Zhi Krypton. New energy | the collective price increase of new energy vehicles, is the negative feedback of the industry coming?

Text | Ding Di

Edit | Zheng Huaizhou

Since 2022, under the pressure of the soaring international commodities, new energy vehicles have ushered in a new round of price increases.

Car companies represented by Tesla have continuously raised the official guidance price of their models since the end of last year, and as of the end of March, the general increase in the market has reached a range of 5-15%.

Looking at the price increase tide of this round of new energy vehicles, Tesla has performed the most positively. Since the end of last year, Tesla has opened three rounds of price increases, Model 3 rose by 24,000-28,000, Model Y is 30,000-36,000; and in terms of domestic independent brands, several popular models have also ushered in a lot of increases, of which BYD Song Plus EV price increase is 11,000, Xiaopeng P7 has reached 14,000-38,000, and the new up-and-coming zero-run C11 has also increased between 20,000 and 30,000.

In the face of such a large-scale price increase in the new energy vehicle market, investors can't help but worry about whether the general rise in prices will have an obvious negative feedback effect on the entire industrial chain, resulting in a new round of killing valuations and killing performance markets, which will bring worse effects to the already weak market.

In view of this, we will discuss the reasons for the price increase of new energy vehicles in this round, the future performance of lithium resources and whether the price increase will bring negative feedback to the industry, in order to let investors have a deeper understanding of the price increase of this round of new energy vehicles.

What are the reasons for the price increase of new energy vehicles?

Looking at the reasons for the general price increase of new energy vehicles in this round, we believe that it is mainly because under the disturbance of multiple factors such as subsidy decline, chip shortage and soaring prices of key raw materials upstream, the cost of new energy vehicles has risen sharply, in order to maintain their own operating conditions, automakers have to actively seek to pass on part of the cost upward pressure to downstream consumers.

From the timetable of this round of new energy vehicle price increases, it can be roughly seen that the price increases of car companies are mainly divided into two stages:

Figure 1: Summary of new energy vehicle brand price increase Data source: Guohai Securities, 36Kr collation

The first stage: from the end of last year to February this year, represented by a small number of car companies such as Tesla, Xiaopeng, Nezha, ANDD, among them, in addition to Tesla's two models, the overall price increase of other models is below 7,000 yuan, and the overall increase is relatively mild. The main driving force for the price increase of this round of car companies lies in the further decline of new energy vehicle subsidies in 2022.

According to the "Notice on the Financial Subsidy Policy for the Promotion and Application of New Energy Vehicles in 2022" issued by the Ministry of Finance, the Ministry of Industry and Information Technology, the Ministry of Science and Technology, and the National Development and Reform Commission on December 31 last year, it is clearly stated that the subsidy standard for new energy vehicles will be reduced by 30% on the basis of 2021. As shown in the table below, under the new subsidy policy, in 2022, the subsidy for pure electric vehicle models with a cruising range of between 300 and 400 kilometers will be reduced from 13,000 yuan to 9,100 yuan, and the subsidy will be reduced by 3,900 yuan; the subsidy for pure electric vehicle models with a range of≥ 400 kilometers will be reduced from 18,000 yuan to 12,600 yuan, and the subsidy will be reduced by 5,400 yuan; the subsidy for plug-in hybrid models will be reduced from 6,800 yuan to 4,800 yuan, and the subsidy will be reduced by 2,000 yuan.

Figure 2: Changes in the subsidy policy for new energy vehicles Data source: Ministry of Finance, Ministry of Industry and Information Technology, Ministry of Science and Technology, Development and Reform Commission, 36Kr collation

Since the official guidance price of most OEMs includes national supplements, with the gradual disappearance of policy dividends, some OEMs have begun to transfer this part of the incremental cost to consumers downstream, especially the car companies with more complete models and low gross profit margins. However, on the whole, in view of the fact that the subsidy decline adopts a step-by-step approach, the overall range is relatively mild, and the high-end models with a price of more than 300,000 yuan and the A00 models that are not up to standard are not within the scope of subsidies, so the simple subsidy decline has not caused a big move by car companies, and a large number of car companies still choose to temporarily bear this part of the cost increase.

