Author: Zhou Yuan/Wall Street News

On March 18, Zhejiang Huayou Cobalt announced that its holding subsidiary Tianjin Bamo Technology had signed a Strategic Cooperation Agreement with Weilan New Energy, and the two parties will carry out in-depth cooperation in the field of Solid State Battery, focusing on the joint development and resource integration of Cathode Material.

According to the agreement, Weilan New Energy will act as the strategic supplier of Cathode Material for Bamo Technology, while Bamo Technology promises to prioritize the procurement of its products and offer price discounts, aiming to enhance Zhejiang Huayou Cobalt's innovation capability and market competitiveness in the New Energy materials field; the development of the Cathode Material system includes but is not limited to lithium-rich manganese-based and other Cathode Materials for both hybrid solid-liquid and all-solid-state Lithium Battery.

Although the agreement does not yet involve specific Orders or amounts, this cooperation marks a key step in the upstream and downstream coordination of the Solid State Battery Industry Chain.

Nickel: Core Metal of Cathode Material

Although Zhejiang Huayou Cobalt is named after 'cobalt', the layout of nickel resources has become the core artery of its New Energy Business.

According to Zhejiang Huayou Cobalt's Earnings Reports for the first half of 2024, the company's revenue structure is centered on Nickel Business and Lithium Battery Materials Business, accounting for more than 58% in total (28.94% Nickel + 29.28% Lithium Battery Materials), with cobalt revenue accounting for 7.38%, Copper Business revenue accounting for 9.85%, and Other Business accounting for 24.55%.

Among them, the lithium battery materials business is roughly equivalent to lithium battery cathode precursors, including ternary precursors, cathode materials, and cobalt tetroxide.

The cathode materials for solid state batteries rely on high nickel technology routes, with nickel costs accounting for over 40%.

According to an announcement by Zhejiang Huayou Cobalt in 2021, the company has invested in nickel-cobalt projects worth 2.08 billion USD (which are operational), a project for 0.12 million tons of nickel metal (including 0.015 million tons of cobalt), and the Huayue nickel-cobalt project.

According to the 2022 ESG report from Zhejiang Huayou Cobalt, its annual production capacity for cobalt mines in the Democratic Republic of the Congo is 0.015 million tons, with a self-sufficiency rate of approximately 50%.

What is the strategic significance of Zhejiang Huayou Cobalt's self-sufficiency in nickel resources?

If nickel prices remain high (currently approximately 0.022 million USD/ton at LME), the cost advantage of self-produced nickel for Zhejiang Huayou Cobalt could bring a gross margin increase of 5-8 percentage points, whereas the market only views it as a "cyclical follow-up symbol."

What is the cost of self-produced nickel for Zhejiang Huayou Cobalt?

According to the report "Analysis of the Current Development Status of China’s Nonferrous Metals Mining Industry" published by Guosen Securities on April 29, 2022, the nickel-cobalt project of Zhejiang Huayou Cobalt in Indonesia has a hydrometallurgical cost of approximately 8000-10000 USD/ton for laterite nickel ore, significantly lower than the domestic pyrometallurgical cost of 12000 USD/ton.

Zhejiang Huayou Cobalt is extending from the resource end to downstream, and the Cathode Material business determines whether it can escape the "Mining Cycle" label. The cooperation on Solid State Battery is essentially binding the technical route, competing for the high nickel ternary market.

According to the "2022 Zhejiang Huayou Cobalt Research Report: Solidifying the Nonferrous Metals Business Foundation, Perfecting the Lithium Battery Upstream Layout" released by The Pacific Securities on October 25, 2022, it is estimated that by 2025, Zhejiang Huayou Cobalt’s ternary precursor production capacity will reach 0.4 million tons (with a Global market share of about 20%), and the Cathode Material production capacity will exceed 0.15 million tons.

