TrendForce Expects China’s xEV Policies to Influence Supply-Demand Situation of Cylindrical Lithium Cells for IT Applications

China’s flourishing x-electric vehicle (xEV) market kept domestic and foreign lithium battery manufacturers from Japan and South Korea running at full capacity in 2015, according to EnergyTrend, a division of TrendForce. The xEV boom has encouraged manufacturers not only to accelerate their capacity expansion efforts in China but also reallocate their capacities to boost xEV battery production. Consequently, there was a supply shortage of cylindrical cells used in information technology (IT) applications during the second half of last year. On the other hand, the Chinese government has begun phasing out price subsidy for xEV purchase since this January, leading to a more cautious market sentiment. Hence, xEV battery demand is expected to weaken and its pressure on the IT cell capacity will start to ease.

“Prices of IT cylindrical cells stopped falling in the fourth quarter of 2015 due to tight supply and may start to bounce back in the first quarter of this year,” said Duff Lu, research manager for EnergyTrend. “Whether the IT cell market will be tipped in favor of the sellers will depend on China’s xEV policies.”

The lithium polymer cell market has witnessed fierce competition recently. Chinese second-tier battery makers attempted to expand their polymer cell market shares with aggressive pricing in final quarter of 2015. Moreover, there will be new entrants to this market in the first quarter of this year, and their additional capacity may drive down prices further.

As for the prismatic cell market, prices will remain fairly constant in this year’s first quarter, fluctuating within the usual range of 2~3% compared with the prior quarter. The steady price trend is attributed to the lack of significant changes in the overall polymer cell capacity and the lack of growth in the product’s penetration rate.

China’s xEV battery industry is due for a shakeout as the market demands products that meet safety standards

The Chinese government originally plans to gradually reduce the subsidy rate for xEV purchase over the 2016~2020 period, and the program will officially end after 2020. However, many local government agencies have already made large cuts to the subsidy rate or suspended the program all together, causing panics in the xEV industry.

With regard to the lithium battery industry, the Chinese government continues to promote the localization of component manufacturing and use energy density as the main benchmark for industry development. As the xEV subsidy rate decreases every year, battery manufacturers have to improve the efficiency of their products to reduce costs. Currently, a Chinese-made lithium cell can reach an energy density of at least 180 watt-hours per kilogram, and its cost can be kept at RMB 2 per watt-hour or under. Though the Chinese lithium battery industry met the energy density target set by the government ahead of schedule, this achievement came at the expense of the product safety and battery life. The quality problems with Chinese cells have caused numerous safety incidents for plug-in cars and buses in recent years.

“The short-term outlook of the lithium battery market may be worrying as the Chinese government scales back xEV subsidies and implements stricter standards on related product specifications,” said Lu. “Nonetheless, a careful examination of the new policies will reveal that the government is actually helping the xEV and battery industries to make the necessary transitions so that their products would be mature enough to compete with traditional fuel vehicles in the long run. Thus, subsidy program have to be more complete and product standards have to be revised in order to move the xEV industry forward.”