‘Gold rush’ skids Chinese EV battery market into oversupply congestion

China's electric vehicle battery market is becoming mired in oversupply issues while it continues to offer generous government tax benefits.

China's electric vehicle battery market is becoming mired in oversupply issues while it continues to offer generous government tax benefits.

Chinese companies ranging from battery makers to those in unrelated fields such as food conglomerates are entering the battery market to receive state-led incentives.

The South China Morning Post reported on Friday that Jiangxi Judian New Energy Technology plans to invest a total of 10 billion yuan ($1.39 billion) to build production plants to produce solid-state lithium batteries that power EVs in Ganzhou of eastern China, “joining a host of suppliers who are threatening to further flood a market that is already facing overcapacity,” said the article.

The facilities will be able to produce 10 gigawatt-hours (GWh) of batteries in annual capacity.

There are currently nearly 109,000 China-based energy storage companies, a figure which has more than doubled compared to three years ago, the Financial Times reported on Monday.

Chinese battery makers will be able to produce 4,800 GWh annually by 2025, four times the national demand, according to data from Chinese online investment publication Gelonghui.

Escalating worries over battery 'gold rush' Experts worry that as more companies enter the market, it will create an EV battery glut in China, one of the largest EV markets globally.

Six out of 10 globally-leading battery manufacturers are based in China, and the market occupancy will likely continue to grow there. The world’s largest EV battery producer Contemporary Amperex Technology is based in China's Fujian province and it occupied 27.2 percent of the global EV market outside of China in the January-June period this year, according to Seoul-based SNE Research. The figure grew 6.7 percentage points on year compared to the same period the year before. Automaker BYD, based in the Guangdong province, has a 1.6 percent share, up 1.2 percentage points from the year before.

“There was a ‘gold rush’ with a ‘dramatic’ increase” in the number of entrepreneurs targeting battery technologies and projects, the Financial Times said. “Overcapacity remains the greatest risk facing investors buying into China’s battery value chain.”

Such concerns are solidifying into reality as one of China’s largest food makers, Nanfang Black Sesame Group, announced in March that its wholly-owned subsidiary Jianxi Xiaohei Xiaomi Food will change course from food to energy storage and spend 3.5 billion yuan in building a lithium battery production plant.

Chinese battery producers are becoming more globally active too. Last month, lithium-ion battery maker Sunwoda Electronic, based in the Guangdong province in China, announced plans to invest 350 billion won to build a production plant in Hungary’s Nyiregyhaza, its first production site in Europe.

Another lithium battery producer, EVE Energy headquartered in the Guangdong province, held a groundbreaking ceremony on Aug. 7 as part of a 560-billion-won investment to build a cylindrical battery production base in Malaysia.

“Chinese manufacturers entering the global market equates to fiercer competition between them and Korean companies,” said a source close to the matter. “Korean producers need to invest more in next-generation batteries while reducing our reliance on Chinese-based batteries and components.”

Testing the waters between the United States and China Meanwhile, more Korean companies are forming partnerships or joint ventures with Chinese manufacturers in the EV battery space despite concerns over the U.S. Inflation Reduction Act which prohibits companies from receiving subsidies or tax credits from the United States if materials are sourced from non-allied countries such as North Korea, Russia, Iran and China.

“We’re still at the stage of uncertainty when it comes to U.S.-designated ‘foreign entity of concern’ but we cannot wait forever until matters clear up,” said Park Tae-sung, executive vice president of the Korea Battery Industry Association.

Domestic companies such as LG Energy Solution have formed a joint venture with China’s No. 1 cobalt manufacturer HuaYou Cobalt which extracts core raw ingredients such as nickel, cobalt and lithium from waste batteries. Experts worry this will lead to an overabundance of competition and affect existing battery makers and EV makers. As part of the joint venture, construction on a battery recycling plant begins this year and will start operations at the end of next year.

BY YIM JU-RI [lee.jaelim@joongang.co.kr]