Several Chinese manufacturers could benefit from particularly low prices on the batteries of their electric cars by sourcing from CATL. In exchange, the battery manufacturer requires them to buy almost exclusively from him.
The Chinese battery giant CATL finds itself increasingly in competition with other manufacturers. To retain its customers, CATL cannot rely exclusively on its innovations. So, the manufacturer offers a particularly attractive offer to certain Chinese car manufacturers to retain them. According to Chinese media 36KR, on February 17, 2023, the manufacturers NIO, Li Auto, Huawei and Zeekr have already signed an agreement binding them to CATL against a nice discount. Tesla, which uses LFP batteries from CATL, would not be entitled to this price reduction.
CATL explicitly engages in a price war. It will be interesting to watch how competitors, such as BYD and other Chinese companies, react. If the information only concerns Chinese manufacturers for the moment, with weak exports to Europe, we can hope that the price war will spread and end up affecting all manufacturers.
Tariffs of 200,000 yuan per ton, instead of 470,000 yuan
Lithium has risen sharply in recent years, in the face of rising demand. The leader CATL did not hesitate to follow the rise in prices, ensuring a comfortable margin along the way. Up to 40% price increases have been observed by car manufacturers, who then struggle to pass on this increase to the price of electric cars. However, other battery manufacturers have not passed on the rise in raw materials to their customers as much.
Some manufacturers, CATL customers, have started to see if the grass was not greener elsewhere, with other battery manufacturers, which are a little smaller and more demanding. New alliances have therefore been formed in recent months, which has forced CATL to change its strategy and offer this loyalty discount.
Battery-grade lithium is listed at around 470,000 RMB per ton – or around €64,000/ton. With CATL’s proposal, affected Chinese automakers could purchase batteries at a cost of RMB 200,000 per ton of lithium – or €27,250/ton. CATL would bear part of the cost of the raw material over the next few years. The manufacturer has also asked its suppliers to lower their prices by 10%.
Manufacturers who sign the cooperation agreement with CATL will undoubtedly be able to significantly reduce the battery cost pressure on the price of their electric cars, starting in the third quarter of 2023.
A discount conditional on quasi-exclusivity with CATL
To obtain this discount, car manufacturers who benefit from it must commit to supplying 80% CATL batteries. A form of exclusive contract which certainly explains why Tesla cannot be affected by the discount. CATL’s LFP batteries represent only a small portion of Tesla’s battery purchases, which would not qualify it for such a price discount.
The main European manufacturers have chosen to diversify their supplies from several battery manufacturers in order to be able to meet demand, but also to control the price of batteries. Under these conditions, it is unlikely that other manufacturers will be able to benefit from the CATL loyalty offer. Especially since we still do not know if it is reserved only for Chinese manufacturers, to compensate for the end of Chinese government subsidies. However, we can hope that the price war will extend to other battery manufacturers, so that we can benefit from electric car batteries at more affordable prices.
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