China’s lithium-ion battery makers are poised to cut prices by as much as 40 percent this year in response to electric-vehicle subsidy changes.
The cuts are unlikely to affect global battery markets, according to Logan Goldie-Scot, head of energy storage analysis at Bloomberg New Energy Finance. “It’s not that it’s a 30 to 40 percent cut on the benchmark global prices that we’re seeing elsewhere,” he said.
Instead, Chinese lithium-ion battery manufacturers are having to slash margins on nationally sold products to account for reductions in electric vehicle subsidies that came into effect in January.
“The 2017 subsidy is a steep 30 percent lower than the 2016 subsidy at the national level,” said I-Chun Hsiao, a BNEF analyst in Tokyo. “Provincial subsidies are also being cut.”
The electric vehicle subsidies had previously allowed a small group of government-approved Chinese battery makers to get away with charging a premium for their products.
This contrasts with global markets, where “we have seen pretty aggressive lithium-ion cost reductions over the past 16 to 24 months,” said Brett Simon, an energy storage analyst with GTM Research.
Last year, the Chinese government withheld state subsidy certifications from two of the world’s largest battery makers, LG Chem and Samsung SDI of South Korea, in a move that narrowed the field of potential suppliers to China’s burgeoning electric vehicle market.
SK Innovation, another South Korean battery original equipment manufacturer (OEM), also missed out on certification in the scheme managed by the Chinese Ministry of Industry and Information Technology (MIIT).
Since the state subsidies were worth up to 40 percent of the value of a new electric vehicle, they effectively masked the high cost of batteries supplied by approved Chinese manufacturers.
“Chinese lithium battery makers whitelisted on MIIT's directory have high pricing power,” said Hsiao. “Since auto OEMs have to use their batteries or miss out on the all-important subsidies, whitelisted battery makers have the freedom to set high prices.”
It is only lithium-ion players that are expected to cut prices, Hsiao said. Lead-acid battery makers are much more sensitive to underlying commodity prices, he noted, because lead accounts for a much higher percentage of the total cost.
The subsidy cut, which was only announced in December, has had a drastic impact on Chinese electric vehicle sales.
Goldie-Scot said the China Association of Automobile Manufacturers only registered 4,608 electric passenger vehicle sales in January, a 66 percent drop on the same period in 2016. This compares to a 95 percent rate of year-on-year growth registered in August 2016.
Overall last year, China accounted for around half of all new electric-vehicle sales in the world. The rush to get electric vehicles on the roads has been accompanied by an aggressive charging station build-out program, with 81,000 installations completed by July last year.
The fall in car sales is a blow to China’s ambitious vehicle electrification program, but follows concerns that automakers were fraudulently making money from the subsidy scheme by faking documentation for vehicles that never left their factories.
Last year, five companies were investigated after taking approximately $150 million illegally from the scheme.
The scandal has prompted some observers to speculate that the Chinese authorities could fast-track a zero-emission vehicle mandate and do away with the subsidy scheme altogether. At present the mandate is expected to come into effect sometime after 2020.
In the meantime, it remains to be seen if battery price cuts will reverse the stall in electric vehicle sales. It is also unlikely that lower battery prices will stimulate stationary energy storage sales in China.
“Within China, price is not the only barrier to energy storage uptake,” said Goldie-Scot. “Without regulatory change or greater governmental support, the sector is unlikely to take off.”
For the time being, then, it seems the massive price cuts taking place among Chinese battery manufacturers this year are nothing to write home about.
“Basically, I don’t think the change in price in China that we’ve just witnessed has anything to do with the costs of the product, but rather how the subsidy has been set up,” Goldie-Scot observed.