2024-08-13
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Author: Eastland
Header image｜Movie "Forrest Gump"
On July 27, 2024, CATL (ZH: 300750) disclosed its 2024 Semi-Annual Report. In the first half of 2024, with revenue down 11.9%, its non-GAAP net profit increased by 14.25%, and its profit margin increased by 2.7 percentage points year-on-year.
Lithium cathode material is the most important raw material for power batteries, accounting for about 30% of the total cost. At the end of 2022, battery-grade lithium carbonate was nearly 600,000 yuan per ton. In 2024, the price of lithium carbonate fell below the three integer thresholds of 100,000 yuan, 90,000 yuan, and 80,000 yuan. With the lithium price falling like this, CATL certainly benefited.
In addition to CATL, new energy vehicle manufacturers and buyers also benefited from the dividends.
The price of battery-grade lithium carbonate has risen from 50,000 to 60,000 yuan per ton in 2015 to 150,000, 200,000, and 300,000 yuan per ton, and even to a maximum of over 600,000 yuan... These are all spot prices.
CATL and BYD will not carry their "baskets" to the market every morning to buy lithium carbonate. Key raw materials must be sourced and prices finalized through long-term contracts, otherwise the bosses will not be able to sleep well. Most (for example, 70%) of the raw materials put into production for each batch have been put into storage several months ago.
Spot goods are a supplement to long-term contracts. If the spot price is low, purchase more and store them in the warehouse; otherwise, purchase less spot goods and try to use inventory to meet production needs.
As a supplier, we dare not only sell spot goods. Most of the production capacity (for example, 70%) must be confirmed by buyers and prices through long-term contracts, otherwise the boss will not be able to sleep well. If the spot market is hot, we can sell more and make a profit. Otherwise, we will reduce the supply.
The determination of long-term contract prices will be affected by spot prices, and the specific terms are commercial secrets.
Calculating the average shipping price based on the sales revenue and sales volume disclosed in the annual report (including sales in both long-term contracts and spot sales) can reflect the market conditions more realistically and accurately.
Ganfeng Lithium (ZH: 002460) mainly deals in lithium products and is upstream of power battery manufacturers such as CATL.
In 2017 and 2018, the shipping price of Ganfeng's lithium materials was only slightly higher than 100,000 yuan/ton; it fell significantly between 2019 and 2021;
What's out of control is that in 2022, the shipping price soared to 355,000 yuan/ton, equivalent to 413% of that in 2019!
It will fall back to 240,000 yuan/ton in 2023, equivalent to 280% of that in 2019.
In 2020, affected by the epidemic, the spot price of lithium carbonate fell to as low as 40,000 yuan per ton. At the end of 2022, it reached 600,000 yuan per ton, a difference of 14 times. The price that Ganfeng Lithium's customers paid for the goods increased by 4.8 times compared with 2020.
1) The fluctuation of material cost is only one tenth of the fluctuation of spot price
It can be roughly considered that the material cost of a unit power battery fluctuates mainly with the purchase price of lithium carbonate, based on the following three points:
Raw materials account for 90% of the production cost of power batteries, of which nearly half is used to purchase lithium cathode materials;
The amount of lithium material used in each GWh power battery remains basically unchanged;
Among the material costs, the prices of other materials fluctuate less.
In 2016, the cost of lithium battery materials per KWh was as high as 970 yuan; in 2019, it fell to 620 yuan/KWh.
Comparing with the price trend of upstream benchmark companies, it is found that Ganfeng Lithium's shipping price in 2016 was 104% of that in 2019, and the price has remained almost unchanged for three years. CATL's material cost in 2016 was 157% of that in 2019, and its shipment volume in 2019 was 602% of that in 2016, which is a scale dividend (mainly reflected in bargaining power).
Based on its scale advantage, CATL has reduced the impact of upstream raw material price fluctuations through long-term contracts and stockpiling. In 2022, CATL's material costs were only 26% higher than in 2019, while Ganfeng Lithium's shipping prices increased by 313%.
More than 90% of the price fluctuations of lithium materials are absorbed by CATL invisibly!
