In the first half of 2023, the new energy vehicle (NEV) market witnessed a significant slowdown in its growth rate, leading to renewed discussions within the industry regarding overcapacity in the lithium battery sectorThis concern, coupled with a decline in lithium salt prices, has plunged numerous lithium battery enterprises into a profitability crisisSome companies even issued mid-year earnings forecasts indicating a severe financial downturn compared to the previous year.
On the evening of July 16, 2023, a notable lithium battery cathode material manufacturer, Dufang Nano (stock code: 300769.SZ), announced its earnings forecast for the first half of the year, estimating a net loss attributable to shareholders of between 10.4 billion to 11.7 billion yuanFor comparison, during the same period in 2022, the company reported a profit of 12.8 billion yuanThe immediate aftermath saw Dufang Nano's stock price plummeting over 10% when the market opened the following day, July 17.
Founded in 2007, Dufang Nano specializes in the research, production, and sale of core materials for lithium-ion batteries, primarily focusing on phosphate-based cathode materials widely utilized in NEV power batteries and energy storage systems.
The company's recently disclosed forecast for the first half of 2023 highlights a stark turn-around from profit to loss, identifying an expected net loss attributable to shareholders, alongside a projected loss excluding non-recurring items.
Dufang Nano attributed its losses to a substantial decrease in lithium salt prices between January and April of this year, coupled with a slowdown in downstream demandAs lithium salt prices tumbled, the sales prices of the company's products followed suit.
Lithium carbonate, a key type of lithium salt, is a common raw material in the production of lithium battery cathode materialsConsequently, fluctuations in battery-grade lithium carbonate prices have a significant impact on businesses like Dufang Nano
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In 2022, lithium carbonate prices soared to nearly 600,000 yuan per ton, which in turn drove up the prices of cathode materialsDufang Nano saw the price of its primary product, lithium iron phosphate, reach a high of 170,000 yuan per ton during this boom.
As a result of the overall increase in lithium carbonate prices, Dufang Nano experienced remarkable growth in both revenue and net profit throughout 2022. The company reported a total revenue of 22.557 billion yuan, signifying an annual increase of 355.3%, while its net profit surged by 190.33% to 2.407 billion yuan.
However, as 2023 rolled in, battery-grade lithium carbonate prices began to recede significantly, dropping from 500,000 yuan per ton to roughly 300,000 yuan, and even plunging to about 200,000 yuan by AprilParallel to this decline, the price of lithium iron phosphate likewise saw a downturn, reaching around 70,000 yuan per ton by April 2023.
In light of the negative earnings forecast, Dufang Nano's share price took a major hit on July 17, dropping sharply to 121.7 yuan per share, reflecting a decrease of 7.72%.
Over the past year, the company's share price has halved, having peaked at 265.36 yuan per share in July 2022. Following the price fluctuations of lithium salts mentioned earlier, the stock price steadily declined, reaching a near-year low of 86.96 yuan in April 2023. Even with a slight recovery in the last couple of months, by July 17, the share price was still down nearly 50% compared to its previous high.
Despite the alarming forecasts, Dufang Nano indicated in its earnings report that as of May, downstream demand began to recover, leading to an increase in production capacity utilization ratesBy June, the company achieved full production and sales capacity, resulting in an uptick in product sales prices and gradually restoring some profitabilityAdditionally, the company's new products, lithium manganese iron phosphate and lithium supplementation agents, are reportedly progressing well, with plans for mass production later in the year.
Notably, a report released by Sina Securities on July 17 revealed that during an investor call after the earnings announcement, one investor pointedly remarked that the market expectations had been for a loss of only 200 to 300 million yuan, raising questions about the company’s reputational damage among shareholders
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If the investor's claims are accurate, it might suggest potential violations surrounding the premature disclosure of information.
In related developments, Tan Xinqiao, chairman of Hunan Yuneng (stock code: 301538.SZ), noted during the first quarter of this year that the lithium iron phosphate industry is currently experiencing structural overcapacityAccording to statistical data, the overcapacity rate appears to be substantial.
As a leading enterprise in the development, manufacturing, and sales of lithium-ion battery cathode materials, Hunan Yuneng reported that their lithium iron phosphate products have maintained the highest shipment volumes in the industry for three consecutive years.
Tan's comments have sparked discussions concerning the oversupply in the lithium iron phosphate sector across the market.
With robust production and sales in the NEV sector coupled with an increasing market penetration rate, demand for lithium iron phosphate has surgedNumerous lithium-based chemical giants are now seizing the moment to enter the frayAs it stands, several publicly-listed phosphorus chemical companies, including CNNC Taibai (stock code: 002145.SZ), Anada (stock code: 002136.SZ), and Longbai Group (stock code: 002601.SZ), have announced plans to venture into the energy battery field, alongside previous cathode material companies ramping up their investments as well.
Research from Qidian indicates that the shipment volume for lithium iron phosphate cathode materials in China amounted to roughly 112.4 million tons in 2022. As large companies begin to release production capabilities and phosphorus chemical enterprises join the market, by the end of June 2023, the total known operational capacity for lithium iron phosphate and lithium manganese iron phosphate is over 2.5 million tonsFuture capacity projections indicate that approved and proposed productions have already exceeded 10 million tons.
According to Qidian Research, Dufang Nano shipped around 172,000 tons of lithium iron phosphate in 2022, securing a 15.1% market share, trailing only behind Hunan Yuneng
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In a report by Dongwu Securities on July 17, it is estimated that Dufang Nano's shipments for the first half of 2023 will be about 90,000 tons, with roughly 50,000 tons anticipated in the second quarter.
Dufang Nano state that their current annual lithium iron phosphate production capacity stands at 265,000 tonsShould they experience negligible growth in shipments for the latter half of 2023, parts of their production capacity could remain unused.
At the 2023 Advanced Lithium Battery Materials Conference, Zhang Xiaofei, the chairman of the conference, emphasized that an ongoing expansion trend over the past three years has resulted in both lithium battery and materials production capacities being significantly oversupplied.
Moreover, some companies related to lithium salts are also facing disappointing earningsLongpan Technology (stock code: 603906.SH) predicts a net loss attributable to shareholders between 628 million and 760 million yuan for the first half of 2023, citing substantial declines in raw material costs, particularly lithium carbonate, and a period of destocking within the lithium battery supply chain.
Fengyuan Co., Ltd. (stock code: 002805.SZ) forecasts a net loss between 93 million and 123 million yuan during the same period.
These developments underscore the intensifying competition in the lithium iron phosphate market, with Dufang Nano pinning hopes for future profitability growth on its new product lines of lithium manganese iron phosphate.
Dufang Nano has recently disclosed that the new product, lithium manganese iron phosphate, has successfully passed tests from downstream customers, with production capacity already optimized for batch implicationsThey have built a 110,000-tone capacity, leading the sector in this regard and demonstrating their capability for mass production.
The potential advantages of lithium manganese iron phosphate include improved energy density, better low-temperature performance, and reduced cost per watt-hour, making it a standout competitor in the electric vehicle battery market.
However, as lithium manganese iron phosphate undergoes a gradual industrialization phase, competition in the field is already heating up
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