China’s EV Battery Market Faces Turbulence Amidst Weak Demand

Panasonic EV battery

In a recent report, TrendForce highlights the challenges facing China’s electric vehicle (EV) battery market as it grapples with a notable lack of demand.

EV battery suppliers are hesitant to replenish their inventories, opting instead to deplete existing stocks. This trend has led to insufficient demand, causing a continuous decline in prices of upstream lithium materials and the average selling price (ASP) of power cells.

As of October, the ASP of power cells in China continued to decline, although the rate of decrease somewhat stabilized compared to previous months. Specifically, EV batteries saw a 2 percent price reduction, consumer LCO batteries decreased by 1.3 percent, and energy storage cells experienced the most significant drop at 3.3 percent.

The persistent weak demand in both the EV and energy storage sectors has forced battery suppliers to slow down their raw material procurement. With the traditional peak season now behind us, a significant improvement in demand before the end of the year seems unlikely.

This situation is expected to increase the difficulty for midstream and downstream firms in depleting their inventories and will delay the time required for inventory adjustments. Upstream companies are advised to adjust their production capacities promptly to prevent excessive stockpiling, which could lead to intensified price wars.

In the energy storage sector, the market witnessed a noticeable contraction in order volumes in October, primarily due to a decline in demand from overseas markets. This disruption has negatively affected export orders for battery suppliers, leading to increased industry inventory levels and fierce competition in battery pricing.

The average price of LFP cells dropped to CNY 0.5/Wh, with the lowest prices nearing CNY 0.4/Wh. It is expected that prices of energy storage cells will continue to fall in November due to high inventory levels and reduced end-user demand.

However, there was a slight demand recovery in the consumer electronics sector in October. The launch of new products breathed some life back into the market and provided a boost to digital consumer end-products.

A slight increase in the price of cobalt provided some support to battery costs. Yet, it wasn’t sufficient to offset the pressure from the simultaneous drop in the prices of lithium carbonate and other raw materials, resulting in a continued decline in the price of LCO batteries in October. The rate of decline slowed to 1.3 percent, with expectations for prices to stabilize in November.

Looking ahead to 2024, the Chinese new energy vehicle (NEV) market is expected to maintain strong growth, with further growth anticipated in the EV markets in Europe and North America, particularly in the US, where the EV penetration rate remains below 10 percent.

In the short term, the US market is likely to rely on the Chinese supply chain due to Europe’s slow progress in localizing its EV battery industry and the dominance of Japanese and Korean battery suppliers in the US market. Consequently, Chinese lithium-ion battery exports are projected to perform well in 2024.

However, the ongoing release of new production capacity and scaling up in the Chinese lithium-ion battery industry in 2023 is expected to lead to overcapacity, extending into 2024, with EV battery prices anticipated to continue their slow decline.