Benchmark: Chinese cell oversupply putting pressure on Tier 3 producers

Continued investment in China’s battery production scene is increasingly pushing its market into oversupply, putting strain on Tier 3 producers which are unable to access large global EV markets and are forced to compete in the saturated domestic space, according to Benchmark Mineral Intelligence.

Benchmark’s Lithium ion Battery Cell Database shows the Chinese market’s surplus will continue to grow to at least 2030. This makes the non-Chinese market vital for producers in the country to find customers.

However, the only markets that Tier 3 producers can access globally are for portables and some energy stationary storage applications. Such producers cannot supply the huge, and ever-growing, electric vehicle market.

Total Chinese Tier 3 production next year is forecast to be 2% larger than the demand for Tier 3 batteries globally. By 2026, Benchmark forecasts Tier 3 production to be 31% higher than demand, even accounting for producers using less of their installed capacity as a result.

Capacity continues to be added and although demand is growing in China, capacity expansions seem to be outpacing demand. The overseas market will become even more important for China to export to so they can keep production levels going, but Tier 3 producers may struggle to access export markets in the same way as Tier 1 and 2 producers.

—Aran Waid, an analyst at Benchmark

This is a concern for China’s president, Xi Jinping, who said regulation could be needed to prevent the Chinese battery industry from suffering “a boom and a headlong rush that would dissipate in the end.”

In order to remain competitive, Tier 3 producers need to qualify their cells for the global EV market and reach Tier 1. But this process is difficult, and even if they succeed they need to compete against the large battery incumbents, such as CATL, which are able to offer preferential pricing, Benchmark said.