In July, which was supposed to be the traditional low season for NEV markets, sales unexpectedly exploded. The penetration rate of new energy vehicles broke through the 50% mark for the first time, thanks to market discount rates that have repeatedly reached new highs and strong trade-in policies.

The power battery market also fully benefited. In July of this year, domestic power battery production reached 91.8 GWh, up 8.6% month-on-month, up 33.1% year on year; sales reached 86.3 GWh, up 49.9% year on year, down 6.4% month on month; installed capacity reached 41.6 GWh, up 29% year on year and 2.9% month on month.

Furthermore, with the launch of semi-solid battery production capacity by some battery manufacturers in the second half of the year, the installed capacity level of semi-solid state batteries has also increased markedly, and Weilan New Energy is no longer the only one for Weilan New Energy. In July, the installed capacity of solid-state batteries reached 0.52 GWh, and the share of total installed capacity continued to grow by 1.3%.

1. The battery production rate has reached a record high, and inventory pressure is high

The domestic power battery market is facing increasing inventory pressure and overcapacity problems.

Since this year, the growth rate of battery installed capacity has continued to lag behind the production level, leading to a gradual increase in the scale between battery production and installed capacity. The accumulated power battery inventory in the first seven months of this year has reached 276.9 GWh, including 199.5 GWh for lithium iron phosphate batteries and 125.6 GWh for ternary lithium batteries.

This has also led to a record high domestic power battery production rate (ratio between power battery production and installed capacity). The level in the first 7 months of this year reached 2.13, far exceeding the level of 2022 to 2023.

According to Wall Street News and Insight Research, the rapid increase in power battery production is the result of the continuous acceleration of production capacity expansion by major power battery manufacturers. Take the leading Ningde era as an example. In the first half of the year, actual battery production capacity increased by 27.2%, and battery production capacity under construction increased by 53%. However, the sales growth rate of terminal new energy vehicles (17% compared to the previous 7 months) is difficult to reach the same level, so a decline in battery inventory and overall battery capacity utilization is inevitable.

Even in the Ningde era, the battery capacity utilization rate in the first half of this year fell below the 70% mark to 65.33%. Not to mention other second- and third-tier power battery manufacturers, the capacity utilization rate is already hovering near the 50% life and death line.

2. The export of lithium iron phosphate batteries overtook ternary lithium batteries

In July of this year, lithium iron phosphate batteries not only continued to dominate the domestic battery market, but exports also began to overtake the same month-on-month growth rate.

The production, sales and loading volume of lithium iron phosphate batteries reached 68.5 GWh, 41.8 GWh, and 30.1 GWh, respectively, up 43.2%, 28.8%, and 39.2% year-on-year, accounting for 74.7%, 67.1% and 72.5%.

The production, sales and loading volume of ternary lithium batteries reached 23 GWh, 20.2 GWh, and 11.4 GWh, respectively, up 9.7%, 2.5%, and 7.5% year-on-year, accounting for 25.1%, 32.5% and 27.3%.

As for exports, overseas NEV companies' demand for lithium iron phosphate batteries has accelerated, and overseas battery manufacturers have also begun to officially switch to lithium iron phosphate batteries.

Specifically, car companies such as Volkswagen and Strantis have publicly announced that the next generation of new models will be equipped with lithium iron phosphate batteries; in July of this year, LG New Energy also received the first major order for lithium iron phosphate batteries, with an order of 39 GWH from Amere, an electric vehicle subsidiary under Renault Group (accounting for 41% of LG New Energy's total installed capacity in 2023).

Domestic lithium iron phosphate battery exports are also growing rapidly at the same time. In the first 7 months, the export volume of lithium iron phosphate batteries reached 27.4 GWh, up 41.1% year on year, far higher than ternary lithium batteries (-10.7%), and the share increased by 9.2 percentage points to 39.3% year on year.

3. Semi-solid state batteries welcome new players

Among the new types of batteries that have received much attention in the market, the installed capacity of sodium-ion batteries was cleared for the first time in July. Since the price of lithium carbonate has fallen below 0.08 million yuan/ton, sodium-ion batteries, which have no cost advantage, have basically disappeared, yet semi-solid batteries have performed excellently.

