable.