The second stage: Unlike the small range and moderate price increase in the first stage, after entering March, traditional car companies including Bee geely, Great Wall, BYD and other traditional car companies and new car-making forces including Xiaopeng and Tesla have joined a new round of price increase frenzy. According to the information in Figure 1, this round of car companies involved in price increases reached 13, involving nearly 30 kinds of models, not only covering most of the mid-range models on the market priced at 200,000-300,000, but also covering low-end models with a price of about 50,000 yuan such as Wuling MiniEV and high-end models with a price of 300,000-400,000 yuan such as Tesla Model Y, and the width of the market price increase also reached 2000-20000 yuan.

For this round of general rise in the new energy vehicle market, we believe that the main reason is the exponential increase in the price of key raw materials in the upstream since 2021, which has directly led to the soaring cost of power batteries. After a new round of negotiations, in view of the strong right to speak of battery factories, the rising cost of power batteries began to be passed on to downstream car companies, and the continuous increase in vehicle costs also forced car companies to begin to seek further downward transfer of costs.

As shown in Figure 3, from 2021 to March 30, 2022, the price of lithium carbonate, the key raw material upstream of new energy vehicles, soared from about 50,000 yuan / ton to about 500,000 yuan / ton, with an overall increase of more than 850%; in the same period, nickel rose by nearly 100%. The rapid rise of key raw materials such as lithium carbonate has brought greater cost pressure to the entire industrial chain such as cathode, battery, and vehicle.

Figure 3: Lithium carbonate price increase since 2021 Data source: wind, 36Kr collation

We take 50Kwh ternary lithium battery with power for simple calculation, according to the information of Dangsheng Technology in the investor interactive platform, each production of 1GWh ternary lithium battery requires about 1500-1800 tons of ternary cathode material, and according to experience, The production of 1 ton of high nickel ternary cathode material requires 0.45 tons of lithium hydroxide, which is equivalent to 590-710 tons of lithium carbonate per 1GWh ternary battery (lithium carbonate and lithium hydroxide are converted according to 0.875), converted to 50Kwh requires 0.03-0.04 tons of lithium carbonate, according to the current increase in lithium carbonate After a simple calculation, the theoretical cost increase of bicycles caused by the rise in the price of lithium carbonate has reached 1.3-16,000 yuan.

If you look at the incremental cost of such a bicycle, even if you do not consider the impact of subsidies, the price increase of most car companies still cannot fully cover the rapid increase in costs caused by upstream lithium carbonate. Therefore, we believe that in addition to Tesla, most of the current automakers have only passed on part of the pressure of cost increases to the downstream, and consumers, OEMs, and battery supply chains have jointly borne the pressure of new energy vehicle price increases under the multi-factor resonance.

Lithium carbonate price increase is speculation?

As mentioned earlier, the price increase of upstream lithium carbonate is an important factor in the general price increase of this round of new energy vehicles. At present, there is a clear disagreement in the market about the reasons for the increase in the price of lithium carbonate. Some people believe that speculation exceeds the supply factor is the main reason for disturbing the price fluctuations of lithium carbonate, and in the conference call of Weilai, Li Bin clearly expressed this view; the other part believes that the price increase of lithium carbonate mainly depends on the obvious imbalance between supply and demand and the term mismatch.

By combing through the reasons for the price increase of lithium carbonate, we believe that the rapid rise in the price of lithium carbonate certainly does not rule out unfair competition behaviors such as malicious hoarding of goods and deliberate price gouging in the market, but these only accelerate the speed of the price increase of lithium carbonate, and the fundamental reason for the soaring price of lithium carbonate is still the continuous tension between supply and demand.

Since 2021, under the background of the acceleration of the global carbon neutrality process, the new energy automobile industry has entered a rapid development channel. With the continuous enrichment of models and the continuous improvement of performance, the potential needs of consumers are constantly released. And unlike the previous subsidy-led demand growth, most of the new demand in this round is derived from the actual demand spontaneously in the market.

