China EV Battery Sales-To-Production Drops To 56% - Mass Layoffs!

An employee at CALB, the country's third-largest battery manufacturer, was surprised by the company's sudden wage cuts, layoffs, and lower output. The employee was perplexed by the industry's collapse, noting that surrounding manufacturers were also experiencing layoffs and employment losses due to poor orders.

CALB, situated in Changzhou, Jiangsu province, reduced labour hours and reduced compensation in late 2022. By February, the company's hiring had been halted, and its staff had shrunk from 8,000 to 1,000 personnel. Employees were caught off guard by the industry slump, which coincided with a boom in electric vehicle (EV) sales and a supply deficit in the power battery business in the first half of 2022.

Oversupply from last year's battery investment frenzy during the market boom, combined with a drop in auto sales, resulted in a substantial imbalance between battery demand and supply. The sales-to-production ratio in China's EV battery sector declined to 56.4% in the fourth quarter of 2022. During that time, battery manufacturing climbed by 4.8% month on month, while sales plummeted by roughly 40%.

Slowing demand and a price war in China's auto market, combined with the end of government subsidies for EVs, all contributed to decreasing demand, which was transferred up the supply chain. Price of lithium carbonate, a critical raw ingredient for power batteries, has decreased by half in four months and has been trading below RMB300,000 (MYR194,000) per tonne since late March.

CATL, the world's largest battery maker, provided significantly lower pricing to automakers in February to secure orders and face tough competition. This action exposed the effects of overcapacity and a slowing market. These forces are projected to keep lithium prices falling.

Due to an investment frenzy during the last two years, the battery sector has experienced overcapacity. The rush to establish lithium and battery-related enterprises has resulted in an increase in supply that has surpassed demand. As a result, battery manufacturers have been obliged to cut output and inventory levels.

Faced with fierce competition, Chinese battery manufacturers are expanding financing channels and exploring new markets abroad. However, several projects have been pushed back due to geopolitical issues. With ambitions to develop manufacturing in Germany and Hungary, European markets appear to be a more accessible alternative for Chinese battery producers.

One such expansion was CATL’s production facility at Thuringia, Germany which began production back in April 2023 primarily focused on fulfilling European automakers demand. The German facility which now produces 8GWh of battery capacity per year has potentials of pushing production up to 14GWh.

As the sector faces uncertainty, Chinese battery businesses are looking for prospects in the energy storage business, which provides a more clear industry policy picture. Despite the enthusiasm of vendors of energy storage devices, actual operational corporations have been less enthusiastic.

Source: ThinkChina.sg