It has been reported by both Reuters and the Financial Times that Volkswagen Group (VW) is considering taking a 20% stake in Chinese lithium ion battery cell producer Guoxuan Hi-Tech Company as part of its growing electric vehicle (EV) plans.
With its wholesale shift towards EVs, VW, 2019’s second-largest auto maker globally, has been taking a more public and leading role across the breadth of the supply chain. In 2019, for example, VW announced deals at both the up and downstream stages of the supply chain, including its joint venture battery megafactory with Northvolt in Germany and a long-term lithium supply deal with Ganfeng Lithium.
But for many, these news stories are the first time they have heard about Guoxuan Hi-Tech. So what do we know about them?
Guoxuan Hi-Tech: A Battery Cells & Cathode Strategy
Guoxuan Hi-Tech, does not grab as many headlines as China’s larger domestic battery producers such as BYD and CATL, however, it has a sizeable lithium ion battery cell manufacturing footprint.
Headquartered in Hefei, Anhui province, Guoxuan Hi Tech’s flagship lithium ion battery plant has 8GWh of annual production in capacity as of Benchmark’s December 2019 Lithium ion Battery Megafactory Assessment.
In addition, it has two further active battery cell plants within China and another under construction bringing its total production capacity in 2019 to 13 GWh, enough to make over 236,000 EVs with a 55kWh battery pack average.
Interestingly, Guoxuan Hi-Tech is semi integrated with its own lithium iron phosphate (LFP) cathode production capacity and its activity in making LFP cells for China’s e-bus market has given it an estimated 5-7% market share in 2019.
The producer has plans to expand this further, with NCM 622 cathode production facilities under construction.
Reviewing the company’s total cathode pipeline, capacity could climb to 80,000 tonnes over the coming year, according to the Benchmark Minerals Cathode Market Assessment.
Will there be enough Tier 1 battery cells?
At a broader, national scale, there are many lithium ion battery producers with megafactories in the pipeline or in production in China.
The country is by far the leader in terms of both installed lithium ion battery cell capacity and pipeline capacity out to 2029.
China’s pipeline capacity has been increasing at an aggressive rate which sees China accounting for 69% of global capacity in the pipeline with 83 battery megafactories, totalling 1,526GWh of capacity by 2029, as of December 2019 data from Benchmark’s Lithium Ion Battery Megafactory Assessment. Of China’s 83 battery plants in the pipeline, 47 had active capacity in 2019.
Although Chinese companies dominate the megafactory landscape today, the majority of this present and future capacity is coming from Tier 2 or Tier 3 suppliers, and not the Tier 1 quality and consistency needed by western automakers like VW.
It is a challenge all western automotive producers face: will there be enough Tier 1 battery cell producers to supply enough battery cells for their EV plans?
In 2019, only 38% of global capacity came from Tier 1 suppliers. Looking out to 2029 32% of global capacity in the pipeline is set to come from Tier 1 battery manufacturers, whereas only 19% of Chinese battery cell capacity in 2029 is set to be of Tier 1 quality.
Today, the situation for Chinese manufacturers is even more severe: only 11% of China’s lithium ion cell capacity in 2019 was from Tier 1 suppliers.
Many domestic Chinese battery producers are therefore presently locked out of lucrative EV markets in Europe and North America, while at the same time also struggling with stalling demand growth at home following last year’s NEV subsidy cuts.
These factors, coupled with capacity over-expansions and tightening margins for domestic battery producers in China are likely to lead to consolidation, as many of these producers will struggle to remain profitable in the coming months and years.
With the pressures facing Chinese battery manufacturers, auto OEMs and larger battery manufacturers may be able to find acquisition opportunities going forward.
It also makes sense for leading automotive producers to now partner with Tier 2 producers in order to increase their quality to a Tier 1 standard, especially considering the increasing dominance of today’s Tier 1 battery producers such as LG Chem, Panasonic, and Samsung SDI.
This is a free article from Benchmark Membership, the leading source of lithium ion supply chain analysis, features, and presentations, drawing from Benchmark Mineral Intelligence’s analysts expert insight and extensive data sets.
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