The Three Factors
On March 26, China’s Ministry of Finance, Ministry of Science and Technology, and other agencies jointly announced changes to the subsidy program for new energy cars, slashing subsidies by 67 percent.In addition, subsidies for new energy vehicles will be phased out completely after 2020.
Secondly, the cost increase of raw materials places further pressure on the capital chain of China’s NEV battery companies.
Thirdly, China’s Ministry of Industry and Information Technology announced in June that it would end the “white list” of recommended battery suppliers. The white list policy, issued in March 2015, was significant to NEV sellers, as using batteries from the listed battery suppliers, all of them domestic enterprises, was the prerequisite for NEV makers to get subsidies.
Ending the white list policy is equivalent to opening the Chinese market to Japanese and Korean battery makers, such as Samsung, LG, and Panasonic. These companies are much more competitive than the Chinese companies because their technologies are more advanced, and the price differences compared to Chinese-made batteries are not as notable as before.
Wang Binggang, director of China’s New Energy Vehicle Technology Innovation Alliance, admitted to the China Automotive News that even the first-tier Chinese battery companies cannot be compared with Japanese and Korean battery giants. He predicted that small-sized battery makers would be gradually eliminated from market competition, because they are not competent enough in research and development and have no advantage in cost control.
In a recent interview with Securities Daily, Fang Jianhua, former head of Guoxuan High-Tech Power Energy, pointed out that some start-up battery companies operate in a speculative mode and have experienced “wild growth” in the recent years. It seems that they have a high production capacity; however, automakers will not use their products.
Leading Battery Company Struggling to Pay Workers
Two employees from National Battery Technology, a leading lithium battery research and manufacturing company in China, recently told Chinese financial publication Securities Daily that many employees in the company’s Beijing headquarter have not been paid in the past six months.Customers of the company also reported to Securities Daily that in many cities in China, battery repair shops had discontinued service for batteries manufactured by National Battery.
Many Battery Companies Will Go Out of Business
In China’s NEV battery industry, National Battery is not the only company struggling with financial problems.Optimum Nano Energy Co., Ltd. is ranked fifth in the world and third in China in NEV battery sales. In April last year, its parent company defaulted on 2 billion yuan ($291 million) in bond funds, while its total debt was as high as 22.1 billion yuan ($3.22 billion).
Hu Bo, General manager of Shanshan Tech’s Shanghai branch, explained to Securities Daily that many companies in the NEV battery industry will go out of business sooner or later due to three factors: reduction in government subsidies, higher cost of raw materials, and lower prices for final products.
Shanshan Tech is a company focused on materials for various battery cell components. Its Shanghai branch is dedicated to the research and manufacturing of anode materials used in lithium batteries.
“In recent years, new energy vehicle battery companies have faced tremendous pressure from the increasing cost of raw materials. Materials for the cathode, such as cobalt, nickel, and manganese, and materials for anode, have had significant price hikes,” Hu said.
