On June 24, IIA learned from the Ministry of Industry and Information Technology of the PRC (MIIT) that the "Regulations on the Standards of Automotive Power Battery Industry" (hereinafter referred to as "Regulation") will be abolished from June 21, 2019. The first, second, third and fourth batches of enterprise catalogues meeting the conditions of the standards shall be abolished at the same time.

This means that the “white list” of NEV power batteries in the industry for nearly four years has been officially cancelled. Japan and ROK's power battery giants, which had previously left the Chinese market because of the "white list", are expected to accelerate their return. China's power battery industry will be reshuffled.

1. Accelerate the development of local battery industry based on policy

On March 24, 2015, in order to guide and standardize the healthy development of the automotive power battery industry, MIIT formulated and issued the "Regulations for Automotive Power Battery Industry". It is announced that starting from May 1, 2015, enterprises must declare online through the “Automobile Battery Manufacturing Enterprise Management System” in accordance with the requirements of the “Regulations”. Since November 2015, MIIT has released a total of 57 battery companies that meet the "Regulations", including CATL, BYD, Guoxuan Hi-Tech, Tianjin Lishen and other well-known Chinese power battery companies.

However, Samsung SDI, Panasonic, LG Chem, SKI and other Japanese and Korean power battery giants failed to enter the "white list" at that time, so the development plans of these companies in China were forced to run aground. For instance, Samsung SDI announced the suspension of the phase-II of Xi'an power battery production base in early 2017. LG Chem sold its Nanjing battery factory production line and related patents to Zhejiang Hengyuan New Energy Technology Co., Ltd., a subsidiary of Geely Group.

According to the data released by Power Battery Application Branch of China Industrial Association of Power Sources, in 2018, the total installed capacity of power batteries for new energy vehicles in China was 56.89 GWh, a year-on-year increase of 56.88%. From the perspective of battery companies, Ningde era topped the list with 23.43GWh, accounting for 41.19%. BYD ranked second, with an installed capacity of 11.43GWh, accounting for 20.1%. Guoxuan High-tech installed capacity is 3.07GWh, accounting for 5.38%, ranking third.

The sum of the installed capacity of the first three battery companies accounted for 66.67% of the total installed capacity. It can be said that the “white list” has promoted the rapid development of China's domestic power battery industry and “monopolized” the domestic pure electric vehicle battery market.

2. Japan and ROK battery giant is making a comeback

According to the current policy, China's NEV subsidy policy will be terminated by the end of 2020. In addition to higher requirements for power battery companies and OEMs, this has also cleared the way for overseas power battery brands to enter China. It is foreseeable that battery giants including Samsung SDI, LG Chem, and Panasonic will enter the Chinese market in the next two to three years.

In fact, since 2018, the above-mentioned foreign brands have already prepared for returning to China.

In July 2018, LG Chem announced that it had invested US$2 billion to build a 32GWh power battery project in Nanjing, Jiangsu Province. The project is expected to begin mass production in October 2019 and will fully reach the design capacity in 2023.

In August 2018, ROK's SKI Group announced that it will build an EV power battery factory in Changzhou, Jiangsu Province, which is expected to produce 7.5 GWh of power batteries per year.

In December 2018, Samsung SDI restarted the phase-II of Xi'an power battery production base, which had been suspended for two years.

In December 2018, Matsushita announced that it would invest hundreds of millions of dollars to double the capacity of its power battery plant in Dalian, Liaoning Province.

The abolition of this "white list" will further accelerate the progress of Japanese and Korean battery giants re-entering China, and China's domestic power battery industry will also usher in a new round of competition.

3. Faced with internal and external challenges, the Chinese power battery industry will be reshuffled

Internal Challenge: Automakers self-produce batteries

With the continuous high-speed development of China's NEV market, the power battery industry, being regarded as the heart of NEVs, is also drawn more and more attention from car companies. Some automakers choose to build battery factories by themselves or by joint venture.

Since 2017, SAIC Group, Geely Group, Dongfeng Motor, FAW Group, BAIC Group, GAC Group, and BMW Brilliance have established joint ventures with CATL to produce and sell automotive power batteries. In addition to the selection of domestic power battery companies, in June 2019, Geely Group’s subsidiary Shanghai Huapu Guorun Automobile Co., Ltd. and LG Chem established a joint venture company to produce power batteries.

As one of the core components of NEVs, the adequate and stable supply of power batteries will affect the core production capacity of automakers. Automakers establishe a joint venture with the power battery giant can ensure stable supply and safe control of the power battery. At the same time, for battery companies, a joint venture with automakers can lock orders in advance to protect future profits.

External Challenge: Japanese and ROK giants return to China with new technologies

In this June, the CEO of SKI Group said that SKI has been carrying out technical research on NCM (9:0.5:0.5) ternary lithium batteries. Pure electric vehicles equipped with new high-nickel batteries will be upgraded in terms of energy density and cruising range. However, most Chinese power battery companies have not yet achieved stable mass production of NCM811 batteries. The abolition of the "white list" may help the Japanese and ROK giants win the battery orders of high-end pure electric vehicles from Chinese battery companies.

Under the challenge of internal and external, China's power battery companies will be under tremendous pressure, especially the battery companies currently in the second and third tiers. CATL, BYD, and Guoxuan Hi-Tech accounted for 66.67% of the total installed capacity of NEVs in China in 2018. The Matthew effect of China's power battery industry has already appeared. As more car companies accelerate their electrification strategies, new orders will no doubt be given priority to the leading companies, which will further deepen the Matthew effect.

Some people in this industry said that, due to the cancellation of the entry restrictions of foreign brands and the impact of subsidies phasing-out, the elimination rate of China's domestic battery industry will be accelerated in 2019. By 2020, there may be only about 20 battery companies left in the market. For small and medium-sized battery manufacturers, optimizing the industrial structure, eliminating backward production capacity, and exploring new markets other than EVs may be an effective way to continue to survive in the market.