Chinese electric-vehicle makers battered by double whammy of product price war and surging raw material prices

Lithium carbonate prices have jumped by over 60 per cent in the past month as the auto industry’s electrification rush has spawned a race to lock in supplies of materials

Carmakers in China from petrol car assemblers Volkswagen to battery-powered vehicle producers like Tesla and BYD have slashed prices to lure customers

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A lithium mine supervisor inspects an evaporation pond of lithium-rich brine in the Atacama Desert in Salar de Atacama, Chile. Photo: Getty Images

Published: 6:30am, 23 May 2023Updated: 7:49am, 23 May 2023

Chinese electric-vehicle (EV) makers, already scuppered by a bruising price war, have to now contend with galloping raw material costs which could further jeopardise their balance sheets, most of which remain awash with red ink.

Lithium carbonate prices have jumped by over 60 per cent in the past month as the car industry’s electrification rush has spawned a race to lock in supplies of materials used in battery-making. That surge would increase the cost of a 75 kilowatt-hour (kWh) battery pack used in a premium EV by about 3 to 5 per cent or about 5,000 yuan (US$712), according to Davis Zhang, a senior executive at Suzhou Hazardtex, a supplier of specialised vehicle batteries. Battery costs make up as much as 40 per cent the production cost of a typical EV.

The price war and escalating raw material costs are a setback for dozens of EV start-ups, most of whom have yet to turn in a profit.

Li Auto, which has stayed away from the price war made a net profit of 933.8 million yuan for the first three months of this year, compared to a net loss of 10.9 million yuan for the same period last year. But for the rest, the price war and the escalating costs will be a test of survival – Nio and Xpeng, ranked third and fourth in China’s premium EV segment, have yet to post a profit owing to massive research and development costs and heavy spending on marketing and sales.

NANTONG, CHINA – APRIL 12, 2023 – Workers rush to make lithium battery products for domestic and international markets in Nantong, Jiangsu province, China, April 12, 2023. Photo: Getty Images

“This is yet another setback for China’s 200 EV makers,” said Zhang. “A potential increase in EV battery prices, particularly at a time when price competition already hurts the companies’ profitability, could be detrimental to some underachieving players.”