20210730-Credit_Suisse-China_xEV_Battery_Value_Chain_Top_players_to_benefit_from_rising_prosperity_26页_1mb

China xEV Battery Value Chain Summary

Core Content

The document discusses the growth and consolidation trends in the China xEV (electric vehicle) battery value chain, highlighting the impact of rising xEV penetration, technological leadership, and cost advantages on market dynamics. It also evaluates the performance of key players and the future outlook for the sector.

Main Points

1. Rising xEV Penetration and Demand Growth

• xEV Sales Forecast: China xEV sales are expected to reach approximately 6 million units by 2025, with a +33% CAGR.
• Battery Demand Growth: The battery value chain, including cathode and lithium producers, is projected to grow at 42% and 36% CAGR, respectively.
• EV Sales Growth: EV sales in China grew significantly in 2021, with a +202% YoY increase in the first half of 2021, reaching 1.2 million units.
• Private Buyers Dominance: Private buyers now account for 88% of EV sales in May 2021, up from 83% in 2020, indicating stronger organic growth.
• Battery Size Increase: The average battery size per BEV increased to ~46KWh, with expectations for further growth.

2. Industry Consolidation

• Top Players Advantage: Leading battery companies, such as CATL, have strong technology and cost leadership, allowing them to manufacture high-end products, expand faster, and maintain higher margins.
• Market Share Growth: CATL's market share rose from 30% in 2017 to 50% in 2020, and is expected to continue gaining share.
• Capacity Expansion: Battery manufacturers are expanding capacity to meet rising demand. In 2021 YTD, ~782GWh of new battery capacity was announced with Rmb340bn in investment.
• Concentration Levels: Industry concentration increased from 75% in 2015 to 89% in 2020, with expectations for further consolidation.

3. Upstream Mineral Producers Outperform

• Upstream Growth: Battery upstream sectors, including both battery materials and minerals, are expected to see a 30-40% CAGR through 2025.
• Profit Distribution: Upstream mineral producers are anticipated to capture most of the profits due to better supply-demand dynamics and stronger pricing power.
• Lithium Price Trends: Lithium prices are expected to double by the September quarter of 2022, with a 70% increase in lithium hydroxide. Prices are expected to remain high through 2023.
• LFP vs. NCM: LFP (lithium iron phosphate) batteries are popular in China due to cost advantages and strong local supply chains, even though they have lower energy density than NCM (nickel-cobalt-manganese) batteries.

4. Key Players and Investment Outlook

CATL

• Market Share: Unchallenged leader with ~50% market share in 2020.
• Rating: Upgraded to OUTPERFORM with a target price of Rmb660 (up from Rmb409).
• Strengths: Strong R&D investment, cost leadership, and capacity expansion.
• Capacity Expansion: Announced multiple capacity expansion projects, including a 14GWh plant in Germany.

Tianqi Lithium

• Fundamentals: Improved fundamentals and a healthier balance sheet.
• Capacity Expansion: Expanding lithium hydroxide production by 48ktpa, with phase one starting in 2022.
• Rating: Maintained as OUTPERFORM.

Ganfeng Lithium

• Solid State Battery: Leading development in the solid state battery field.
• Growth in xEV Segment: Growing xEV battery business.
• Rating: Maintained as OUTPERFORM.

5. Risks and Opportunities

• Upside Risks: Stronger-than-expected downstream demand, tight capacity control, and faster capacity expansion.
• Downside Risks: Weaker demand, fiercer competition, higher raw material costs, and less supportive policies.
• Global Exposure: Companies with higher overseas revenue are expected to benefit more from global EV growth.

6. Korean Battery Makers in China

• Strategic Shift: Korean battery makers, such as LG Chem, are focusing on EU and US markets rather than China.
• China Capacity Decline: For most Korean players, China capacity exposure is expected to decline from 31-57% in 2020 to 19-41% in 2023.
• Tesla Influence: LG Chem maintains a significant China exposure due to its supply to Tesla's China Gigafactory.

Key Information

• EV Growth Drivers: Supportive government policies, subsidies, and infrastructure development (e.g., charging stations).
• Battery Demand Drivers: Rising EV sales, energy storage demand, and global decarbonisation initiatives.
• Lithium Supply Dynamics: Lithium prices are expected to rise due to demand outpacing supply, with a 50kt deficit anticipated in 2022.
• Profit Trends: Upstream mineral producers are expected to gain more profit than cathode makers due to better pricing power and supply-demand balance.
• Technology Leadership: Companies with higher R&D investment and technology leadership are better positioned to maintain margins and gain market share.
• Global Market Expansion: Chinese battery makers are expanding globally, with overseas revenue expected to increase from 10-20% to higher percentages.

Conclusion

The China xEV battery value chain is expected to benefit significantly from rising xEV penetration, driven by favorable policies, private buyer demand, and global decarbonisation goals. Upstream mineral producers are likely to outperform due to better pricing power and supply-demand dynamics, while top players like CATL, Tianqi, and Ganfeng are expected to lead the market due to technology and cost advantages. Industry consolidation is expected to continue, with leading companies gaining more market share and profitability.