Driven by the surge in demand, from January 2020 to February 2022, the penetration rate of new energy vehicles has increased from 2.4% to 19.2%, and the penetration rate of new energy passenger vehicles has increased from 2.6% to 21.6%, all of which have reached a record high; at the same time, according to the data of high-tech lithium batteries, the sales of new energy vehicles in mainland China in 2021 reached 3.5 million units, an increase of 1.6 times year-on-year. Not only that, a large number of car companies have experienced a situation where mainstream models are in short supply, during which orders have increased significantly and the delivery cycle has been significantly extended.

Figure 4: New energy vehicle sales data Data source: wind, 36Kr collation

The popularity of the new energy vehicle market has benefited the entire industrial chain of key components power batteries, and as the core raw material for the production of lithium battery cathode materials, the demand for battery-grade lithium carbonate has also increased significantly. However, from the supply side, what does not match the surge in demand for lithium resources is that the upstream lithium mine has not ushered in synchronous linear expansion.

Lithium as a commodity, from the construction of lithium ore to the final production of battery-grade lithium carbonate, the composition of the entire industrial chain is very long, so the rebalancing of commodity supply and demand is often a very slow process. From the perspective of time cycle, the expansion cycle of cathode materials is usually about 0.5-1 years, but the expansion cycle of upstream lithium ore needs 3-5 years, and the cycle mismatch makes the demand growth of lithium resources significantly exceed the actual supply growth.

In this context, the market expects that lithium resource inventories are low and expansion still requires a long period, so the shortage of lithium will continue and may escalate. According to the calculation of Zheshang Securities, it is expected that the gap between supply and demand of global lithium resources will be about 60,000 tons in 2022, and further increase to 390,000 tons in 2025.

Benefiting from the imbalance between supply and demand under the term mismatch, under the action of the market mechanism, some manufacturers are willing to accept the situation of high-priced lithium under the boost of the huge demand for new energy vehicles, which has finally led to a sharp rise in the price of lithium carbonate since 2021, and the increase has obviously deviated from the normal price track.

As the core raw material of the cathode, lithium carbonate will be directly transmitted to the positive electrode raw material through the pricing mechanism of metal price + processing fee, and finally to the vehicle factory layer by layer through the power battery. In the early stage of rising material costs, in view of the strong voice of battery companies, most of the price increase costs were borne by upstream material companies, which also led to the expansion of some enterprises but the continuous decline in profits.

However, due to the current increase in the price of lithium carbonate has clearly deviated from the normal track, the rapid surge in costs has greatly squeezed the profit space of related enterprises, so in the new round of negotiations, battery factories and vehicle manufacturers have established a metal price linkage mechanism, resulting in some costs began to pass down, and there was a phenomenon of this round of vehicle price increases.

Combined with the mainstream view of the market, because the mainland lithium resources account for only 6% of the global supply, mainly since the import of Australia, Argentina and other places, so how to interpret lithium prices in the future, the medium-term lies in the supply of lithium ore in Western Australia, and in the long term, it lies in the production capacity of salt lakes in Argentina and other places. From the current situation, compared with the substantial expansion of other links, lithium mine expansion is still conservative, so the short-term tight balance and even a small number of gaps may always exist, while considering the uncertainty of overseas supply chains, the future does not rule out the expansion of lithium resource prices again.

Will negative feedback come?

For the phenomenon of a large number of model price increases caused by the continuous high price of lithium resources, the main concern of the market is whether it will form a negative feedback effect on the entire new energy vehicle industry chain.

The main logic is that the general rise of new energy vehicles may inhibit the demand of some consumers, and the reduction of terminal demand makes car companies reduce the scheduling of new energy vehicles, so that the reduction of demand is transmitted upwards to the power battery industry chain, and finally manifests as a sharp reduction in demand for lithium resources, resulting in a collapse in the price of lithium resources, and the market enters the industrial chain to kill the valuation stage. In the end, after the rapid decline in lithium prices, it returned to balance, driving the consumption of terminal automobiles to rise and fall, and the entire industrial chain reached a new round of balance.

