CATL offers to cut costs for Chinese EV makers

CATL EV battery

CATL, the world’s largest battery maker, has offered to cut costs for Chinese automakers, a move that could widen China’s cost advantage in electric vehicles.

China’s CATL has offered smaller domestic electric-vehicle makers discounted prices on EV batteries, Reuters news report.

The discount offers included a clause that shocked the auto industry after a year of rising prices: a built-in assumption that prices of lithium carbonate, a key component in auto batteries, would more than halve.

The move shows CATL’s cost advantage from its investments in lithium mining and refining, and its determination to knock back the challenge from smaller Chinese rivals such as CALB and EVE Energy which have factories ramping up this year, analysts said.

“It’s very much a market share game,” said Caspar Rawles, chief data officer at Benchmark Mineral Intelligence. “This is, I think, in part, a price war.”

The offer to automakers, including Nio and Geely’s Zeekr unit, that was reported by Reuters earlier this month came with a catch: in exchange for the discount, the automakers would have to pledge most of their battery supply contracts to CATL.

In some cases that share would be as high as 80 percent of their business for CATL. The EV makers are negotiating the offers with CATL.

CATL is the dominant global supplier with a 37 percent share of the EV market.

CATL has faced some pushback from Chinese automakers for its market dominance and pricing. It was not immediately clear how China’s regulators would view CATL’s offer of lower prices in exchange for a fixed share of future orders.

China’s government cost and price regulatory agency said on Thursday its officials had visited CATL earlier this month and said it would “strengthen cooperation” with the company, without providing further details.

CATL’s offer follows a downturn in lithium prices linked to a slowdown in EV sales in China, which accounted for two-thirds of all battery-powered cars sold in 2022.

For consumers, that could bring prices down after a year when manufacturers struggled with supply chains and rising prices for batteries, the largest single cost in an EV.

Tesla, the global EV leader, slashed prices by up to 20 percent in early January globally.

For CATL, the discount is a way to head off a bid by Chinese EV makers to seek alternatives.

Li Auto said it will use SVOLT batteries in its new L7 SUV. Xpeng has developed a fast-charging battery with Sunwoda. The company said last year that CATL was no longer its largest battery supplier.

Nio is planning to build a new battery plant with annual capacity to produce enough to power about 400,000 long-range EVs.

SVOLT, among CATL’s smaller rivals, has also offered discounts on battery supplies, Chinese media have reported.

Electric vehicle demand in China has slowed, with the leading industry association predicting 35 percent growth in 2023, compared to 90 percent in 2022.

Outside China, CATL, which is building new battery plants in Germany and Hungary, is expanding and has deals to supply Ford Motor and BMW. CATL batteries power Volkswagen’s I.D. series and Tesla’s Model 3 and Model Y built in China. Nearly 40 percent of those Teslas were shipped to overseas markets in 2022.

Battery cell prices for EV makers rose about 24 percent last year, said Prabhakar Patil, a battery industry consultant based in Detroit. The CATL offer would represent a total discount of about 6 percent from prevailing prices in China, if an automaker used it to lock in half of planned purchases, according to an estimate by Changjiang Securities.

“The reductions that CATL is offering would help the Chinese EV industry,” said James Frith, a principal at battery-tech focused venture capital group Volta Energy Technologies. “From the Chinese viewpoint, with China having the dominant electric vehicle market, they don’t want to lose that momentum.”