Here is Rystad Energy’s weekly battery metals and EV market note from our analysts, Susan Zou and Abhishek Murali:
- EV production and sales in China pick up as lockdowns lift and new tax breaks on sales.
- BYD announces it will switch to only producing electric vehicles starting in March next year.
- Despite the optimism and surging demand, battery material prices have dropped.
China EV production and sales regain strength ahead of the end of Shanghai lockdown, but raw materials prices are down.
Despite the policy optimism, prices of several cathode raw materials have been bogged down in early June.
Prices of cobalt has dropped the most among cathode raw materials inputs.
The price of cobalt hydroxide, the feedstock of cobalt refining, dropped to $27 per pound on cif China basis in early June, compared to $33.8 per pound in early May.
The battery-grade cobalt tetroxide ex-works China fell to 320,000 yuan per tonne in early June, a sharp 20% fall from 400,000 yuan per tonne in May.
Similarly, the price of battery-grade cobalt sulfate dipped to 80,000 yuan per tonne in early June from 105,000 yuan per tonne in early May.
The downturn in the cobalt market is mainly due to the lingering coy sentiment in the Chinese consumer electronics market.
The market share of consumer electronics in terms of demand of cobalt is estimated to account for 36% – only 2% lower than EV – in 2022.
In addition, the improvement of logistics between South Africa and China means more deliveries of cobalt feedstock in the coming months, which puts downward pressure on the prices of various cobalt compounds.
Similar to the case of cobalt, the nickel sulfate price is softening due to the weak nickel complex on the London Metal Exchange (LME), which is a key driver for ternary battery raw material price.
Moving into the second half of 2Q, the LME three-month nickel contract prices mostly sat below $30,000 per tonne at closing time on each trading day, compared to above $32,000 per tonne in April. The battery-grade nickel sulfate price fell to 42,500 yuan per tonne in early June, compared to 46,000 yuan per tonne in early May.
Lithium prices, on the other hand, was quite firm in early June despite all the buzz recently regarding the supply/demand and price forecast from several investment banks.
Looking to the near-to-medium term, the restocking pace among cathode producers in China might be lower during the summer lull, however, the overall tight supply in the upstream mining sector will keep the prices of battery-grade lithium compounds at relatively high levels for the next few months despite potential intermittent price retreats.
Susan Zou, senior analyst
China’s EV production and sales in May recovered from April’s lull as a direct result of the lockdown in Shanghai lifting on June 1.
China produced and sold 466,000 and 447,000 units of EVs respectively in May, both up by nearly 50% month on month.
It is likely that sales will keep the momentum due to recently announced cut in the vehicle purchase tax.
From June 1 to December 31 of 2022, the purchase tax of passenger vehicles with sales price below 300,000 yuan will be cut by half.
The reduction of purchase tax is likely to increase appetites for passenger vehicles, including EVs.
In addition, Xin Guobin, the deputy minister of China’s Ministry of Industry and Information Technology said on June 14 during a press conference that the authority is accelerating the progress in deciding whether the vehicle purchase tax cut policy will be extended for EVs as it is due to be terminated at the end of this year.
Meanwhile, the deputy minster also mentioned China will roll out a pilot trial in some cities where all public transportation will be electrified.
All those measures will help the country to hit its annual EV sales target at 5 million units in 2022.
China’s EV ambitions propel BYD Auto
With growing government targets and investment into EVs, BYD has seen its business grow in leaps and bounds.
Leading the EV market in May, the company sold close to 115,000 EVs in the month of May which accounted for a quarter of the Chinese EV market.
The company’s success in the EV space has also propelled them to be the 3rd largest valued automaker with a market cap of $139.59 billion, behind Tesla and Toyota.
While BYD sold 700,000 vehicles in 2021 against 4th placed Volkswagen’s 8.6 million, BYDs increase in valuation comes on the back of strategic decisions taken by the company.
The major decision being to stop all ICE vehicle production starting in March and shifting over to BEVs and PHEVs entirely.
In addition, BYD Vice President commented that the company would begin supplying cells to Tesla very soon, further increasing confidence in the market regarding readiness of the company to meet upcoming EV demand.
Given that almost half the vehicles produced in Q1 2022 were equipped with LFPs, coupled with only CATL being the supplier of LFP for Tesla, adds up to BYD becoming a very attractive supplier for the American automaker.
BYD is targeting around 1.2-1.5 million EVs to be sold in the given year and is well poised to meet that demand.
Volkswagen’s early push in the US
Volkswagen confirmed they would begin EV production in their Chattanooga plant in the US starting from July, ahead from their initial plans to start in September.
The plant is expected to produce the company’s best-selling EV, the ID.4 in the USA, which is currently supplied from the plant in Zwickau.
One major difference between the vehicles produced in Chattanooga is that the cells used in the vehicle would be provided by SK Innovation’s plant in Georgia per an offtake agreement signed in 2021, against the models produced in Europe which is supplied by LG Energy Solution.