Lithium battery enterprise's systemic challenge: gross margin and market share encounter double sque

Recently, GAC Group set up the lithium battery company Yinpai Battery, a total investment of 10.9 billion yuan, the first cell lithium iron phosphate, 2025 to build 26.8GWh, if according to 60KWh/ car, can support 450,000 vehicles.

This incident has once again drawn attention to the delicate relationship between auto giants and upstream lithium suppliers. The intervention of auto giants directly grabs the best market share of lithium battery companies.

Does this represent a direction or trend?

At present, as the core of the lithium battery industry, lithium battery enterprises are suffering from the double squeeze of gross profit margin and market share. When the price of lithium carbonate rises, downstream customers enter to eat the share, which has become a systemic challenge faced by lithium battery enterprises and attracted much attention from the capital market.

01 Integrated impulse

At the World Power Battery Conference in July, the chairman of GAC Group joked that all the money of automobile companies had been made by lithium-ion companies.

This may be GAC determined to intervene in the lithium battery link, after all, the gross profit margin of the main engine factory is too low, if the market, brand and channel is not as mature as the upstream lithium battery manufacturing, then why not do it yourself? This is an easy decision for GAC Group, which is not short of money, without considering other factors such as supply chain security.

Gac is not alone.

In fact, Tesla and BYD, the two electric car giants, are both deeply involved in the lithium battery layout, among which BYD is basically 100% self-sufficient, becoming the standard example of the integration of electric vehicles and lithium batteries.

In addition, NexteV also established NexteV Battery Technology (Anhui) Co., LTD., and began to develop and manufacture lithium batteries. Volkswagen China's acquisition of Guoxuan Technology can also be seen as an integrated layout.

We can expect more electric car giants to get directly involved in the lithium-ion battery business, rather than the initial approach of joint ventures with lithium-ion battery companies or just doing packs as in the past.

Not only power batteries, energy storage batteries also tend to be integrated.

As an energy storage brand and system integrator facing the terminal market, Peineng is self-sufficient in lithium batteries. Compared with other energy storage enterprises, it also belongs to the upstream lithium-electric integration.

In addition, Desai Battery, which has a strategic layout of energy storage business in recent years, has also begun to intervene in upstream lithium batteries, with a planned production capacity of 20GWh and a phase I of 4GWh, focusing on energy storage cells.

In fact, with the breakthrough in the order volume of large energy storage system integration enterprises, those energy storage giants with 10GWh potential orders have enough motivation and impulse to intervene in a highly standardized energy storage battery.

In any case, no matter the power battery or energy storage battery, the downstream electric vehicle enterprises or energy storage enterprises are successively trying to "upward integration", to compete for a share of the lithium battery sector.

For independent lithium battery enterprises, it means that they are losing high-quality customers and the most high-quality market share.

02 Influence geometry?

What impact does this "integration" have on the upstream and downstream of lithium electricity?

This topic should be looked at dialectically, different categories of lithium products or different scale of users are different, the key is to look at the technical barriers.

The higher the technical barriers, the higher the requirements for safety, energy density, cycle times and so on, the stronger the discourse power of lithium enterprises, the more difficult it will be for downstream automobile enterprises or energy storage enterprises to "upward integration".

Three square shell batteries have been showing this characteristic, which is also the head lithium enterprises have been the best site.

Lithium products in this aspect are mainly reflected in the fields of medium and high-end electric passenger cars and specific energy storage, which are also the long-term technical dividends of independent lithium battery enterprises and have certain excess profits.

Moreover, in areas with high safety requirements, outsourcing batteries can also spread the risk, and professional people do professional things.

On the contrary, the more "standardized" mature products, the technical requirements are not obvious, downstream automobile companies or energy storage companies are easy to intervene.

Lithium electric products in this aspect are mainly reflected in the fields of mid and low grade electric passenger cars, commercial vehicles, construction machinery, large energy storage, two-wheeled vehicles, electric exchange and so on. These fields are more sensitive to cost and have a red sea in the medium and long term.

At present, lithium iron phosphate is relatively mature and safe, so it is easier for downstream enterprises to get involved. Gac's first cell is lithium iron phosphate, and the batteries involved by energy storage enterprises are all lithium iron phosphate.

Of course, it is not a mature product such as lithium iron phosphate that downstream enterprises are worth getting involved in. There is a "scale effect" in this process. Only when the demand of downstream enterprises breaks through the scale effect can self-building batteries be economical.

On the other hand, if the demand of downstream electric vehicle enterprises or energy storage enterprises is small and the scale effect is insufficient, it is not of economic significance to build self-batteries.

As the technology continues to mature, this "capacity balance point" will be higher and higher, and there are very few enterprises that can truly "upward integration".

Not everyone is entitled to "upward integration".

According to this logic, a large number of "long tail" downstream lithium battery users do not reach the threshold of scale, such as small and medium-sized electric vehicle enterprises, small and medium-sized energy storage enterprises, commercial vehicles, construction machinery, two-wheeler and PACK integration enterprises, etc., can only rely on third-party lithium battery enterprises.

This also explains why the specialization of the division of labor is obvious in the lead-acid battery era. Although lead-acid batteries are mature and safe and only sensitive to price and service, the downstream market demand is relatively dispersed, while the upstream oligarchic competition reduces costs through scale, and the downstream has no need to build its own batteries. Finally, an industrial pattern dominated by the division of labor is formed.

This brings a lot of enlightenment to the future lithium industry pattern.

From these perspectives, the real downstream challenges facing lithium battery enterprises are mainly mature technologies with large scale demands, and outsourcing is still the main task for areas with high technical requirements or areas with insufficient scale.

Worry and break the game

The "upward integration" of downstream customers, especially automotive and energy storage giants, is not only a systemic challenge faced by lithium battery enterprises, but also a systemic concern of the capital market for the lithium battery industry.

From the above analysis, systemic challenges are not systemic risks.

The mature lithium battery technology favored by "integration" is moving towards the lowest gross margin in the industry, and such gross margin space is only valuable for independent lithium battery companies.

In the short term, some downstream enterprises may have "upward integration" due to profit factors. I believe that after a period of competition and optimization, there are not many downstream customers who are really capable of "upward integration". On the one hand, technical barriers and scale barriers on the other hand. There is no technology, no scale, no room for profit improvement, no supply chain financing convenience, no risk diversification mechanism, it is better to external procurement.

Downstream lithium users will have to go through a process of trial and error to determine if they are suitable for the "integration" strategy.

After all, there hasn't been a "correction" in the lithium industry so far in 2020, but history suggests it will come sooner or later.

For independent lithium enterprises, they should always give full play to their professional advantages: first, technology iteration improves the competitive dimension, upgrades the conversion track, and gets rid of homogenized competition; Second, under the background of homogenized technology, we should give full play to the professional advantages of the third party, control the extreme cost from the supply chain to the manufacturing link, and constantly raise the entry threshold of large-scale production.

This is not only the way to break the game, but also the right way for the industry.

At present, the competitiveness and gross profit margin difference between different lithium enterprises are mainly reflected in the two aspects of technology and cost, that is, to run faster in these two aspects.

We should look at the "upward integration" of lithium in a rational way. The main challenge is the mature technology with large scale demand. For the category with high technical requirements or the users with insufficient scale, outsourcing is still the main problem.

At present, the gross profit margin difference of lithium battery enterprises is large, which also fully explains the significant differences between different enterprises in technical level and cost control. From this point of view, it is full of challenges and variables for downstream enterprises that cross the boundary to do better.

Source: Mr Jiang Jing's capital circle