n November 1, Lithium Americas Corp (LAC), a lithium developer headquartered in Canada, made a $400 million stock-and-cash offer for Canada’s Millennial Lithium Corp. LAC outbid Chinese battery giant Contemporary Amperex Technology Co Ltd (CATL), which offered to buy LAC for 377 million Canadian dollars (US$303m) in September, kicking off another round of bids over the Argentina-focused lithium miner.
CATL’s bid in September outbid a July offer of CAD$353 million (US$284m) from Ganfeng Lithium, China’s largest lithium salts producer. CATL, the world’s largest battery manufacturer for electric vehicles (EVs), had until November 16 to beat LAC’s bid.
The bidding war comes amid spikes in demand for EV lithium batteries as automakers around the world expand their electric fleets. In China, the world’s largest automobile market, about 2.14 million new energy vehicles (NEV), the vast majority of which are batterypowered, were sold in the first 10 months of this year, almost triple the same period last year, according to data from the China Passenger Car Association (CPCA).
A report from industry consultants CCID Group said the exponential growth of electronic vehicles has caught battery firms unprepared. According to Cui Dongshu, secretary general of the CPCA, the supply-demand gap for NEV batteries could reach 30-40 percent this year.
Several major Chinese battery manufactures have announced plans to expand production. In August, CATL announced that it aimed to raise up to 58.2 billion yuan (US$8.98b) to fund six projects to boost production capacity of lithium-ion batteries.
Ganfeng Lithium also announced plans in August to invest 8.4 billion yuan (US$1.3b) to build two facilities with a combined production capacity of 15 gigawatt-hours (GWh) per year. The same month, EVE Energy, one of China’s top 10 lithium battery producers, announced plans to build two lithium-ion production facilities with a total capacity of 30GWh in Central China’s Hebei Province.
But while China leads the world in lithium battery production and lithium processing, it has to source the bulk of its raw lithium elsewhere, mostly from Australia, Chile and Argentina. As Chinese battery manufacturers expand production, securing lithium supplies has become the biggest focus.
Rocketing lithium prices adds to their anxieties. With demand up and global supply chains disrupted, raw lithium prices reached record highs this year. In Australia, spodumene concentrate, one of the most important lithium ore minerals, surged to US$2,350 per dry metric ton on October 29, 80 percent more than three months earlier.
In China’s domestic market, the price of battery-grade lithium carbonate is now trading at 195,000 yuan (US$30,500) per ton, an almost four-fold increase compared to a year ago, according to data from baiinfo.com, which tracks China’s bulk commodity market.
Some of China’s battery manufacturers, especially those that have not invested in lithium interests, are feeling the squeeze. Despite the increased demand and sales, gross profit margins of several major Chinese lithium-ion battery producers are in decline. EVE Energy reported a Q3 gross profit margin of 22 percent, 10 percent down on the same period of 2020. It is also the fourth consecutive quarter that the company recorded a decline in its gross profit margin, mostly due to rising prices of raw lithium products.
According to Cao Guangping, an industry analyst, battery manufacturers are in a weaker bargaining position compared to automobile firms despite the increased demand.
So far, few major battery firms have hiked prices to compensate for higher raw materials costs.
The only major battery producer that has resorted to raising prices is BYD, China’s largest NEV company and second-largest domestic battery supplier. On October 26, citing rising lithium costs BYD announced that it would raise unit prices of its battery products by no less than 20 percent from November 1.
It is worth noting that BYD mainly makes batteries for its own vehicles, and it only began supplying to other brands in 2018. It remains unclear whether BYD’s price hike would apply to battery products supplied to other brands.
After Tesla raised the sticker price of its Model 3 in May, some speculated that CATL might follow suit with a 10 percent price increase. CATL has yet to so do.
Analysts believe that CATL can afford to maintain its current prices because of its massive investment in lithium interests in the past couple of years, which enable it to absorb much of the costs of rising lithium prices.
In September 2019, CATL purchased an 8.5 percent stake in Australian lithium developer Pilbara Minerals to secure its supply of lithium concentrates. The same month, the company acquired an 8 percent equity stake in Canada-based lithium brine explorer Neo Lithium, which also owns the prized Tres Quebradas (3Q) project in Argentina. There is no doubt that these investments have paid off.
As lithium prices continue to rise, more companies are joining the buying spree. In October, Chinese mining company Zijin Mining Group proposed to acquire Neo Lithium Corp for CAD$960 million (US$770m).
Though outbid by CATL in the Millennial deal, Ganfeng Lithium signed two acquisition deals worth US$272.5 million that include lithium projects in Argentina, Mexico and Germany.
In September, Australia’s AVZ Minerals announced that it had secured US$240 million in funding from a private investment firm jointly owned by CATL to develop the Manono project in the Democratic Republic of the Congo. The Manono project has one of the world’s largest deposits of LCT (lithium, cesium and tantalum) pegmatite, a form of coarse igneous rock containing crystallized elements.
Under the agreement, private equity firm Suzhou CATH Energy Technologies will retain a 24 percent stake in the joint venture.
So far this year, China-based mining and battery firms have won bids for five development-stage lithium projects valued at US$1.58 billion, according to S&P Global Market Intelligence.
According to an estimate from gg-ib.com, an industry information platform, more than 20 domestic lithium battery companies have invested in raw lithium resources both at home and abroad this year to secure supply.
“What drives these companies to enter the lithium mining and production business is concerns over the security and stability of lithium supply,” Mo Ke, founder and CEO of True Lithium Research told NewsChina. “It has strategic importance,” Mo added.
“As the future of the development of new energy is now quite clear, fierce competition over lithium mineral resources around the globe will become the norm,” said Yu Qingjiao, secretary general of the Zhongguancun New Battery Technology Innovation Alliance.