In Chinese slang, over-indulging is described as “eyes wide, stomach narrow” – much like the English phrase “your eyes are bigger than your belly.” Maybe it characterises the enormous (and growing) appetite of China’s EV battery producers too. Hungry for success, they could have a major problem getting hold of enough of the raw materials they need to feed production, however.
Capacity growth is aggressive: Benchmark Mineral Intelligence reported last November that the Chinese are constructing one giga factory per week, compared to one every four months in the United States. At the end of 2021, China had already had installed battery capacity of 154.5 GWh. But by the end of 2022 that could more than double to 350 GWh and by 2025 it will be many multiples more.
CATL alone hopes to have 520 GWh installed by then. SVOLT, which ranks sixth domestically, has just announced plans for 600 GWh more production by 2025 too, up from 3.22 GWh in 2021.
Where will they get the lithium from? The world’s upstream miners are struggling to bring more projects onstream. As we reported in WiC569, there’s already a bottleneck as most of the newer projects won’t become operational until 2023 at the earliest. Accordingly prices for battery-grade lithium carbonate raced through $40,000 per tonne in China in initial trading this year, according to Benchmark, up from less than $6,000 18 months ago.
Resource-rich countries are also trying to secure more of the windfall profits from this tight supply, including Chile, the world’s second largest lithium producer (it was recently overtaken by Australia). The efforts have been led by the left-leaning Gabriel Boric – recently elected as Chilean president – who is pledging to increase mining taxes and set up a state-owned lithium mining firm in a bid to spread the profits more evenly through Chilean society.
Chinese EV and battery making giant BYD could be the first major casualty. In mid-January, a Chilean appeals court suspended BYD’s erstwhile successful bid for one of two new 80,000-tonne lithium mining contracts. Miguel Vargas, the governor of Copiapo province, had filed the original complaint, alleging that the bidding process violated environmental regulations and the rights of indigenous communities living nearby. Boric’s incoming administration also alleges that the bidding was opaque and rushed through before the new government was formally set to take office on March 11.
The former administration had been trying to boost lithium output from 18,000 tonnes in 2021 to 400,000 by 2030. But critics of the way that the BYD contract has been suspended say this is impossible if foreign investors lose faith in Chile, warning of the economic fallout from disrupting the deal.
BYD’s treatment was a terrible signal for investors, warned one of the most-liked responses to an article on the case in local newspaper El Mercurio. “Venezuela wait for us. Here comes Chile,” the contributor added. “It’s over. It will take decades to generate confidence in the country again,” added another.
It’s estimated that meeting the targets from last year’s COP 26 climate conference will require 17 times more lithium than was produced in 2021. But potential challenges in sourcing supply are yet to suppress the share prices of the world’s major battery producers. CATL is trading at 152 times 2021 earnings, according to S&P Global Market Intelligence, while BYD is quoted at 112 times.
South Korea’s LG Energy Solutions is about to complete the country’s largest ever IPO too, raising W12.7 trillion ($10.8 billion) on the Seoul Stock Exchange. LG ranked as the fifth largest battery manufacturer in China last year and has plans to expand capacity at its overseas plants to 430 GWh by 2025.
SVOLT is not far behind with its own listing plans, with a filing expected next month. The pre-IPO investors include Sany Heavy, Xiaomi, Hans Laser and China Mobile. Its largest shareholder is Baoding Ruimao. That entity is controlled by Wei Jianjun, a tycoon who took control of a struggling car producer from the Baoding government in 1990, turning it into Great Wall Motors, one of China’s best-known SUV manufacturers.
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