The upstream enters the stage of replenishing inventory, and the new energy vehicle industry chain returns to a high level of prosperity

Cui Xiaosu, a reporter from China Securities Journal: The rapid growth of the new energy vehicle market has brought growth opportunities to the upstream and downstream industrial chains. Industry insiders believe that in the second half of 2018, the demand for high-end automobiles will drive the resource and material sides back to a relatively strong level of prosperity. In addition, benefiting from the blood transfusion of domestic consumer models and overseas battery industry chains, the profitability of battery material companies will be improved, and the profitability of companies entering the overseas industry chain after differentiation will be strong.

High-end cycle begins

With the switch of the dual-point policy and rapid improvement on the supply side, the high-end development process of new energy vehicles in China and the world is accelerating.

2018 is a big year for new energy vehicles. This year, BAIC EU5, BYD Qin EV450 and Song EV400, SAIC Roewe Ei5, Geely Emgrand EV450, etc. have been launched one after another. The operating range of pure electric vehicles is generally over 300km or even 400km.

In 2018, the policy strengthened the subsidy support for A-class vehicles, and the subsidy amount increased instead of decreased. According to the current market feedback and the vehicle model plans of the car manufacturers, the A-class pure electric vehicles with a range of more than 400km will be the main competition arena for various car companies in the second half of 2018, and the representative models include Changan Eado EV460, JAC iEVA50, BAIC New Energy ET400, etc.

Judging from the catalog of new energy vehicle models, the market is shifting from being dominated by A00 class to being dominated by A0 and A class: in the first half of 2018, the total average length of various models in multiple batches of catalogs reached 4160mm, while the data for the same period last year was 3973mm.

In addition, as the range of joint venture new energy vehicles continues to increase, coupled with relatively large subsidies and continuous upgrades to interior and exterior decoration, the launch of these brand models will set off a new round of consumption upgrades, stimulating more consumers, especially those in cities with purchase restrictions, to choose Class A new energy vehicles.

Changjiang Securities predicts that the production and sales volume of new energy vehicles is expected to reach 1.08 million units in 2018, a year-on-year growth rate of 36%. Among them, the sales volume of new energy passenger vehicles is 800,000 units, a year-on-year growth rate of 45%; the sales volume of new energy buses is 100,000 units, a year-on-year growth rate of 15%; and the sales volume of pure electric special vehicles is 180,000 units, a year-on-year growth rate of 17%.

"In the second half of the year, new A0 and A-class cars will be put on the market at an accelerated pace, continuing to stimulate new demand. The accelerated high-end process of new energy passenger vehicles will bring about a rapid increase in demand for the high-end industrial chain, and industrial chain companies will enter a stage of supply exceeding demand. In 2019, truly new platform electric vehicles began to be launched on a large scale in the market, so the high-end cycle that started in the second half of this year will become a long-term boom in the next five years." said Deng Xue, an analyst at Tianfeng Securities.

Power battery companies are clearly differentiated

With the surge in production and sales of new energy vehicles, the output of power batteries has increased significantly year-on-year, and power batteries have gradually become the dominant force in the growth of the lithium battery industry. Dongwu Securities predicts that the installed capacity of power batteries is expected to reach 46GWh in 2018, a year-on-year increase of 30%.

High-end production capacity is in short supply, and low-end production capacity is facing a rapid exit. Chen Qingtai, chairman of the China Electric Vehicle 100 Association, said, "Small and low-level power battery companies are being eliminated in the competition." He also pointed out that "China's power battery supporting companies have dropped from about 150 in 2015 to about 100 in 2017, and one-third of the companies have been eliminated."

At present, the leading effect of the power battery industry has become prominent. CATL and BYD are in the first echelon, accounting for 50% of the market share; Guoxuan High-tech, Farasis Energy, BAK, and Lishen Battery are in the second echelon, accounting for nearly 25% of the market share, and the remaining 25% of the market share is fought over by other battery manufacturers.

"The oligopoly structure of power batteries gives them a strong voice in upstream material suppliers and downstream vehicle manufacturers. They can effectively transfer the price reduction pressure from vehicle manufacturers to material suppliers and ensure profitability." An executive of a power battery company told a reporter from China Securities Journal.

In addition, the international supply chain has also brought new opportunities to leading power battery industry chain manufacturers. Overseas automakers such as Volkswagen and BMW have all gone electric, and it is expected that the electrification platform will be completed in 2020. At present, battery partners have been identified worldwide to increase global power battery and material procurement. Taking CATL as an example, it has entered the supply chain system of BMW, Volkswagen, Daimler, Nissan and other automobiles, and is expected to benefit from global procurement. As Japanese battery companies are accelerating the certification of domestic material companies, Korean battery companies are also gradually opening up their procurement systems. Domestic diaphragm and electrolyte manufacturers will step up their penetration, and it is expected that they will gradually enter large-scale procurement in the second half of this year.

Cui Dongshu, secretary general of the China Passenger Car Association, told a reporter from China Securities Journal that the recent period is a running-in period for midstream battery manufacturers and downstream vehicle manufacturers for high-mileage models. After the running-in period in the third quarter, sales are expected to rebound significantly month-on-month. The fourth quarter of each year is the traditional peak season for new energy vehicle sales, and the demand for power batteries will rebound in the second half of the year.

The upstream enters the stage of replenishing inventory

In terms of upstream raw materials, the demand for cobalt and lithium may have already started the "new season". Recently, McKinsey Consulting released a report titled "Lithium and Cobalt: A Story of Two Commodities", stating that in terms of lithium, the global demand for lithium salts due to the popularity of electric vehicles may increase by up to 318% in 2025 compared with 2017. By then, the demand for lithium salts due to electric vehicle power batteries will account for 76% of the global market demand for lithium salts. In terms of cobalt, the global demand for refined cobalt due to the popularity of electric vehicles will double in 2025. By then, the global demand for refined cobalt due to electric vehicle power batteries will exceed half of the total demand.

In fact, the price of cobalt and lithium has continued to fall recently. Among them, MB cobalt low-low and domestic metal cobalt continued to fall to US$39.70/lb and 530,000/ton respectively, and the price difference between domestic and foreign markets reached 140,000/ton. Battery-grade lithium carbonate and lithium hydroxide were 123,000/ton and 142,500/ton respectively.

Changjiang Securities analysts believe that from January to May, the demand for new energy midstream was weak, especially for iron-lithium, which was in the destocking stage. However, with the implementation of the new subsidy policy in the second half of the year, new models, new batteries and new materials are expected to bring a rebound in resource demand. In addition, mainstream ternary material companies are currently close to full production, and the overall industry inventory has been consumed to a low level. The release of bottom-up "back-to-back" orders is expected to bring about demand for replenishment.

A person in the cathode material industry told China Securities Journal that it is now a general trend for high-nickel ternary batteries to replace lithium iron phosphate batteries. The supply of lithium iron phosphate batteries is bound to be in excess, and high-nickel ternary power batteries are more advantageous. It is expected to start large-scale production in the second half of 2019. This has led to the increasing importance of ternary precursors, which will be beneficial to cobalt raw materials and micro-powder-grade lithium hydroxide in the upstream of the ternary industry chain.

Shi Yi, an analyst at Haitong Securities, believes that on the supply side, after the promulgation of the Congolese Mining Law, as the strict implementation ferments, the supply side is expected to be more oligopolistic. Therefore, the fundamentals of cobalt supply and demand in the second half of the year are expected to be reduced supply and increased demand. At the moment of destocking in the first half of the year, strict supply control exceeding expectations or accelerated demand may promote price rebound.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.