The withdrawal of subsidies has forced battery manufacturers to cut costs, while rising raw material prices are further squeezing the profit margins across the industrial chain. Since the beginning of this year, many sectors within the new energy vehicle industry have faced increasing operational pressures. According to the data from the quarterly reports, it is common for companies in sub-sectors like battery materials, electrolytes, and separators—key components of power batteries—to experience a significant slowdown in performance, declining gross profit margins, and even negative net profit growth. In contrast, upstream raw material suppliers and cathode material manufacturers have benefited from the rise in raw material prices, with their stock prices and performance rising together, and many companies reporting profit increases of over 100%.
Analysts noted that under the dual pressure of subsidy reductions and higher raw material costs, car manufacturers are shifting some of the burden to the power battery sector. Since the start of the year, the price of power batteries has dropped by 20% to 30%, and the pressure on high-profit margins, overcapacity, and weak bargaining power has been passed down the supply chain.
Performance differences have become evident. From the perspective of the quarterly reports, the impact of subsidy cuts on vehicle manufacturers’ performance has been clear. For example, Jianghuai Automobile reported revenue of 35.541 billion yuan in the first three quarters, a slight decrease of 6.79% year-on-year, and net profit attributable to shareholders of listed companies fell by 73.24%. The decline was attributed to reduced new energy vehicle subsidies and lower passenger vehicle sales. Similarly, BYD saw a 1.56% increase in revenue but a 23.82% drop in net profit, with analysts attributing the pressure to subsidy cuts and increased expenses.
New energy auto analysts pointed out that vehicle manufacturers, who have strong influence in the supply chain, are gradually passing the pressure of subsidy reductions to the upper parts of the industry. This year, midstream companies such as battery and motor producers have experienced greater pricing pressure.
Guoxin Securities analysts noted that the battery segment is bearing the most pressure from both upstream and downstream. In 2016, battery costs were around 2.2-2.3 yuan/Wh, dropping to 1.6-1.7 yuan/Wh in 2017—a nearly 30% reduction.
Correspondingly, the quarterly reports show that companies involved in power batteries, electrolytes, and separators have seen slowed performance and declining gross margins, with “increased revenue without increased profits†becoming common. Some companies even reported negative net profit growth.
Star Source Materials, a leading diaphragm manufacturer, saw a 1.15% increase in operating income but a 25.73% drop in net profit. Tianci Materials, which holds nearly 20% of the domestic electrolyte market share, reported a 13.96% rise in revenue but a 12.26% fall in net profit. The company expects a full-year net profit change of -25% to 5%. Lithium Fluoride, a key supplier of lithium hexafluorophosphate, also saw an increase in revenue but a 45.02% drop in net profit.
On the other hand, upstream raw material suppliers and cathode material manufacturers have benefited from rising raw material prices, with their stock prices and performance soaring. Huayou Cobalt, Yanfeng Lithium, and Greentech reported significant revenue and profit growth, with stock prices rising sharply. Ascension Technology, a cathode material manufacturer, saw a 58.20% increase in revenue and a 192% increase in net profit, with its stock price rising nearly one-third.
Multiple challenges have emerged this year. Analysts note that despite similar revenue levels to last year, the drop in subsidies has significantly impacted overall industry profits. Vehicle manufacturers, with strong bargaining power, have pushed battery makers to cut prices, forcing them to focus on cost control. This has led to the elimination of about 30 mid-sized battery factories, with remaining companies needing to reduce costs, which has resulted in sharp price drops in segments like diaphragms, electrolytes, and negatives.
Mo Ke highlighted that diaphragm companies are particularly uncomfortable, as their high gross margins have been squeezed. With the release of excess capacity in recent years, the downward pressure on prices is expected to continue. For negative electrode materials and electrolytes, profitability has been squeezed due to rising raw material prices and falling downstream prices. Needle coke prices, for example, have risen from 3,500 yuan/ton to over 15,000 yuan/ton, but low-margin anode materials struggle to pass on these costs.
For lithium hexafluorophosphate, a key component, prices have fallen sharply as production capacity expands and demand decreases. Prices have dropped from over 300,000 yuan/ton to around 140,000 yuan/ton, while raw material costs like hydrofluoric acid and lithium carbonate have risen, putting further pressure on manufacturers.
Cathode material manufacturers, however, have had a better time, especially those producing triple-cell batteries. Their gross margins have recovered, reaching 20%-30%, thanks to rising raw material prices.
Looking ahead, analysts expect that the overall decline in upstream raw material costs may not be sustained. Domestic cobalt prices are expected to continue rising, while lithium carbonate may enter a downward trend next year. Negative electrode prices may stabilize or even rise as supply-side reforms progress.
Despite the current challenges, the industry’s profitability is expected to improve. With growing demand driven by electric vehicle production and sales, and continued support for raw material prices, lithium hexafluorophosphate and electrolyte prices are expected to stabilize. Diaphragm prices are likely to continue declining, requiring companies to focus on technological innovation to survive.
With the goal of achieving a battery system cost of 1 yuan/Wh by 2020, the industry still has a long way to go. Companies must rely on continuous innovation and product upgrades to maintain competitiveness and absorb the impact of subsidy reductions.
Recent policies, including fuel economy compensation rules, have also boosted the new energy vehicle industry. As a result, the New Energy Vehicle Index has shown positive trends, signaling potential growth in the sector.
In the third quarter, new energy vehicle theme funds performed exceptionally well. Several funds achieved returns exceeding 30%, with some reaching as high as 92.49%. Investors remain optimistic about the long-term prospects of the industry, with recommendations focusing on lithium, high-end equipment manufacturers, and leading vehicle producers.
Overall, while challenges persist, the new energy vehicle industry remains a promising area for investment, with continued policy support and growing demand driving future growth.
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