The installed capacity of semi-solid state batteries in the first 7 months reached 2.68 GWh, accounting for 1.1% of the total installed capacity of power batteries. The month-on-month growth rate of installed capacity in each month surpassed that of liquid lithium batteries.

Moreover, Weilan New Energy is not the only supporting battery manufacturer. Other semi-solid state battery manufacturers such as Qingtao Energy and Huineng Technology also officially joined in July. Considering that the planned production capacity of solid-state batteries for the first 7 months of this year alone has already exceeded 140 GWh (of which 1 GWh production capacity of Huineng Technology and Lingxin New Energy has already begun to be implemented), and the investment amount has exceeded 65 billion yuan, the installed capacity of semi-solid state batteries is expected to continue to grow at a high rate in the future.

3. Domestic and foreign battery manufacturers are polarized at the pace of expansion of production

This year is a year in which the power battery industry is mired in a price war, collective overcapacity, and a return in corporate profits. The power battery market continues to be fiercely competitive, and the number of eliminated people is endless.

As Yang Hongxin, chairman of Honeycomb Energy, stated at the Global Partner Summit in July, “The lithium battery market is being phased out at an accelerated pace. There may not be more than 40 power battery companies by the end of this year, and it will still be an accelerated phase of elimination next year.”

As of July of this year, a total of 51 power battery companies in China's NEV market have achieved loading support, and the market share of the rear manufacturers has dropped to 4%. Judging from this, 11 power battery companies may face the risk of going out of the market in the second half of the year.

On the other hand, the top ten manufacturers with installed power batteries have a very stable position. It can be described as “an iron faucet, the tail of flowing water.” In the first seven months of this year, only one power battery manufacturer, Funeng Technology, was replaced by Ruipu Lanjun; nothing else changed.

Despite the serious internal situation, domestic battery manufacturers have not slowed down production expansion in order to bind downstream customers and guarantee market share. Take the newcomer Ruipu Lanjun as an example. Ruipu Lanjun's battery production capacity doubled 20 times to 62 GWh in less than 4 years, and it was further announced in the second quarter of this year that it will build the first overseas battery factory in Indonesia.

It is worth noting that domestic power battery manufacturers are not the only ones facing such difficulties; the same is true for overseas power battery manufacturers. In the first half of this year, Japan and South Korea entered the top ten battery manufacturers, with no exceptions, all regressed in market share. Among them, Panasonic even experienced a negative increase of -25.1% in installed capacity. In the second quarter of this year, the operating profits of these four battery manufacturers also all fell sharply year on year. The operating profit of these four battery manufacturers also fell sharply year on year. Among them, the operating profit of SK ON fell 250% year on year to -2.39 billion yuan.

However, unlike domestic battery manufacturers that still maintain a trend of expanding production capacity, overseas battery manufacturers with declining market share, poor installed capacity growth, and sharp decline in profits have decided to slow down the pace of production expansion. Taking LG New Energy as an example, LG New Energy said it will make adjustments to several battery construction projects, including suspending construction of an ESS battery facility in Arizona and slowing down construction of a third battery plant with General Motors in Michigan.

There are two main reasons behind it:

First, in the European and American markets, the main battleground for Japanese and Korean battery manufacturers, many car companies such as GM, Mercedes-Benz, Ford, and Audi will slow down the progress of electrification and extend the period of full electrification until 2030 or even further, so overall demand is declining.

Second, it is difficult for Japanese and South Korean battery manufacturers to squeeze into the world's largest market — the Chinese power battery market. Currently, LG New Energy, which is the only brand in the Chinese market, has no advantage in terms of internal volume intensity in the domestic market. The market share ranking has dropped from the previous TOP5 level to now 10th place, and it may be out of the market at any time.

In summary, lithium batteries are still in a tough competition, and the previous incremental competition has changed to stock competition. As the battery price war continues to heat up, the alternation of rankings and shuffling among power battery manufacturers may usher in a further acceleration.