Consumers were not affected by the surge in lithium salt prices until the first quarter of 2022 when EV makers began raising retail prices. Tesla raised its prices three times in March, each time by 15,000-30,000 yuan (US$2,240-4,479) on some models, before it raised the price for its popular Model Y in the middle of June in China and the US.
Tesla is not alone. Since March, nearly 30 Chinese EV makers announced price increases, basically covering all mainstream products. In the first quarter alone, over 20 EV makers raised the prices of over 40 models, observed Zhang Xiang, director of the research center for new energy vehicle at Jiangxi New Energy Technology Institute.
Some auto makers halted production of certain models or turned to alternative power solutions using fewer batteries, such as plugin hybrid vehicles. Ora, an EV brand made by China’s Great Wall Motors, stopped taking orders for two of its models in February. CEO Dong Yudong revealed its Black Cat model lost 10,000 yuan (US$1,493) for every unit sold because of rising costs.
Li Xiang, who founded Li Auto, an EV manufacturer headquartered in Beijing, said in a Weibo post in late March that auto brands that have announced price rises are those who already know how much their battery prices will rise. The rest will follow, after figuring out the specific increase in battery cost.
Lithium-ion batteries are widely used in electric cars and portable electronic devices. A battery comprises an anode, cathode, separator, electrolyte and two current collectors, positive and negative. The cathode is a type of metal oxide, and the anode is porous carbon. The electrolyte and separator carry the charge from the anode to the cathode in different directions according to whether the battery is being used or charged.
There are two common types of lithiumion batteries based on the materials used to make the positive electrode: Nickel Manganese Cobalt (NMC) or nickle manganese aluminum (NMA), and Lithium Iron Phosphate (LFP). Lithium carbonate is the key material to make LFP and some NMC/ NMA batteries, while lithium hydroxide is used in some NMC/NMA batteries.
NMC/NMA batteries dominated the global market for years because of their high energy density, or the amount of power according to weight. However, as cobalt is expensive and supply is unstable, in the past two years EV giants, including Tesla, shifted to LFP batteries, with their better performance in safety, cost, lifespan and progress in energy density.
According to the Battery Corporation Union under the China Electronic Energy Saving Technology Association, in the first five months of the year, output of LFP batteries accounted for 61 percent of total EV batteries manufactured in China, with NMC batteries only 39 percent. Newly installed capacity of LFP batteries on EVs stood at 59 percent of the market, leaving 41 percent for NMC/NMA batteries. The growth of output and newly installed capacity of LFP batteries far exceeds those of NMC/NMA batteries, meaning very strong consumption and demand for lithium carbonate. Given this, lithium carbonate prices have had a much greater impact on the EV market than lithium hydroxide prices in the past two years.
In the lithium-centered industrial chain, lithium carbonate and lithium hydroxide, collectively called lithium salts, are produced from lithium minerals, the least-dense metal on the periodic table. Battery material factories refine the raw material and sell positive electrode materials (NMC/NMA or LFP) to battery factories.
The surge in lithium salt prices is transferred along the entire production chain, from producers of lithium salts to battery material factories, battery producers and automobile manufacturers.
Lithium prices rose because of increased demand from a surge in global EV production, and a lithium production slump after a general downturn in the auto industry. The surge in demand caught producers off guard, so when lithium prices spiked, some started hoarding.
Data from Shanghai Metals Market (SMM), a metals information provider, shows that the price of battery-grade lithium carbonate reached 469,000 yuan (US$70,022) per ton on June 22, almost tenfold that in January 2021, after it had risen for over a year.
Li Jigang, general manager of a positive electrode material producer in Tianjin, told NewsChina that lithium carbonate prices rose only moderately in 2021, which was within expectations. But entering 2022, “it began to jump. In January, prices rose by 30,000- 50,000 yuan (around US$4,500-7,500) in just one day. Some lithium producers became reluctant to sell and rejected offers,” Li said.
But in 2021, the rising cost of lithium carbonate had already affected battery production for consumer electronics that also use lithium-ion batteries. “By the end of 2021, some struggling battery factories and battery material producers had already given up. Some simply halted production while others maintained only one-third of their usual capacity to cover the cost of labor and the depreciation of equipment,” a lithium battery manufacturer based in Shenzhen, Guangdong Province told NewsChina, on condition of anonymity.
Li Jigang noted that battery suppliers for consumer electronics are more sensitive to price changes, so this pressure is transferred downstream more quickly. In the automobile sector, though, the process takes longer, so for a while the pressure caused by rising lithium carbonate prices was limited to battery materials.
“It takes about six months for the price pressure to go downstream along the [whole battery] industrial chain from lithium carbonate, battery materials, batteries and finally to the vehicle. At first, every link has to swallow the pressure itself,” Li noted.
Before this round of price hikes, lithium carbonate accounted for one-fifteenth of the cost of producing a lithium battery. But now it accounts for one-third of the entire cost, according to an industry insider who declined to be named.
Under pressure, in November 2021, battery suppliers including BYD and Hefei-based Gotion High-tech, became the first to announce price increases. Contemporary Amperex Technology Co Ltd (CATL), a battery giant in China whose clients include Tesla and BMW, has been more cautious in raising prices. But its executives also revealed during its Q1 earnings call on May 5 that CATL has reached agreement with customers about price adjustments based on metal prices.
In Q1, CATL’s revenue was 48.7 billion yuan (US$7.3b), an increase of 153.79 percent year-on-year, but its net income dropped by 23.62 year-on-year. This is mainly because the company swallowed the rising cost of raw materials in the first quarter, explained its directors on the earnings call. Similarly, in Q1, almost all battery companies witnessed a net income decrease of about 20-30 percent.
Electrode producer Li Jigang told NewsChina that battery material manufacturers are in a similar situation. “The entire chain has been suffering from shrinking profits caused by rising lithium carbonate prices,” Li said.