2) Pushing and being pushed
The price trend of CATL's products is very different from that of upstream lithium materials, and is negatively correlated with China's new energy vehicles (the price of power batteries is getting lower and lower, and the sales volume of new energy vehicles is getting higher and higher).
2016-2019
In 2016, Ganfeng's products were priced at 89,000 yuan per ton, which rose slightly in 2017 and 2018, reaching 86,000 yuan per ton in 2019.
In 2016, CATL shipped 6.8GWh of power batteries at a unit price of 2,061 yuan/KWh; in 2019, it shipped 41GWh at a unit price of 957 yuan/KWh.
In three years, CATL's power battery sales increased by 502% and prices were halved. At the same time, China's new energy vehicle sales increased from 507,000 in 2016 to 1.242 million in 2019.
2019-2021
CATL shipped 133GWh, an increase of 226% from 2019; the unit price dropped to 788 yuan/KWh, 18% lower than in 2019.
In 2021, the price of Ganfeng's products rose slightly to 92,000 yuan.
In 2021, China's sales of new energy vehicles reached 3.52 million units, an increase of 183% over 2019.
2022-2023
In 2022, Ganfeng's product price is 355,000 yuan per ton, up 313% from 2019; CATL's unit price is 974 yuan/KWh, up 23.7% year-on-year, but only 1.8% higher than 2019. In other words, CATL filters out 99.4% of the price fluctuations of lithium materials!
In 2023, Ganfeng's product price fell to 240,000 yuan per ton, and CATL's unit price fell back to 885 yuan/KWh.
In the first half of 2024, the shipment price of battery systems fell below the 700 yuan mark, which was 72% of that in 2019.
In the past decade, the factory price of CATL's power batteries has dropped significantly, making the price of new energy vehicles gradually more affordable and the market penetration rate has climbed to 50%. Especially after the subsidies were completely cancelled, if the power batteries had not remained at a low price, the sales of new energy vehicles would not have been able to grow rapidly.
Power battery suppliers such as CATL, like BYD, are promoters of the new energy vehicle industry.
Ganfeng Lithium's shipping price fluctuates with supply and demand. When supply growth lags behind, lithium material prices soar; when demand growth lags behind, lithium material prices plummet. As a resource-based enterprise with low technical content and highly dependent on overseas resources, Ganfeng Lithium has no ability to drive the industry, but is dragged down by the industry.
At the "World Power Battery Conference" held in July 2022, Zeng Qinghong, chairman of GAC Group (SH: 601238), said: "The cost of power batteries has accounted for 40%, 50%, or even 60% of new energy vehicles. Aren't we working for CATL now?"
The surge in lithium carbonate prices has led to an increase in the production cost of power batteries. The forced price increase of power batteries has put pressure on new energy vehicle manufacturers. All links in the industrial chain are complaining that they are working for the upstream. These complaints are true or false and cannot be fully believed.
There are three things that are not fair about GAC’s words and deeds:
First, in 2020 and 2021, the price of power batteries continued to fall, but GAC remained silent; in 2022, battery prices rose (only 1.8% higher than in 2019), and CATL filtered out 99.4% of the lithium material price, but GAC still said it was "working for CATL";
Second, BYD produces its own power batteries. The surge in lithium carbonate prices in 2022 directly raised the cost of car manufacturing, so it is understandable that the price of cars was raised. The impact on GAC is not the same as that on BYD, but the price increase is not ambiguous at all;
Third, in the first half of 2024, CATL's shipment price dropped significantly, down 29.2% from 2022. GAC was forced to make some adjustments, but was very reluctant, and publicly "rebuked" its competitors who took the lead in price cuts.
1) Sales volume remains No. 1
CATL's main business is battery systems, and its power battery systems and energy storage systems have maintained the largest share in the global market for many years.
In 2018, the battery system shipments were 21.3 GWh, including 21.2 GWh of power batteries and 0.13 GWh of energy storage systems. This is the first time that the shipments of power batteries and energy storage have been disclosed;
In 2019, battery system shipments reached 41 GWh, a year-on-year increase of 92%; in 2020, battery system shipments reached 46.8 GWh, and the growth rate dropped to 14%; in 2021, battery system shipments reached 133 GWh, a year-on-year increase of 185%; in 2022, battery system shipments reached 289 GWh, a year-on-year increase of 117%;
In 2023, battery system shipments will reach 390GWh, a year-on-year increase of 35%, of which power batteries will account for 321GWh, accounting for 83%; and energy storage systems will account for 69GWh, accounting for 18%.
