A Look at China’s NEV Battery Industry: Two Main Battery Types and Their Leading Producers

China Automotive Battery Innovation Alliance (CABIA), on January 13, published battery data for new energy vehicles (NEVs) for 2020. Last year, the cumulated production yield and sales volume of batteries were 83.4 gigawatts (GWh) and 65.9GWh, respectively, down 2.3% YoY and 12.9% YoY due to the pandemic outbreaking at the beginning of 2020. Later, in the second half of 2020, incented by preferential policies for new car purchases to recover from the pandemic, the installed capacity of NEV batteries increased 2.3% YoY to 63.6GWh.

(Source: CABIA)

However, readings also show that the domestic battery industry still faces an excess in production capacity, in comparing output with installed capacity, implying a large room for application of NEVs in the country. Meanwhile, another trend is to eliminate batteries that have low energy densities and short driving ranges from the market. Previously, in December 2016, Chinese regulators set driving duration thresholds of NEVs as one area to qualify for financial subsidies, to push carmakers and battery makers to use and produce batteries with high energy densities.

Ternary lithium battery vs. LFP battery

In terms of battery types, ternary lithium batteries are still the main type of batteries used at present, with an installed capacity of 38.9GWh and a market share of 61.1% in 2020, despite a YoY decline of 4.1% in installed capacity. Ternary lithium batteries use three metal oxides as cathode material, with the most common combination as either nickel, cobalt, and manganese (NCM), or nickel, cobalt, and aluminum (NCA). Lithium iron phosphate (LFP) batteries, a prospective market leading battery type, uses LFP its as cathode material. In contrast to the decline in market share of ternary lithium batteries, the installed capacity of LFP batteries jumped up by 20.6% YoY to 24.4GWh in 2020, with its market share rising to 38.3%. Benefiting from the increase of LFP batteries, the overall installed capacity for batteries saw growth last year.

(Source: CABIA)

(Source: CABIA, People.cn, etc.)

The popularity of NCM/NCA batteries in recent years is mainly due to the longer driving range per charge than that of LFP batteries, as well its ability to withstand colder temperatures. The average energy density of mass-produced ternary lithium batteries is higher than 200 watt-hours (Wh) per kilogram (referring to battery packs other than a single battery cell, similarly hereinafter), and CABIA stated that it has even achieved records of 280-300Wh/kg. Limited by technical issues, LFP batteries’ energy density was only 100-110Wh/kg in 2012 and recently has increased to 170-190Wh/kg. Moreover, LFP battery capacity decays much faster at low temperatures or in cold areas than at normal temperatures and that of ternary lithium batteries.

On the other hand, the LFP battery also has its own significant advantages over NCM/NCA batteries. The rising installed capacity of LFP batteries in 2020 mainly attributes to its low costs, as its raw materials do not consist of precious metals. NCM/NCA batteries use nickel and cobalt, which are largely imported due to the shortage of domestic resources. Considering that Chinese regulators are phasing-out NEV subsidy policies, switching to LFP batteries can help both battery makers and NEV producers reduce their manufacturing costs.

Most important, the LFP battery is much safer than NCM/NCA batteries. Internal chemicals remain stable under high temperatures of 500-600℃, while that of NCM/NCA batteries begin to decompose at 250-350℃, easily resulting in a fire or even a blast. The Ministry of Industry and Information Technology (MIIT) on May 12, 2020, released a compulsory rule that battery management systems (BMS) in NEVs, which include both the battery and surrounding systems that control the battery, should not burn or explode within five minutes after uncontrollable temperature increases, in order to ensure time for passengers to escape. However, several fires and even explosions caused by ternary lithium batteries in the past show that the time from batteries smoking to burning heavily has been less than a minute. Thus, domestic leading battery producers are actively developing LFP batteries to avoid such risks, and are expanding production capacity.

LFP battery deployment of Chinese leading battery producers

(Source: CABIA)

Contemporary Amperex Technology (CATL) [300750:CH] has remained China’s largest battery maker in 2020, followed by BYD [1211:HK]. As Tesla’s [TSLA:US] battery suppliers in the country, LG Chem [051910:KS] and Panasonic [6752:JP] first entered the top ten list last year, through soaring sales of Tesla’s China-made Model 3 cars. Notably, LG Chem and Panasonic both supply ternary lithium batteries, while CATL, Tesla’s other supplier, has offered LFP batteries for the US company since July 2020. Tesla has already ordered 200,000 sets of LFP batteries from CATL for 2021, amounting to 11GWh. In addition to the two production lines reserved for Tesla, CATL also has two other production lines of LFP batteries to offer multiple carmakers its products, such as SAIC-GM-Wuling Automobile (SGMW), Xpeng, NIO [NIO:US], etc. Furthermore, CATL has taken over half of the LFP battery market in 2019 by 11.28GWh in capacity installed on coaches and special vehicles, and it is also expanding into electric heavy trucks, electric ships, and other green sectors. According to Eastmoney, CATL’s LFP battery output in 2021 is expected to exceed 30GWh.

BYD introduced its LFP battery product in March 2020, named Blade Battery. Although the current energy density of BYD’s Blade Battery is around only 140Wh/kg, its volumetric cell-to-pack (VCTP) ratio increased by 50%, while cost decreased by 30% compared with traditional LFP batteries, stated BYD at the 2020 World New Energy Vehicle Congress (WNEVC) last September. This means that with the same weight and size, Blade Battery can support longer driving ranges. BYD also anticipates that its battery’s energy density would exceed 180Wh/kg in 2025. However, BYD has a production capacity shortage of its Blade Battery. The company cannot fulfill its demand for equipment for its own new car models at present. The firm only has its Chongqing plant to manufacture Blade Batteries, and it only just was put into full production in the second half of 2020, with an annual production capacity of 20GWh.

Apart from these two leading companies in the domestic battery industry, other players are also working on LFP batteries. For example, in early January of 2021, Guoxuan High-Tech [002074:CH] launched its new LFP battery cell, which has a unit energy density of 210Wh/kg, implying an about 170Wh/kg energy density of LFP battery packs using the cell, slightly higher than other LFP battery products. Citing GGII, in 2020, the total selling volume of battery cathode materials was 510,000 tons, up 27% YoY, where NCM accounted for 46% and LFP occupied 25%. CITIC Securities [6030:HK] estimated that the demand for LFP will increase to 240,000 tons and 340,000 tons in 2021 and 2022 along with the growing demand for LFP batteries.

References:

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