China’s escalating auto price war engulfs conventional car market; battery metals impacted further

China’s battery material market has taken a further hit, with the industry’s price war among auto makers spreading to conventional carmakers and battering new energy vehicle (NEV) makers with sluggish sales, sources said

The wave of price cuts was initially sparked by Tesla’s discounts offered in January this year and soon, makers of internal-combustion-engine vehicles (ICEVs) joined the war to slash prices even more in March.

The steeper discounts from conventional carmakers come against the backdrop of the “China VI” vehicle emission standards, which is believed to be one of the world’s strictest rules on automobile pollutants.

The policy is set to go into effect on July 1 and unqualified legacy vehicles face the risk of being squeezed out of the market. This has prompted conventional carmakers to rapidly liquidate inventories, sources said.

The fierce competition from conventional carmakers is not good news to the electric vehicle (EV) market, especially as the discontinued subsidies that kicked in at the end of 2022 have hampered consumption, Fastmarkets heard.

Price cuts across the supply chain

“Layoffs, production cuts and working hour caps are no longer surprising news in the [EV] industry now,” a battery metal market insider said, adding that the price cuts are not particular to end users.

Precursor operation rates only stand at 20-30%, sources said, while battery makers were heard to be even running on stream lower than this. This went some way to explaining the freefall in upstream battery metal prices.

And this is in stark contrast to last year when the EV market was entering its prime.

Fastmarkets’ weekly price assessment for lithium carbonate 99% Li2CO3 min, technical and industrial grade, spot price range exw domestic China was pegged at 140,000-180,000 ($20,343-26,155) yuan per tonne on April 6, more than halved from one year before when the price was gaining upward momentum.

Fastmarkets’ weekly price assessment for nickel sulfate min 21%, max 22.5%; cobalt 10ppm max, exw China was 36,000-37,000 yuan per tonne on April 7, in comparison to a high at 47,000-48,000 yuan per tonne one year before. This is the sixth straight week that the price has been on a losing streak.

“There is market chatter circulating on nickel matte output cuts, which actually makes sense, given the reduced demands from nickel sulfate and precursor plants,” a Shanghai-based nickel trader source said.

Race ‘to survive’ in battery materials market

Market sources described the intensifying price war as a survival challenge for the sector, which could revamp the whole industry and drive uncompetitive businesses out of the game.

More than 40 brands have joined the price-cut bandwagon so far, as both makers for NEV and ICEV are standing off in a bid to woo customers, Fastmarkets heard.

One of the most eye-popping offers was made by state-owned Dongfeng Motor group. Jointly funded by the local provincial government, the Hubei-based carmaker in central China slashed prices as much as around 40% off its listed price.

“Major producers are able to secure cheaper materials, which gives them the scope to lower prices and boost order books, but this would put smaller players in a dilemma, where they don’t have the capability to do so,” said a battery maker source.

Slower-than-expected recovery

In hopes of a demand recovery, producers along the EV value chains have been clearing inventories in the past months, which sources said could lead to a “low” feedstock inventory level in April. Nonetheless, this has not brought any rebound in sight – yet.

“Everyone is waiting for a rebound in the market but, ultimately it should still depend on the actual downstream consumption, not stock levels,” an industry source said.

A less-intensive price war is expected in the second half of this year, sources said, citing that implementing “China VI” vehicle emission standards might result in conventional carmakers slowing their rush for sales.

Sources previously pinpointed that April would mark the turning point, after the EV industry passed its seasonal off-peak period and the surge in Covid-19 infections in the first quarter.

Alongside the pressure brought on by the fossil-fuel-powered carmakers, sources are of the view that falling lithium prices are the other factor hindering demand recovery.

“The dive in lithium prices just shocked us and no one knows where the bottom would be, which also curbed buying sentiment,” a nickel trader source said in Shanghai.

Keep up to date with the latest news and insights on our dedicated battery materials market page.

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