In the first half of 2024, electronic system shipments reached 205GWh, with energy storage systems accounting for nearly 20%.
2) The era of affordable new energy vehicles
In 2015 and 2016, CATL's power battery gross profit per kilowatt-hour exceeded 900 yuan. If an electric car is equipped with a battery pack with a capacity of 50 degrees, CATL will earn a gross profit of more than 45,000 yuan.
As subsidies decline, the unit price of power batteries is falling year by year and the speed is faster than the cost reduction:
In 2022, CATL's power battery unit price dropped by 52.4% compared with 2016, while the cost dropped by only 28.6%. The gross profit margin dropped from 44.8% in 2016 to 17.2% in 2022.
In 2023, the price of lithium carbonate plummeted, and CATL's gross profit margin of lithium power batteries increased by 5.1 percentage points compared with 2022.
In the first half of 2024, CATL's power battery gross profit margin reached 26.9%, 9.7 percentage points higher than in 2022.
BYD and CATL are the two major contributors to China's new energy vehicles, jointly pushing new energy vehicles into the era of affordable prices.
3) Not much of the dividends were received
In 2022, the price of lithium materials reached its peak, with the spot price of lithium carbonate approaching 600,000 yuan per ton, and Ganfeng Lithium's average annual sales price was 355,000 yuan per ton. With the help of long-term procurement agreements and stockpiling, CATL's costs are much lower than the above two figures.
On January 1, 2023, the price of battery-grade lithium carbonate was still as high as 520,000 yuan per ton. When it fell to 420,000 yuan per ton in February, CATL launched a "lithium mine rebate plan" - car companies promised to purchase 80% of their power batteries from Ningde, and the price of power batteries could be calculated based on 200,000 yuan per ton of lithium carbonate.
Unexpectedly, the price of lithium carbonate plummeted and fell below 100,000 yuan at the end of 2023.
The "rebate plan" shows that CATL can still make a profit when lithium carbonate costs 200,000 yuan per ton. We assume that CATL's lithium carbonate cost is 150,000 yuan per ton.
It is also due to long-term purchase agreements and stockpiling that CATL cannot fully enjoy the dividends when the price of lithium carbonate plummets. Compared with the high point of lithium materials in 2022, it only earned 5 points more in 2023 and 10 points more in the first half of 2024, and only received 20% to 30% of the dividends.
Musk invented a concept called the "idiot index" - how many times the price of a component is the cost of the raw materials. The biography of Musk recorded one of his outbursts, because Space X purchased a steel "nozzle protection cover" for $13,000, while the steel used to make the cover was only worth $200, and the idiot index was as high as 65 times.
1) Material cost ratio
Direct materials account for a large proportion of CATL's battery costs (including power batteries and energy storage batteries).
In 2019, direct material costs were 25.41 billion, accounting for 92.1% of battery costs and 64.8% of sales revenue;
In 2021, direct material costs soared to 77.87 billion, accounting for 96% of battery costs and 74.1% of sales revenue;
In 2023, direct material costs will reach 255.66 billion yuan, accounting for 95.6% of battery costs and 74.1% of sales revenue.
2) Idiot Index
In 2019, the shipping price of CATL's battery system (power battery, energy storage battery) was 957 yuan/KWh, and the raw material cost was 620 yuan/KWh. The "idiot index" was 1.54 times.
In 2022, the idiot index was only 1.24 times; in 2023 it rebounded to 1.35 times.
There are fewer and fewer industries without overcapacity, and homogeneity is also prevalent, but these two points have nothing to do with the core competitiveness of enterprises. The "idiot index" is an important indicator to demonstrate the core competitiveness of enterprises. According to public information, the idiot index of power battery products in the super factory jointly owned by Tesla and Panasonic is 2.0 times, while that of CATL is less than 1.4 times.
*The above analysis is for reference only and does not constitute any investment advice
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