Lithium-ion battery raw materials are rising like a rainbow, electric car manufacturers have no choice
The rising price of lithium battery raw materials is transmitted to the whole vehicle, which is the main reason that the major new energy vehicle manufacturers emphasize when adjusting the price. However, in the long run, the power of the OEMs in the whole industrial chain will be improved.
Hot topic
Since this year, price rise has become a hot topic in the new energy vehicle market. New energy vehicles have repeatedly announced price increases in two months, and Tesla has also raised prices twice in five days.
The rising price of raw materials is transmitted to the whole vehicle, which is the main reason emphasized by the major new energy vehicle manufacturers. This also highlights the urgent need to improve the supply chain system of new energy vehicle manufacturers.
The current supply chain dilemma of new energy vehicles is caused by many factors. These factors have different effects on the deterioration of the supply chain of new energy vehicles, and the primary and secondary contradictions have been transformed. Supply chain dilemmas in 2021 and 2022 are not driven by exactly the same factors.
The supply chain dilemma of new energy vehicles began before 2022, when the main contradiction was the capacity expansion of upstream raw materials and components, which could not keep up with the rapid growth of the industry demand.
In 2021, the incremental production and sales of New energy vehicles in China increased by 160% year on year, while the capacity of raw materials and parts in the upstream is limited, and there is a cycle of expansion. Demand exceeds supply, leading to the dilemma of “lack of battery raw materials and chips” in the first half of new energy vehicles.
Upstream of new energy vehicles, raw materials are lithium, aluminum, copper, nickel, cobalt and so on. Years of failure to expand capacity at these mines, coupled with disruptions caused by the pandemic – in July 2020, several companies at Chilean copper mines shut down due to the pandemic-have led to a surge in prices of non-ferrous metals.
Copper
New energy vehicles use four times as much copper as conventional fuel vehicles. About 91 kilograms of copper are needed for each new energy vehicle.
Take refined copper for example, from 2010 to now, although most years are sometimes in short supply of refined copper, but the refined copper shortage is not large, but the shortage reached a peak of 960,000 tons in 2020 – that year the global demand for refined copper 24.98 million tons, the global supply of refined copper 24.02 million tons – and that year copper concentrate inventory declined, highlighting copper as a representative of the base metal demand and insufficient capacity.
Lithium hydroxide
Commodity futures speculation on the spot market transmission also played a role in boosting prices. In May 2021, the CME launched a lithium hydroxide futures product.
Around the same time, the Chinese stainless steel market also started forward trading of spot lithium carbonate. Since both lithium hydroxide and lithium carbonate are relatively small futures, their fivefold increase from 2021 to now cannot be ruled out as a result of speculation in the futures market causing spot prices to soar.
The price of lithium hydroxide for one-month delivery on the Chicago Board of Trade, for example, has risen by double digits on a monthly basis since August 2021. While this does not necessarily mean manipulation, it does indicate that prices in the futures market are highly volatile and likely to be transmitted to the spot market.
Car chip
The problem of car chip tension is also very prominent, the number of chips used in new energy vehicles is hundreds of thousands. None of these automotive chips require advanced manufacturing processes. The technical difficulty is not high, but the capacity supply elasticity is insufficient.
In the years when supply chains were disrupted by the pandemic, most OEMs stocked only a week’s worth of parts. When parts ran out, OEMs were left without jobs. After learning these lessons, since the epidemic, a large wave of automotive chip demand is from OEMs replenishment inventory. That has pushed demand even higher, exacerbating the shortage of car chips.
Labor shortage
The labor shortage caused by the epidemic is a secondary contradiction in the first half stage of the supply chain dilemma.
To sum up, the supply chain dilemma of new energy vehicles in the first half stage of the epidemic in 2021 is mainly due to strong demand. Both copper mines and chip manufacturers have not planned enough capacity to deal with the outbreak of new energy vehicles before the epidemic.
The epidemic just brought together some of the structural problems that already existed in the industry. These structural problems superimposed on the supply chain of the disturbance caused by the new energy vehicles “difficult to find a chip” situation. Before this year, the direct impact of the epidemic on the entire new energy vehicle industry chain seems to be short-term and temporary. By 2022, things have changed.
Since the beginning of this year, the logistics disruption caused by the epidemic may really deal a core blow to the new energy vehicle industry.
Russia-Ukraine war
The Russia-Ukraine war strained the shipping situation, which had been eased somewhat. Three months later, the Yangtze River Delta region of China was severely affected by the epidemic. Dockers stayed at home and faced a severe labor shortage.
Due to the zero-inventory concept of JIT, OEMs and upstream parts factories will gather within an effective radius to facilitate subsequent logistics transportation, thus forming automobile industry chain cluster.
The Yangtze River Delta itself is the location of an important automotive industry chain cluster. Tesla, Ideo and Nio have factories in the area. From the chip point of view, the current domestic car chip accounted for less than ten percent of the chip consumption of new energy vehicles.
Most car chips are shipped by sea and land. Parts factories are scattered in Zhejiang, Jiangsu and Anhui provinces. From motors, batteries and reduction gearboxes to door locks, seats, lidar and tires, thousands of components are needed to assemble a car. If one of the parts is not in place, the car is not finished.
Supply chain crisis
The supply chain crisis of new energy vehicles will also bring many far-reaching effects.
The first is the safety of cars. Even if all the other parts are in place, even if a seat belt bearing is missing, the car is not complete.
Second, rising production costs and car prices are likely to become a long-term phenomenon. The concept of zero or less inventory is no longer viable in a long supply chain industry like automobiles.
The increase in inventories is bound to increase the pressure on auto makers’ capital, the cost of which will eventually be passed on to vehicle prices.
The bankruptcy of upstream enterprises destroys the whole supply chain ecology. The vulnerability of smes in the upstream automotive supply chain to the epidemic risk.
If a large number of small and medium-sized enterprises in the upstream supply chain go bankrupt because of supply chain destruction, it will produce a negative spiral, and further deteriorate the supply chain of new energy vehicles in China.