The main components of ternary precursors are hydroxides of nickel, cobalt, and manganese (or aluminum), with nickel having the highest cost share (usually over 50%). Therefore, fluctuations in nickel prices will directly affect the production costs of precursors and thus influence the gross margin: in the first half of 2024, Zhejiang Huayou Cobalt's ternary precursor gross margin was 15.9%, indicating a decline in profitability.

Previously, Zhejiang Huayou Cobalt's customer structure included leading companies like Contemporary Amperex Technology, LG New Energy, and Ningbo Ronbay New Energy Technology, accounting for over 70%; whereas Weilan New Energy, as a new force in Solid State Batteries (ranking third in domestic installation volume in 2024), can open new customer channels for Zhejiang Huayou Cobalt through this cooperation.

Zhejiang Huayou Cobalt generally has the impression of being "large but not strong," but if the integrated layout (nickel mine → precursor → Cathode) fully realizes the cost advantage of the entire chain -- on the premise that the nickel self-sufficiency rate improves and a long-term contract is locked in with Weilan (contract details not disclosed) -- then the company’s gross margin is expected to align with Ningbo Ronbay New Energy Technology.

Regarding the future technological progress and market space for Solid State Batteries, if a breakthrough is achieved, the demand for high nickel ternary will explode (1 GWh of battery requires 1,500 tons of Cathode Material).

This is the core of the future expected differences for Zhejiang Huayou Cobalt.

What is the progress of Solid State Battery implementation?

Solid State Batteries are regarded as the core direction of next-generation battery technology due to their high energy density, safety, and wide temperature range performance. Currently, their commercial application scenarios are extending from new energy vehicles to diverse fields, such as robotics.

Currently, the industrialization of Solid State Batteries presents characteristics and paths of "semi-solid transition and full solid breakthrough."

From January to July 2024, investments in China's Solid State Battery sector exceeded 64 billion yuan, with newly planned production capacity exceeding 140 GWh, primarily focusing on the semi-solid technology route.

Companies such as Weilan New Energy and Qingt陶 Energy have achieved mass production of semi-solid batteries and are supporting high-end electric vehicle models; Weilan New Energy's lithium-rich manganese-based cathode and Huineng Technology's oxide electrolyte are in the pilot test stage; the energy density of semi-solid batteries has reached 400-500 Wh/kg, an improvement of over 30% compared to liquid batteries.

Full Solid State Batteries are still in the technical breakthrough stage, with key challenges including the large-scale production of sulfide electrolytes and optimizing the interface impedance of cathode and anode materials. According to Guosen, full Solid State Batteries are expected to enter mass application after 2028.

The primary market has a strong interest in Solid State Battery technology. Data from High-tech Lithium Battery show that financing for Solid State Batteries is expected to increase by over 200% year-on-year in 2024.

According to Guosheng Securities, global demand for Solid State Batteries is expected to reach 17.3 GWh by 2025 and is likely to exceed 200 GWh by 2030, with a compound annual growth rate of 65.8%.

Despite the broad prospects, the commercialization of Solid State Batteries still faces multiple obstacles, mainly including technical bottlenecks, high costs, and immature industry chain support.

All Solid State Batteries must overcome issues related to electrolyte materials (such as conductivity of sulfide, mechanical strength of oxides) and interface stability. Although Huawei's recently announced silicon-based Anode Material patent has improved cycle performance, the overall material system still requires iteration.

The cost of Semi-Solid Batteries is about 2-3 times that of traditional liquid batteries, and the cost of All Solid State Batteries is even higher. Large-scale cost reduction relies on process optimization and supply chain maturity, for example, the cooperation between Zhejiang Huayou Cobalt and Weilan New Energy is expected to lower the cost of Cathode Material through resource integration.

From equipment, materials to packaging technology, reconstruction is required. For instance, sulfide electrolytes have stringent requirements for production environments, making it difficult for existing production lines to directly accommodate them.

Observing the strategic cooperation between Zhejiang Huayou Cobalt and Weilan New Energy, the focus is on strengthening the competitiveness of the Cathode Material, which may accelerate the transition of Solid State Batteries from the laboratory to the market.