Based on the present circumstances, it is inevitable that the excessive surge in battery raw material prices will eventually impact OEMs. The current situation clearly indicates that the skyrocketing costs of battery components will soon extend and affect original equipment manufacturers (OEMs).
According to a recent report from Nikkei Asia, the cost of electric vehicle batteries is expected to increase in 2022. This marks a significant shift following ten years of consistent price declines. The reason behind this anticipated rise stems from the insufficient supply of essential raw materials such as lithium, which cannot keep pace with the soaring demand for electric vehicles.
Towards the end of 2021, news began to circulate in the industry about an increase in battery prices. The letter of a BYD "Battery Price Increase Contact Letter" caused a stir in October of last year. According to the letter, BYD Lithium Battery Company had made the decision to hike the unit price of CO8M and other battery products. This would be implemented from the 1st of November, with a unified increase of no less than 20%.
Last year, several battery companies made a significant move by announcing a series of price increases or giving signals indicating future price hikes. It is quite an interesting coincidence that many of these companies have taken similar steps simultaneously.
Ganfeng Lithium, a major supplier of raw materials, announced a price hike of 100,000 yuan per ton for its entire range of metal lithium products in a recent price adjustment letter issued on October 9. This move has taken many by surprise as it follows the trend of raw material price increases observed lately.
Moreover, Penghui Energy, another crucial player in the field of raw materials, has also issued a price increase letter on October 17. This letter announced a rise in prices for various raw material projects and cited recent price changes. The letter also highlighted the acute shortage of raw materials and the fact that many material suppliers now require cash payments for goods pickup. Additionally, suppliers are unable to guarantee the availability of supplies due to the rapidly changing market conditions.
Guoxuan Hi-Tech recently released a negotiation letter regarding the adjustment of prices. The company cites the increasing costs of cathode materials, electrolytes, copper foils, and aluminum foils as the main reason for this decision. Despite efforts to minimize these impacts on customers and partners, the results have been unsatisfactory. Therefore, Guoxuan Hi-Tech has decided to initiate a second round of negotiations with parties who have previously signed orders in order to reach an agreement that benefits all parties involved.
It comes as no surprise that the small battery companies have raised their prices, as they have all cited reasons related to the increasing costs of raw materials. One might question just how severe this price increase has been to warrant such action from these companies.
First Electric has been closely monitoring the prices of lithium metal, lithium carbonate, and lithium iron phosphate from December until now. These prices have been compiled into a line chart for reference. Here is the rearranged content:
"First Electric in Longzhong Information has been tracking the prices of lithium metal, lithium carbonate, and lithium iron phosphate since December. We have observed their price fluctuations and recorded the data to create a line chart for your reference."
The cost of cobalt and nickel has been on an upward trend recently. Cobalt prices have seen a doubling since the start of 2021, reaching 70,208 per tonne. Meanwhile, nickel prices have gone up 15% to 20,045. These increases are causing concern in various industries that rely on these metals for their production. It remains to be seen how sustained these high prices will be.
When it comes to making decisions about pricing, battery companies have a lot to consider. One of the biggest factors is ensuring that they remain competitive in the market. Increasing prices can drive away customers, but failing to maintain a profitable margin can be equally harmful to the company's bottom line.
Another factor that companies must consider is the cost of production. If the cost of materials or labor increases, the company may need to bump up its prices to maintain profitability. However, if they can find ways to streamline their processes or negotiate better prices with their suppliers, they may be able to avoid price increases altogether.
Ultimately, pricing decisions are a balancing act between the needs of the company and the expectations of its customers. Companies must carefully weigh all of these factors and make informed decisions about when to increase prices and by how much. By doing so, they can remain competitive in the market while also maintaining a solid profit margin.
Difficult!
According to BYD's recent letter, it has been revealed that raw material costs for the lithium battery industry will continue to soar in 2021. In particular, the price of cathode material lithium cobalt oxide is anticipated to surge by more than 200%, while the price of electrolyte is expected to increase by more than 150%. Furthermore, the supply of negative electrode materials remains tight, which will result in a significant rise in comprehensive costs. These findings have been substantiated by Penghui Energy's recent price adjustment notice, where they have even provided a comparative list of raw material prices with large increases to validate the pressure on raw material prices. This highlights the challenges that manufacturers in the lithium battery industry face in terms of controlling production costs amidst these price hikes.
Based on the latest three quarterly reports of Penghui Energy, the company's operating income for the third quarter reached 1.44 billion yuan, showing a significant growth of 24% compared to the previous year. However, the net profit experienced a decline, standing at 45.6 million yuan, indicating a decrease of 35% year-on-year.
The escalating expenses of power batteries have reached a point where they surpass the profit margins of the majority of power battery companies. With the current cost increase ranging from 30% to 40%, these companies will face significant challenges in generating profits without the ability to raise prices. In the long run, their survival might be in jeopardy due to these circumstances.
CATL is one battery company that appears to be weathering the storm of increased raw material prices. Unlike other companies facing immense pressure, CATL's gross profit remains unaffected. The company's third-quarter financial report revealed a slight increase in its gross profit margin compared to the previous quarter. This positive outcome sets CATL apart as a strong player in the battery industry, capable of mitigating market challenges and maintaining stability.