China's New Energy Industry Sub-sectors Outlook - Lithium Batteries and Wind Power

Kefei Liu

Portfolio Manager

CCB Principal Asset Management (Hong Kong) Co., Limited

Key takeaways

  • Lithium Batteries: Notwithstanding the historically low valuations in the electric vehicles (EV) sector, demand for lithium batteries is on the rise since demand for EVs continues to grow. The fundamentals of most sub-sectors in the batteries industry have stabilized. We are optimistic for battery sub-sectors with better earnings prospects, as well as those demonstrating a steady trend in earnings, such as battery structural components, negative electrodes, electrolytes, separators, and positive electrodes.
  • Wind Power: As the demand for offshore wind power in coastal cities is increasing, deep-sea floating wind power is expected to be the key driver of offshore wind power during the 15th Five-Year Plan period. Sub-sectors like submarine cables, tower foundations, and pile foundations are poised to benefit from both the development of infrastructure for offshore wind power and the rising overseas demand.

To meet mainland China‘s strategic goals of carbon peaking and carbon neutrality, robust policies and measures have been implemented that drive the development of the new energy industry and present significant opportunities for the sector. The relatively thriving EV industry has enhanced the prospects of lithium batteries, which constitute the core component of EVs. On the other hand, wind power is of considerable significance in the new energy sector. Going forward, what development trends can be anticipated in lithium batteries and wind power industries? Which sub-sectors should be focusing on?

Lithium Batteries

EV sales experienced an off-season in January to February 2023, but production plans began to gradually recover by March. The EV industry is expected to enter its peak demand season in the second half of the year, which bodes well for continued demand growth during this period. This peak season demand, along with accompanying inventory build-up, may benefit the lithium battery industry starting in the third quarter. Furthermore, as prices of battery-grade lithium carbonate have rebounded and stabilized at RMB 300,000 per tonne, demand for power batteries and energy storage has gradually recovered, driving the revival of the lithium battery industry. The volume of battery installations for the year is expected to increase by 30% to 50%. Leading battery manufacturers have witnessed a 25% quarter-on-quarter increase in orders from downstream automakers in the second quarter and their annual battery installation volume is expected to maintain a growth rate of 50%.1

In the first half of the year, there was a significant divergence in earnings of different sub-sectors of the lithium battery industry:

Structural Components: The trend is relatively positive, with leading companies maintaining stable earnings, though second-tier companies are generally facing losses.

Electrolytes: The price of lithium hexafluorophosphate, a key component of lithium battery electrolytes, has reached its lowest point. Leading electrolyte companies have a relatively obvious cost advantage, which enables them to earn higher profits consistently. We expect that as lithium hexafluorophosphate prices recover and excess production capacity is released, earnings of electrolyte companies have likely bottomed out in the second quarter.

Negative Electrode Materials: The price of graphite used in the production of negative electrodes has declined to close to production costs, giving leading companies a cost advantage. They are expected to benefit from recovery in prices of negative electrodes in the future.

Positive Electrode Materials: The gradual expansion of production capacity has resulted in lower processing costs for positive electrode manufacturers, leading to a gradual recovery in their earnings to normal levels. Currently, the inventory and supply of lithium carbonate, a raw material for positive electrodes, are at historically low levels. Although lithium carbonate prices have risen since April, we expect them to stay within the range of around RMB 200,000 to 300,000 per tonne in the latter half of the year.

In the first half of the year, earnings of most sub-sectors in the lithium battery industry reached their lowest points due to lower-than-expected demand and the rapid reduction in excess production capacity. We anticipate that the earnings of these companies may recover and then remain stable. Leading companies are expected to significantly increase their market shares in overseas markets, which might further widen the gap between their earnings and those of second-tier companies.

Overall, the high technological barriers in the battery industry and a stable competitive landscape and we expect earnings for the full year to remain stable. Currently, valuations in the EV industry are at historic lows. As demand improves gradually, earnings of mainstream companies may have bottomed in the second or third quarter of this year. We maintain an optimistic outlook for battery sub-sectors that show promising earnings prospects, such as ultrasonic welding and coating heads. These sectors stand to benefit from domestic substitution. We also favor solid-state batteries, which gain advantages from new technology research and development. Moreover, we see potential in sub-sectors like battery structural components, negative electrodes, electrolytes, separators, and positive electrodes, all of which demonstrate a steady trend in earnings.

Wind Power

As it is convenient for coastal cities to use offshore wind power, demand for offshore electricity in these areas is increasing. It is expected that the industry will achieve a compound annual growth rate of over 50% during the 14th Five-Year Plan period. The infrastructure associated with offshore wind power is evolving continuously, expanding from nearshore to deep-sea locations and transitioning from fixed to floating installations. However, the technology for deep-sea floating wind power is not yet fully developed, and the corresponding management guidelines have not been formally established. Deep-sea floating wind power is expected to significantly influence the development of offshore wind power during the 15th Five-Year Plan period. Moreover, it may serve as a crucial driver for sustaining the growth of the offshore wind power industry in the future.

As overseas demand increases, mainland Chinese wind power companies are expected to expand their exports. Among various sub-sectors, we hold a more positive outlook on submarine cables and tower foundations.

Submarine Cables: Deep-sea offshore wind power is a long-term development trend, driving a growing demand for ultra-high voltage submarine cables. The prices of these products are rising significantly, leading to a noticeable increase in their value. Leading companies that invested early in high-voltage cable technology hold a competitive edge. These companies currently have large orders in hand and are able to continuously secure overseas orders, which implies more export opportunities in the future. Second-tier companies that can master the technology of high-voltage submarine cables also have the potential to capture shares in this vast market.

Tower Foundations and Pile Bases: Demand for tower foundations and pile bases in mainland China reached its lowest point last year but has experienced significant growth this year. Driven by the development of offshore wind power, port terminals - a key infrastructure - are also steadily enhancing their facilities. This may help reduce transportation costs for deep-sea-related products and enhance their price competitiveness. Leading companies are ramping up their production to meet the increasing market demand. Furthermore, there is strong overseas demand for tower foundations and pile bases, and the anticipated increase in exports may further drive sales growth.

Cast and Forged Components: The offshore wind power sector has seen high demand this year for large cast and forged components and main shafts. Given the limited expansion of capacity for cast and forged components in mainland China, leading companies with the ability to expand capacity and production are expected to benefit. Moreover, the decline in prices of raw materials for cast and forged components and main shafts have helped boost earnings. The trend towards larger wind turbine blades has accelerated the demand for blade replacements. However, the capacity for producing large blades is limited, resulting in a supply shortage. This helps to maintain strong blade prices. The significant performance advantages of large blades made with new materials are evident, and as the production of these materials increases, there shall be an opportunity for prices to decline, facilitating improved penetration of large blades.

Overall, the new energy industry is set for favorable progress with the backing of supportive policies. Specifically, the lithium battery and wind power sectors exhibit resilient fundamentals, and certain sub-sectors have gained competitiveness because of a balanced supply and demand scenario and reduced costs. As the new energy industry accelerates production scale and continues developing, coupled with improvements in overseas market environments, it is likely to provide relatively significant growth opportunities in the future.

  • As of 29 June 2023. Source: Soochow Securities Electric Vehicle Mid-Year Strategy Report 2023.

Unless otherwise specified, all estimates or forecasts in this article are provided by CCB Principal Asset Management (Hong Kong) Co., Limited.


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