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Why are the lifepo4 battery companies expanding production on a large scale?

According to incomplete statistics, in the first quarter of 2021, eight leading power battery companies in the industry, including CATL, BYD, Honeycomb Energy, Guoxuan High-Tech, and AVIC LiFePo4 Battery, have successively announced more than 20 newest and planned battery investment and construction projects. The investment is as high as 160 billion yuan, and the annual production capacity exceeds 350GWh.

In 2020, the global installed capacity of power batteries is 137GWh, of which China is 63.6GWh. These expanded battery projects will also be mainly used in the Chinese market. If it is necessary to correspond to this part of the newly added capacity in 2-3 years, the growth rate of the auto market will be at least 3-4 times, and this is only a quarterly plan, and new capacity plans will be added later.

However, according to the forecast of the electric vehicle market, such a large-scale capacity expansion rate has obviously exceeded the growth rate of the automobile market. In that case, why do LiFePo4 Battery companies have to expand production on a large scale?

1. Capacity reserves are used to expand or maintain customers

In the capacity layout diagram, CATL’s expansion rate is the most fierce. The specific capacity plan disclosed in the first quarter of 2020 is as high as 184GWh, accounting for about 50%. This is roughly similar to CATL’s current supply ratio in the LiFePo4 Battery market.

According to the data released by CATL in June 2020, there were already 53GWh of production capacity and 22.2GWh under construction at that time. As of the end of February, the eight major production bases of Ningde Times Ningde Zhangwan District (East Bridge/Hudong/Huxi), Ningde Cheli Bay, Zhaoqing, Fuding, Jiangsu Liyang Base, Sichuan Yibin Base, Qinghai Xining Base, German Factory, and Joint ventures with SAIC, GAC, Dongfeng, FAW, etc. to build production capacity, with a total planned production capacity of more than 300GWh.

Recently, Zeng Yuqun also stated at the National Jiaotong University Forum that in the cooperation model with OEMs, there is a way for car companies to directly buy production lines from the Ningde era and then produce them in the Ningde era. Another way is to establish long-term cooperation between car companies and the Ningde era. Specify the fluctuation range of output, divide fixed production capacity, and provide cash subsidies if the fluctuation range exceeds the specified range.

From the perspective of this kind of cooperation, the production capacity planned by CATL should be part of the production capacity planned by auto companies.

Ningde era supplies are basically all over mainstream car companies, and from 2021, mainstream car companies have begun to invest in heavy electric vehicle models, and the demand for batteries is gradually increasing. Ningde era layouts in advance and gradually releases production capacity to assist car companies in electrification. .

In addition, battery companies in the second and third echelons such as Honeycomb Energy, AVIC LiFePo4 Battery, and Vision AESC are currently seeking new external supply targets, planning part of the production capacity in advance or at least approving the construction site, which will also be useful for future customer expansion. Very advantageous. Moreover, there is also competition among battery companies, and production capacity is also part of it. Therefore, it is not ruled out that battery companies have large-scale deployment in advance in order to establish advantages in production capacity.

In addition, the application field of lithium-ion batteries is becoming more and more extensive. Many battery companies are expanding more application markets in addition to the automotive field. Moreover, foreign countries, especially the European market, have a large demand for power batteries. Energy and other companies have carried out production capacity layout, which is also a part that cannot be ignored.

2. Local government investment promotion creates opportunities for battery companies to expand production

As a way for local governments to attract investment and promote local development, power battery factories have played a certain role in fueling the flames in the production capacity competition of battery companies.

Honeycomb Energy signed the local governments of Suining and Huzhou in one or two months.

Since 2021, Huzhou Investment Promotion Center has signed 20 projects and completed 90% of the set goal of signing a billion-yuan project in the first quarter. The district has gathered nearly 20 core enterprises in the new energy vehicle and key parts industry, and achieved output value last year. 3.327 billion yuan, an increase of 7.5% year-on-year. Weilan New Energy, Honeycomb Energy, Weihong Power, Aoyou Power, Chaowei, Tianneng and other battery and related companies have production capacity plans in this place.

Not only in Huzhou, but also in Hefei, Changzhou, Lingang, Nanjing and other places, the governments of Hefei, Changzhou, Lingang, Nanjing and other places all have investment attraction targets for the power battery industry chain, and have introduced corresponding tax relief, land lease and other welfare policies, and even supporting battery companies. The industrial chain may also have corresponding benefits.

In 2020, in order to build a supporting industrial park for the BYD factory in Bishan District, Chongqing, companies planning to settle on 750 acres of land near the factory can enjoy up to three years of full subsidies for the remaining part of the local level, two years of halving subsidies, and non-productive housing support fees. The maximum reduction is 40%, and the leased plant can enjoy up to 3 years of rental subsidy.

As a supporting part of the automobile industry, power batteries have a long industrial chain, which is beneficial to promoting social employment, absorbing high-tech talents, and enhancing regional technical strength. Therefore, local governments are willing to provide benefits in land and tax to attract battery companies to build production capacity. .

Moreover, the first condition for factory construction is land. The local government's land plan for the construction of various secondary industries is also limited. Battery companies first obtain land when they have benefits, and then control the progress of capacity construction by themselves, and wait for more follow-ups to come in. The supply target can also avoid the lengthy approval process caused by land control when the production capacity is to be expanded.

3. Deploy production capacity in advance to avoid policy tightening

At present, the electric vehicle market is still in the early stage. The government is relatively encouraging LiFePo4 Battery companies to build capacity to promote the local economy. However, if the electric vehicle market matures or the battery capacity construction reaches a certain scale, relevant departments are considering intervening or guiding in macro-factors. The possibility is relatively large.

Looking back at the automotive industry, due to the transformation of the entire industry to electrification, traditional vehicle factories are facing production line transformation. Some fringe car companies due to the epidemic, decline in overall profitability, investment in transformation and other factors have led to idle factories and low capacity utilization. According to statistics from the Passenger Federation, the overall capacity utilization rate of 90 passenger car companies in 2020 is only 51.92%, and low capacity utilization rate is a common phenomenon in the automotive industry.

The Jiangsu Development and Reform Commission is implementing an exit mechanism for some vehicle companies with low capacity utilization and slow construction progress.

When the capacity plan has reached a certain scale or has been relatively mature, the government has a high probability of tightening capacity openings on the one hand, and on the other hand, it may be stricter for future entrants to avoid the previous overcapacity situation.

This approach may also be applied to the battery industry. The overcapacity caused by the large-scale expansion in the early stage will inevitably attract the attention of relevant departments. Once the overcapacity is over, companies that want to enter in the later period may need to make arrangements after clearing some of the idle capacity.

Moreover, as the industry develops later, the policy direction may shift from early guidance to strong supervision at the later stage. Therefore, the threshold for the capacity built in the early stage will be relatively low, and the attitude of local governments will also be guided. However, if the industry's production capacity becomes saturated, government departments may also tighten their macro policies, and the greater the difficulty of building new production capacity in the later period.

Therefore, it is also a good idea for companies that have been deployed in advance to gradually release their production capacity and bring in some new customers to expand their production while supplying them.

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