Challenges facing Taiwanese business in the cell industry

Following Hon Hai and Taiwan Cement, Formosa Plastics Corporation recently announced its two-phased, NT$ 16-billion investment in LFP battery cell production plants. Located in Lunwei area of the Changhua Coastal Industrial Park, construction of Phase 1 of the LFP cell production plant with a capacity of 2.1 GWh and an investment of NT$ 6 billion is scheduled to begin next year and start mass production by 2024. Phase 2 of the LFP cell production plant with a capacity of 2.9 GWh and an investment of NT$ 10 billion is expected to begin construction in 2025 and start mass production by 2027. The company expects to achieve 5 GWh of LFP cell capacity by 2027. InfoLink analyzes challenges lying ahead of major manufacturers in Taiwan, as they enter in the cell industry.
 

Global lithium-ion battery demand

Based on the status quo, InfoLink projects that demand for Li-ion battery will exceed 500 GWh this year, nearing 750 GWh by 2023, and reaching 2,900 GWh by 2030, translating to over 20% of compound annual growth rate. Of which, the EV industry contributes 90% of the demand.  Therefore, most cell manufacturers seek to secure supply deal with EV makers, for this will give them advantage in terms of economies of scale and consolidate their stance in the li-ion battery supply chain, given the longer accreditation cycle of the automotive industry is a haven for investors.

Global energy storage market began to see more evident growth in 2020, with market estimating to reach beyond 40 GWh this year. By 2025, energy storage market will surpass consumer electronics market and become the second largest market for Li-ion battery, while EV and energy storage markets will together account for 95% of Li-ion battery demand. Actual cell production capacity will be mostly from Tier-1 and Tier-2 manufacturers, due to stricter safety standard, advancing battery technology, and excess supply result from large-scale production expansion.
 

Global Li-ion battery production capacity

As cell manufacturers splurge on capacity expansions, InfoLink expects CATL, LG Energy Solution (LGES), and BYD to accumulate 373 GWh, 310 GWh, and 275 GWh of production capacity by 2023, respectively. Meantime, the world will host over 1,500 GWh of cell production capacity. By the second half of 2023, supply and demand of Li-ion battery may reach equilibrium.

Major cell manufacturers work actively to integrate upstream raw material supply and collaborate with automotive makers in the downstream for closed-loop recycling. In April, CATL announced to co-invest in nickel ore, anode material, and Li-ion battery recycling with PT AnekaTambang (ANTAM), a state-owned mining company of Indonesia, and PT Industri Baterai Indonesia, a state-owned battery investing cooperation. Moreover, the company acquired exploration rights to a lithium clay deposit in Yichun, Jiangxi with a bid price of RMB 865 million.

LGES has partnered with its parent company LG Chem to obtain metal raw materials since 2020. In 2021, LGES entered a binding agreement with POSCO and Queensland Pacific Metals for equity investment. In addition, LGES has signed a long-term deal with Australian Mines for mixed nickel-cobalt hydroxide supply.

Cell supply will gradually exceed demand, as production capacities in China, Japan, and South Korea all come online successively in the coming years. Doubled with supply chain advantage of major manufacturers, Tier-2 and Tier-3 cell makers will face greater challenges in terms of price, production costs, and downstream clients’ expectation for cell technology. InfoLink projects global cell production capacity to reach beyond 4,500 GWh by 2030, with CATL and LGES respectively accounting for 1,000 GWh and 900 GWh. As international manufacturers aggressively expand, local businesses in Taiwan will face serious hurdles.
 

Identifying business opportunities in accordance with manufacturing capability

Taiwan has only commissioned a meager 10-20 GWh of annual production volume in recent years, which is even lower than the monthly production volume of CATL. International cell makers have long been in the capital wars of economies of scale in the mainstream cell applied market. Lacking of cell manufacturing experiences, the price-performance ratio of Taiwanese makers is no match for that of world-leading manufacturers. Still, whether this suggests no chance at all for Taiwanese makers requires more in-depth discussions.

For example, Tier-1 manufacturers are not likely to modify production lines or produce special spec products for medium and small volumes of orders; this gives opportunity to Taiwanese manufacturers to gain a spot, for small-sized manufacturers can readily adjust their technique or materials to match demand. E-One Moli Energy, subsidiary of Taiwan Cement, taps into markets of electric race cars and electric flying vehicles with its ultra-high voltage NCM battery. Businesses with cell demand from in-house downstream sectors, such as Hon Hai’s e-bus and Formosa Plastics’s ESS, can leverage cooperate sources to establish a comprehensive supply chain from upstream materials, cells, packs, to end user application.

Therefore, despite fierce competition among cell manufacturers, applied markets of Li-ion battery advance rapidly. It is essential for mid and small-scale cell makers to find the optimal applied market, in accordance with their manufacturing capability.