CATL is in talks with a number of Chinese automakers to offer big discounts on batteries using materials sourced from its proprietary mines. In return, the electric vehicle battery giant is requesting its clients place around 80% of their future orders with it in the next three years, several Chinese media outlets reported.
Why it matters: The move could intensify already fierce competition in the upstream value chain of the electric car industry and force smaller battery makers to follow suit in what could become a price war, experts said.
- Even without this program, preferential pricing will come to major battery companies in one way or another this year and beyond, as industry oversupply kicks in from the second half of 2023, Jefferies analysts wrote in a Monday report.
- The price war could pressure the margins of second-tier battery makers with smaller scale economies and lower supply chain competitiveness, they added. The ongoing EV pricing battle spurred by Tesla could result in further price cuts from Chinese carmakers, “leading them to ask battery companies for price cuts,” Jefferies analysts added.
Details: CATL is in negotiation with several strategic clients, including Nio and Li Auto, to sign three-year contracts that would guarantee them a certain amount of EV batteries priced at RMB 200,000 per ton ($29,152) of lithium carbonate, the compound from which lithium is extracted. Chinese media outlet 36Kr was the first to report on the talks.
- These lithium-ion batteries will be made from ingredients sourced from several domestic and overseas mines in which CATL has an ownership stake, Caixin reported on Monday, citing a person familiar with the matter. Sources said the offer is expected to run from the third quarter of 2023.
- The move could significantly reduce purchase costs for the automakers, including Huawei-backed Seres and Geely’s premium EV brand Zeekr. In return, the EV makers will be required to commit 80% of their battery purchases to CATL in the next three years.
- Some EV makers have expressed willingness to accept the deal, while others are uncertain about price movements of battery-grade lithium carbonate. CATL also asked buyers to pay a certain amount up front as a deposit, which could therefore increase the EV makers’ expenditure, the Caixin report said.
- Tesla and Xpeng Motors, two of CATL’s biggest clients, are reportedly not among this chosen group.
- A person with knowledge of the matter confirmed the existence of the deal when contacted by TechNode on Monday, while CATL did not respond to TechNode’s request for comment.
Context: Smaller Chinese battery makers have been feeling the strain in recent months, with CALB, a major supplier to state-owned automaker GAC, and Volkswagen-backed Gotion High-Tech being asked by clients to reduce prices by 10-15% for this year, TechNode has learned.
- Lithium carbonate prices showed a downward trend at the beginning of 2023, which experts described as a ripple effect from China’s slowing sales of electric cars. The price closed at RMB 435,000 on Monday, down 26% from its historic high of nearly RMB 600,000 in mid-November, according to industry consultancy Mysteel Group.
- Multiple Chinese EV makers have been looking to diversify their supply chains for EV batteries to ensure the supply of the critical components at a favorable price. Xpeng Motors has been sourcing batteries from Sunwoda since late 2022, in addition to CATL, while Li Auto is a major client of CATL and Svolt, an EV battery maker backed by Great Wall Motor.
- The world’s biggest EV battery maker is also getting into the mining business. CATL last April bought lithium claims on 6.44 square kilometers (1,591 acres) in Yichun, a city in the central province of Jiangxi, and gained control of a Sichuan-based mining company in January, Caixin Global has reported. It also won a bid in Bolivia to develop the South American country’s lithium resources, Reuters reported.
Keyword: CATL offers massive discounts on EV batteries as competition rises