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(Bloomberg) — China battery makers face another tough year, challenged by overcapacity, weakening demand and falling prices, according to BloombergNEF.
With the top two producers, Contemporary Amperex Technology Co Ltd. and BYD Co., accounting for more than 50% of the market, smaller rivals are at higher risk of having their plants downsized, delayed or even canceled, given low utilization rates across the supply chain, BNEF said in the report published Tuesday.
“Cell prices will likely remain low throughout 2024, until less qualified and less established players quit,” BNEF analysts Jiayan Shi said in the report. “This rebalancing of demand and supply should last more than a year.”
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While the mismatch between supply and demand has resulted in fierce competition, helping drive down costs, it has also squeezed profit margins at many battery makers, pushing out smaller producers.
China’s fast-expanding energy storage market has offered more resilient demand compared to the electric vehicle sector, BNEF said. As the certification process for energy storage is easier compared to EVs, less-competitive producers will try to secure share in the sector to survive.
However, energy storage’s projected growth won’t be enough to offset the slowdown in the much larger EV sector in the next three to five years, the report said. Over 70% of China’s batteries output in 2023 went to electric cars, while only less than 20% was used in energy storage, BNEF data shows.
China’s early aggressive push to match EV demand with more output will result in a projected overcapacity ratio of six times domestic demand this year, BNEF estimates. Given demand isn’t matching expectations, many projects in China, just like in Europe and the US, could be delayed or scrapped altogether.
The rate of overcapacity is set to peak in 2025 and only gradually decline to an overcapacity ratio of around four-and-a-half times by the end of the decade, and that is before any new additional projects get announced, the report said.
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