China’s EV battery sector may face reshuffle

24 Dec 2018

Potential changes to China's electric vehicle (EV) subsidy policy next year may require domestic battery manufacturers to rethink their product structure.

The Chinese government is likely to cancel its subsidies for lithium-ion batteries with an energy density below 140Wh/kg in 2019. Beijing may also remove subsidies for electric passenger cars that have a driving range of less than 200km next year, as well as reduce subsidies for EVs with a driving range of higher than 200km.

These potential changes are expected to boost demand for battery-related metals such as nickel, cobalt, manganese and lithium, as nickel-cobalt-manganese (NCM) lithium-ion ternary material has a higher energy density than lithium-iron-phosphate cathode material.

The authorities in February abolished subsidies for lithium-ion batteries with an energy density below 105Wh/kg compared with 90Wh/kg in 2017. The government in the same month also cancelled a subsidy of 20,000 yuan ($2,900) for pure EVs with a driving range of below 150km and reduced the subsidy for EVs with a range of 150-200km to Yn15,000 from Yn36,000. The subsidy for those that have a range of 200-250km was lowered to Yn24,000 from Yn36,000, while the subsidy for those with a range of 250-300km was slashed by Yn10,000 to Yn34,000.

These moves are designed to encourage manufacturers to raise production of lithium-ion batteries with higher energy density and in turn boost the use of EVs with longer ranges.

Subsidy strategy

Battery manufacturers may be driven to reduce production of lithium-iron-phosphate batteries and switch to NCM lithium-ion ternary batteries or nickel-cobalt-aluminium oxide (NCA) batteries for their higher energy density, to secure government subsidies in 2019.

The energy density for lithium-iron-phosphate batteries produced in China is around 120Wh/kg, with only a few domestic manufacturers able to produce batteries with density higher than 150Wh/kg. This indicates that most EVs with lithium-iron-phosphate batteries will not receive subsidies next year. Ternary batteries' energy density, on the other hand, is as high as 180Wh/kg and forecast to increase further in the next few years.

Several large manufacturers with advanced technologies to produce batteries with higher energy density will maintain production of lithium-iron-phosphate batteries, which have a longer life and are safer and more stable than NCM and NCA ternary batteries. But most domestic producers of lithium-iron-phosphate batteries are expected to reduce their output by 30pc in 2019.

Many smaller manufacturers with limited finances are expected to switch to producing batteries with higher energy density to obtain government subsidies.

Material changes

Higher subsidies and production of electric passenger cars have in the last few years encouraged major battery materials manufacturers to increase their production of ternary batteries.

Technological advances have also enabled large Chinese producers such as Beijing Easpring Materials Technology, Ningbo Ronbay New Energy and Tianjin BTR to produce 8-1-1 and 6-2-2 NCM ternary materials to reduce cobalt costs and boost energy density, in response to the shift in the government's subsidy policy to increase production of lithium-ion batteries with longer driving ranges.

NCM lithium-ion ternary material typically comprises 50pc nickel, 20pc cobalt and 30pc manganese (5-2-3 NiCoMn) in China. But many producers are aiming to change the proportion to 6-2-2 or 8-1-1 NiCoMn by the end of this year. The higher nickel content in NCM material can improve an EV's driving range.

Beijing Easpring aims to raise its total capacity for ternary cathode material to 50,000 t/yr in 2020 from 16,000 t/yr now.

Large domestic cobalt producer Huayou Cobalt is building a new production line with 150,000 t/yr of NCM capacity in Tongxiang, Zhejiang province.

Construction company Sichuan Road and Bridge is developing a lithium-ion battery material plant, which will produce 10,000 t/yr of NCM ternary cathode material and 20,000 t/yr of precursor material.

Lithium-ion battery cathode material producer Ningbo Ronbay will build a new production base with a design capacity of 100,000 t/yr for NCM battery cathode materials and 200,000 t/yr for precursors.

Chinese battery material manufacturer Green Eco-Manufacture will form a joint venture with domestic stainless steel producer Tsingshan to produce ternary cathode materials for lithium-ion batteries, with an initial target of 50,000 t/yr of ternary precursor and 20,000 t/yr of NCM and NCA cathode material.

NCM in focus

NCM batteries are expected to become the mainstream power source for new energy vehicles (NEVs) in the next 20 years. Global NCM demand is projected to reach 4mn t/yr in 2030, growing with a compound annual growth rate of 32pc from 2020.

More than 90pc of pure-electric and plug-in hybrid cars in China this year are equipped with NCM and NCA ternary batteries, while lithium-iron-phosphate batteries are mainly used in electric buses, according to a list of recommended EV models published by China's industry and information technology ministry.

China's production of NCM lithium-ion ternary material increased by 58pc on the year to 86,000t in 2017, while output of lithium iron phosphate material rose by just 1.75pc to 58,000t. The rise in production of NCM lithium-ion ternary materials will lift demand for nickel sulphate in particular.

The country's domestic nickel sulphate capacity rose by 50pc to 440,000 t/yr in 2017. This is expected to reach above 500,000 t/yr in 2018. The global supply deficit for nickel was likely 80,000t in 2017, rising to 130,000t in 2018.

China sold 1,030,000 and produced 1,054,000 NEVs during January-November this year, up by 68pc and 63.6pc respectively from a year earlier, according to data from China's automotive manufacturers association CAAM. The country is expected to exceed its initial target of producing 1mn EVs in 2018, following rises in output over the past few months.