Judging from the current situation of the new energy market, we believe that there is no basis for negative feedback in the new energy vehicle industry chain in the short term. Mainly because the current new energy vehicles are still in a period of accelerated penetration, in this period, the main goal of car companies is to compete for market share rather than profitability, so if there is a sharp decline in consumer demand, some car companies will inevitably begin to carry out terminal activities to make up for the negative impact of price increases, and finally in the prisoner's dilemma, car companies want to completely pass on cost pressure to consumers The difficulty is much higher than the market expects. Taking the price increase in January as an example, some new forces found that the order was less than expected after the price increase, so they increased the corresponding promotional rights to offset the negative impact of the increase in car prices.

In addition to the competitive landscape of the industry itself, another reason is that the market believes that the new lithium resources superimposed recovery part during the year can still basically cover the expected growth of new energy vehicle production in the same period of the market, which means that after a wave of rapid rise, if the overseas supply chain security issue is not considered, the price of lithium carbonate will most likely remain in the range of 400,000-500,000 / ton in the future.

According to the view of Changjiang Securities, if the price of lithium resources is in this range, then the annual linear extrapolation of new energy vehicle safety sales (no more than the sales of lithium prices are difficult to collapse) at about 4.6 million, plus some supplementary lithium resource production of waste batteries recycled, the annual safety sales are about 5.5 million, and this safety sales data is basically the same as the expected new output in 2022 given by the China Automobile Association. At the same time, considering the soaring international crude oil prices, the cost of fuel vehicles has also increased, which has also increased the acceptance of new energy vehicle price increases by consumers to a certain extent.

Figure 5: Calculation of the impact of gasoline price increases on the cost of fuel vehicles (yuan) Data source: Guohai Securities, 36Kr finishing

However, we should also realize that there is no basis for negative feedback effect, which does not mean that the price increase of lithium resources will not have a negative impact on the new energy vehicle industry chain. At present, this negative impact is concentrated in at least two aspects.

First of all, the general rise in car prices will inevitably affect consumers' short-term consumption expectations, thus forming a short-term disturbance to the order situation of relevant car companies, which may aggravate the market's anxiety in the short term. Specifically, some of the later orders will erupt in a few trading days before the start of the price increase date, thus forming a part of the demand front, which is obviously positive for march orders, affecting the actual order performance in the following months. Judging from the survey results of CITIC Securities, at present, car companies including Ideal, Xiaopeng and BYD have indeed experienced fluctuations in orders after price adjustment.

Secondly, in addition to short-term sales disturbances, the more obvious impact may be to bring about a rebalancing of the internal product structure of new energy vehicle companies and the entire market supply pattern, resulting in the concentration of resources to the head enterprises, and the market concentration is significantly improved. As mentioned above, the soaring price of lithium carbonate since 2021 has led to a sharp increase in the cost of the whole vehicle, and the current price increase of most car companies cannot fully cover the rising pressure of cost, which leads to the fact that the gross profit margin of some car companies is actually being compressed synchronously.

In this case, considering the tight supply of the upstream, car companies will most likely fully transfer the shortage of batteries to models with higher gross profit margins and less cost pass-through impact, so as to ensure the growth of total sales and stabilize their own profitability. This means that some low-end models with high price sensitivity may continue to stop production this year, and the suspension of the Great Wall Euler small electric vehicle during the year fully illustrates this problem.

With the reduction of low-end model production, market resources will be concentrated to more than 150,000 mid-range models or even more than 300,000 high-end models, which will eventually lead to a decline in the proportion of small and low-end models in the entire market, and the overall supply of the industry will usher in a new pattern, making car companies with high-end car production capacity benefit from it. Of course, even in such a situation, considering that the current mainland independent brands still do not have the ability to completely pass on cost pressure like Tesla, therefore, there is a high probability that there will be gross profit margin pressure on the car company and the power battery supply chain during the year.