Chinese battery makers Svolt, Sunwoda, and Ganfeng are rushing to raise funds as prices for key raw material lithium more than double in a year. The country’s regulators are also rolling out a set of new measures in the electric vehicle battery market, including a crackdown on illegal hoarding, as high lithium prices have threatened the profit margins of automakers and could further slow EV adoption in the country.

Why it matters: The spot price of battery-grade lithium carbonate was up 201% in a year, rising RMB 200,000 per ton to RMB 590,000, according to Nov. 11 figures from the metal research institute Shanghai Metals Market. 

  • Analysts said supply and demand have been imbalanced thanks to booming EV sales since 2021. Meanwhile, an output cut of lithium salts due to weather issues in China’s northwestern Qinghai province, as well as advanced orders for next year from battery and material producers, are among the short-term reasons for the skyrocketing lithium prices.
  • An enormous increase in lithium prices over the past few months could also create long-term structural problems such as industrial overcapacity, as companies from battery makers to lithium producers rush to raise cash for manufacturing capacity expansion.

Funding rush: Svolt, Sunwoda, and Ganfeng are among the Chinese battery makers and material suppliers rushing to raise cash as wider EV adoptions open a window of opportunity to sell bonds and shares.

  • Svolt, a battery maker backed by BMW’s manufacturing partner Great Wall Motor, filed for an initial public offering on Nov. 18 in the mainland market to fund the construction of three plants with a combined annual capacity of 106.65 gigawatt-hours (GWh) of batteries.
  • On Nov. 14, Shenzhen-listed Sunwoda completed a share sale in Switzerland, raising $450 million, months after Volkswagen-backed Gotion raised $685 million on the Swiss exchange. A supplier to Xpeng Motors, Sunwoda is building two facilities with a capacity of 80 GWh of batteries annually, an investment of RMB 33.3 billion (nearly $4.7 billion).
  • Ganfeng Lithium plans to spin off its mining subsidiary, Ganfeng LiEnergy, for a possible listing on the Shenzhen stock exchange, according to a security filing published on Wednesday. In August, China’s biggest lithium compounds producer announced a partnership with state-owned automaker GAC for raw material supply and joint development in battery technologies.

New rules: In a document released publicly on Nov. 18, two Chinese government agencies — the Ministry of Industry and Information Technology and the State Administration for Market Regulation — asked local regulators to do more in their crackdown on illegal acts such as hoarding and price-gouging of battery raw materials.

  • The two agencies also jointly urged regional authorities to break down local protectionism, build an open, fair, unified national lithium-ion battery market, and help businesses to address supply chain problems.
  • The central government also voiced concern about “blind development” in battery manufacturing, calling on battery makers and material producers to expand their production capacity “in a scientific and orderly manner” under the supervision of local governments (our translation).

Slimming margins: Rising costs for battery raw materials have hurt the profitability of Chinese EV makers. Nio’s vehicle profit margin declined from 18.1% to 16.4% over three consecutive quarters this year. Meanwhile, the number for Xpeng Motors fell from 12.2% to 9.1% in the first half of 2022.

  • Speaking to analysts during an earnings call on Nov. 10, Nio’s chief executive William Li expected the company’s vehicle margin to remain relatively stable in the current quarter, adding that an increase of RMB 100,000 in lithium carbonate would cut its car margin by 2%.

Jill Shen

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: jill.shen@technode.com or Twitter: @yushan_shen