In recent years, the lithium battery industry has surged, but various companies are now hitting the brakesThis shift comes in the wake of changing market dynamics and a reevaluation of future prospects in the wake of investment setbacksOne notable example is Plaid, which recently announced delays in its ambitious plans to produce 8 million DC lithium-powered tools annuallyThe completion date for this project has been pushed from December 31, 2024, to December 31, 2025. This decision stems from a prudent assessment of project implementation timelines and financial considerations, marking a broader trend seen across the industry.

Indeed, Plaid’s situation is just one piece of a larger puzzleSince the beginning of 2024, several companies, including Hive Energy, Tianli Lithium Energy, Dongfeng Group, Easy Energy, and Baoming Technology, have either suspended or entirely halted projects related to lithium battery capacity, amounting to hundreds of billions in investments

This slowdown extends to various upstream segments of the lithium industry, including lithium carbonate, cathodes, anodes, electrolytes, batteries, and equipment, all of which have exhibited signs of decelerated production capacity expansion.

Specific examples include Huayun Titanium’s announcement on April 22, 2024, to terminate a 100,000-ton capacity iron phosphate project, and Huasoft Technology’s decision shortly thereafter to abandon its plans for a lithium battery electrolyte additive production projectThis pattern continued at the end of April when Tianli Lithium Energy indicated a similar stance by stopping its construction of the Huabei ternary cathode material projectIn May, Baoming Technology also announced the cancellation of a major copper foil production initiative, highlighting a more extensive trend of project stoppages in the lithium battery sector.

Market dynamics have shifted significantly, as evidenced by a report from Everbright Securities

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The first quarter of 2024 saw China's lithium battery industry capital expenditures drop to 64.6 billion yuan, representing a 20% year-on-year decline, which followed a smaller 7% decrease in 2023. The downturn in capital spending is most pronounced in the midstream material sector, where investments in ternary cathodes have been in contraction since Q4 of 2022, and the momentum has further weakened in iron phosphate cathodes starting in 2024.

This is not a phenomenon exclusive to the domestic market; prominent international players in the lithium battery space are also scaling back on production capacityFor instance, in June 2024, LG Energy announced it would pause the construction of its battery production line in ArizonaSimilarly, plans to build a third battery plant in collaboration with General Motors were also halted that same month.

In Europe, a notable pause occurred when ACC, a battery manufacturer formed from a consortium of Stellantis, Mercedes-Benz, and TotalEnergies, announced the suspension of construction at its two electric vehicle battery factories due to a downturn in electric vehicle sales and a thorough review of costs.

On June 24, 2024, BASF also terminated its collaboration with the French mining firm Eramet to build a nickel-cobalt production facility, ceasing all ongoing negotiations

BASF had previously stated it would only increase capacity upon securing long-term purchasing agreements with established battery manufacturers.

The apparent slow down brings into question the overall health of the lithium battery marketMany companies have cited the precarious market environment in their announcementsFor instance, Xinjiang International indicated that an influx of competitors into the lithium battery market has led to an oversupply scenarioDongfeng Group acknowledged that its existing lithium battery separator capacity is currently sufficient to meet existing demand from customers and orders.

The explosive growth of the new energy vehicle market has been a primary driver behind the lithium battery industry's rapid expansion in recent yearsIn China, for example, annual new energy vehicle sales surged from 1.367 million units in 2020 to an astounding 9.495 million in 2023, reflecting a compound annual growth rate of 91%. Data from iFind and Xinfeng Lithium indicate that from 2018 to 2022, the compound annual growth rates in various segments of the lithium battery supply chain were as follows: upstream lithium resources at 33.6%, midstream materials at 57.1%, power batteries at 66.8%, and energy storage batteries at an impressive 119.3%.

However, as market penetration has steadily increased, the growth rate for new energy vehicle sales in China is projected to slow to around 30% in 2024. According to the China Association of Automobile Manufacturers, from January to November 2024, new energy vehicle sales reached 11.262 million units, with an impressive year-on-year growth of 35.6%. The Chinese Electric Vehicle 100 People’s Association anticipates that by 2025, the combined sales of new energy vehicles within China and exports will reach approximately 16.5 million vehicles, also maintaining a growth rate around 30%.

Not only is this trend visible in China, but the European new energy vehicle market is experiencing a similar slowdown

Following peak subsidies in significant EU nations in 2021, financial support has begun to wane, with Germany officially canceling its subsidy policy by December 2023 due to budget reductionsThis has led to a decrease in demand for new energy vehicles across Europe, compounding the challenges faced by the entire lithium battery sector.

The shifting landscape indicates that as domestic and global demand for new energy vehicles cools, the lithium industry's midstream materials and downstream battery sectors have transformed from capacity growth leaders into focal points for capacity excesses and imbalancesAccording to data from South Korea's SNEResearch, the global electric vehicle battery installation quantity for 2023 is estimated at 705.5 GWh, while the total battery capacity in China alone is reported at 1860 GWh, revealing critical supply-demand discrepancies.

As production utilization rates decline, profit pressures within the lithium battery supply chain intensify

A report from Minmetals Securities suggests that in Q3 2024, segments like copper foil and iron phosphate cathodes in the lithium battery materials sector have faced losses, with total net profits for relevant companies registering at -281 million yuan, -463 million yuan, and -14 million yuan respectively—translating to average net profit margins of -3.42%, -3.31%, and -0.11%.

As the industry navigates through this turbulence, market observers are noticing an impending reshuffleZhang Jinhui, a senior researcher at Xinfeng Information, highlighted that while the capacity issue exists throughout the lithium battery sector, top-tier companies are less inclined to abandon new projectsInstead, it is those in the middle to lower ranks experiencing losses who are more likely to slow their expansion efforts, demonstrating a pronounced “Matthew effect” in the industry.

Interestingly, amid an overall imbalance, several leading firms continue to pursue aggressive growth strategies

For example, the lithium anode material leader, BTR, announced plans to establish a company in Morocco to produce 50,000 tons of lithium battery cathodes, primarily targeting the North American and European marketsThis project is set to commence in April 2024, and BTR also signified in August 2024 the completion of an integrated project in Indonesia to produce 80,000 tons of anode materials.

Major players in the power battery field are also actively engaging in new projects, with companies like CATL, Aulton, and Yiwei Lithium Energy each launching ambitious initiatives worth billionsIn July 2024, CATL formed a joint venture called "Times Changan" with Changan Automobile to establish a 25 GWh production base for power batteries, and in September, it further expanded its existing Midwestern project’s Phase I foundation towards a Phase II extension with an initial planned output capacity of 60 GWh.

The sustained production expansion from leading companies is bolstered by robust utilization rates

In H1 2024, reports indicated CATL achieving a utilization rate of 65.3% while Yiwei Lithium Energy reached 83.6%. Projections for the year suggest they can maintain utilization rates exceeding 70%, positioning them significantly above the industry average as a whole.

Research from Everbright Securities identifies a pronounced contrast in procurement costs and utilization rates between leading and smaller companies, producing significant cost advantages for the key playersAt a lithium carbonate price of 80,000 yuan per ton, top firms' lithium iron phosphate battery costs are estimated at 0.31 yuan per Wh—around 0.05 yuan lower than the costs incurred by secondary firmsIn contrast, third-tier battery companies are experiencing lower utilization rates, hovering between 50% to 60%, alongside subpar quality yields, leading to projected costs surpassing 0.4 yuan per Wh, thereby incurring cash losses