The Chinese giant CATL, which supplies most electric cars with its batteries, will take part in the price war launched by Tesla. How ? Quite simply thanks to a huge discount on the price of batteries, but only for a handful of Chinese manufacturers. An anti-competitive practice aimed at ousting Tesla?
In 2022, CATL equipped 37% of electric cars produced worldwide. What makes the Chinese company the industry leader, far ahead of Korean LG and Chinese rival BYD, both ex aequo with 13.6% market share. The Chinese giant intends to take advantage of its situation, envied by its competitors, to trim its margins a little, while increasing its market share. How ? By reducing its prices enormously, to follow the trend initiated by Tesla at the start of the year.
An XXL discount on the price of batteries
The information is relayed by the Asian media 36 kr. This tells us that CATL is currently preparing a special program, allowing to enormously reduce the cost of production of electric cars for its partners. In detail, it would be a discount on the price of batteries produced by CATL and sold to certain local manufacturers.
To date, the ton of lithium trades for around 470,000 yuans, or the equivalent of 64,000 euros. The program devised by CATL would make it possible to grant special partners a purchase price of 200,000 yuan per ton, or approximately 27,000 euros. For this, manufacturers would have to sign a 3-year contract with CATL and commit to sourcing 80% of their batteries from the Chinese giant.
According to the Chinese media, CATL suppliers have received requests from the latter to lower the selling prices of raw materials. In order to help the battery manufacturer to reduce production costs. Last year, CATL implemented a mechanism for automatically varying battery prices, linked to raw material costs. The sale price of the batteries had then increased by 40%. But, contrary to all expectations, the increase in the cost of production was much lower, allowing CATL to comfortably increase its margins.
Chinese manufacturers will have a field day
Enough to allow the Chinese giant to carry out targeted price reductions for its favorite partners. The Asian media then quotes the car manufacturers Li Auto, Nio, Huawei, and Zeekr. Their common point: to offer ultra-innovative electric cars, such as the Zeekr 001, for example, with its 1,000 km range. We can also mention Huawei’s Avatar 11, loaded with technology.
If this project really sees the light of day, it’s a safe bet that the brands integrated into it will be able to radically reduce the price of their electric cars. Remember that the price of the battery is a major factor in the final price of an electric car. It is estimated that one kWh of battery costs around $100 to produce. Which therefore gives 7,500 dollars (about 7,000 euros) for a 75 kWh battery. By adding the margin and taxes, we can quickly double this price.
By halving the purchase price, CATL could therefore enable its partners to reduce the selling price of their electric cars by several thousand euros, without affecting their margin, and therefore their profits. Enough to give them weapons in the price war which promises to be fierce, started by Tesla with a drop of more than 10,000 euros in its Model 3 and Model Y.
An anti-competitive practice?
We can however ask ourselves the question of the merits of this project, if it concerns only certain privileged partners. Wouldn’t this be an unfair competition put in place to serve certain major players in the industry, such as Tesla, but also the Chinese BYD (which is number 2 in the electric car, behind Tesla and competitor of CATL)? We could also see it as an attempt by China to put a spoke in the wheels of European or American players.
The latter then have every interest in firing on all cylinders to massively reindustrialize their countries, in order to produce lithium batteries (or without lithium for that matter) locally. Many projects are underway across Europe, whether with Volkswagen or Northvolt, but also in the United States with Ford and… CATL!
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