How Subsidy Cutback Affects Power Battery Industry

In 2018, China continues to cutback the subsidy on new energy car, which means that the battery industry will bear the brunt of surging production cost. But there’s always a silver lining as well. In this post, we’ll share with you some thoughts on the subsidy cutback on the new energy vehicles.

1. Why would the government continues the subsidy cutback?

As we all know, the new energy cars cost much more to build than traditional cars, and the former cost a lot more than the latter as well. That said, if there’s little of no financial subsidy to new energy cars, the user base won’t be big enough for the industry to develop fast.

Theoretically, the financial subsidy goes to the car battery manufacturer since the car battery is the bottleneck for the new energy car development. With the subsidy, the battery manufacturers would be more comfortable finding better, more cost-effective solutions to upgrade the electric cars. And it’s happening now.

With the car battery functionality going up and the cost going down, it’s better if the financial subsidy goes to areas other than the new energy car industry. Moreover, we can expect tighter regulations against how the subsidy will go to the new energy car industry.

2. How the battery industry is doing

In general, the car battery industry in China is still seeing large improvement space. BYD and CATL, the two giants in the industry, has already taken a large share of the market, and the share is still expected to expand.

However, their counterparts don’t share the promising future. They are in the face of merger and acquisition, or completely decentralized. To make matters worse, their electric cars usually aim at the lower end market where is seeing fierce competition, server lacking of production efficiency and other problems.

3. How is the dispensary cutback affecting the entire industry

1) The prices for battery product are forced to be lower

There is no doubt that the cutback will have directly influence on the price. The car manufacturers ask fro a lower price from the battery manufacturers, while the prices for the raw materials are seeing in increase. That said, the production cost for battery is on the rise, and the profits the opposite.

At present, the four major materials for battery production account for 80% of the totally cost, which is why many battery manufacturers are transferring the cost pressure to cathode material corporations.

2) Fierce competition speeds up the elimination of outdated production capacity

At the moment, the overall production capacity of the car battery companies registers only 30%, with the lower end the capacity providing more than the market needs, and the higher end not enough.

The subsidiary cutback, to be more exact, requires the car battery manufacturers to outperform their competitors to get the financial support. In this way, the lower end capacity will be out of the picture. What’s more, if a company wants to stand out from the crowd, it has to have strong technology backup, which is not easy to do.

3) What should the car battery manufacturers do

To survive the fierce competition, the car battery manufacturers can start from:

  • increase production volume
  • create and expand the scaling effect
  • increase the yield rate
  • restructure the battery to make it lighter

These are just some minor steps where you can start from. There are sure a lot of other things you need to think about, like the management methods, and automation efficiency.

4) The general trend is to use more high-nickel ternary materials

It’s pretty clear that the subsidy is closely related to the energy density of the car battery. The aim of the subsidy is to encourage the development of the high density battery, and thus that of the chip and the battery management system. To do that, the car battery manufacturers will need to upgrade the material system, such as the positive and negative materials, separators, electrolytes. As of now, the high-nickel ternary materials are the most likely one to reach the high density requirements as required by the national subsidy standard.

4. Conclusion

The financial subsidy should not be regarded as “profits” or “bonus”. Instead, it should be seen as an opportunity to develop new energy car, and the big upgrade of the manufacturing industry structure.

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