The world’s largest EV battery maker will cut costs for Chinese automakers – but not for Tesla

China’s CATL, the world’s largest EV battery maker, is reportedly offering significantly lower battery costs to some Chinese EV makers, according to CnEVPost today.

CATL cuts costs for Chinese automakers

CATL (Contemporary Amperex Technology Co. Ltd.), which accounted for 37.1% of global EV battery sales in 2022, is reportedly offering a deal on EV batteries for carmakers including NIO, Li Auto (Nasdaq: LI), Huawei, and Zeekr – what CATL considers “strategic clients.”

NIO signed a five-year strategic cooperation agreement with CATL on January 17.

Tesla – CATL’s largest customer – is not among CATL’s “strategic client” group, and Tesla has a gigafactory in Shanghai.

CnEVPost explains how the battery deal will work:

CATL will settle a portion of the price of power supply with automakers based on a price of RMB 200,000 [$29,116] per ton of lithium carbonate for the next three years.

At the same time, automakers signing the partnership will be required to commit about 80% of their battery purchases to CATL, according to the report.

Currently, battery-grade lithium carbonate is quoted at about RMB 470,000 [$68,427] per ton, and car companies that can purchase batteries at a cost of RMB 200,000 a ton will undoubtedly be able to significantly reduce cost pressures, the report noted.

The program will be implemented in the third quarter of 2023, and CATL has asked its material suppliers for a 10% price cut. (CATL ties its battery prices to raw material prices.)

Lithium carbonate prices have been falling since the end of 2022, and Ouyang Minggao, a member of the Chinese Academy of Sciences, said at a conference today that they may fall by as much as 20% in China in 2023.

Lithium resources are expected to return to supply-demand balance in one to two years. CnEVPost reports in a separate story today:

Morgan Stanley expected lithium carbonate prices in China to be at $67,500 per ton in the first half of 2023, falling to $47,500 per ton in the second half of 2023, the latter implying a 35% decline from spot prices at that time.

City Dwellers’s Take

Which of these things is not like the other?

As I wrote, Tesla is CATL’s largest customer. Does it not get this deal because it’s an American company? Or is it merely because Tesla is already tied into a production pricing agreement with CATL until 2025?

No other non-Chinese automakers appear to be getting CATL’s special deal.

The Biden administration threw down the trade-war gauntlet with the passage of the Inflation Reduction Act in 2022, so of course the Chinese are going to fight back. And Chinese companies produce more than 50% of EV batteries in the global market, so they can.

Just this week, Ford announced a $3.5 billion Michigan LFP battery factory – with CATL – in 2026. The two companies announced a Global Strategic Cooperation covering battery supply in North America, Europe, and China in July 2022.

The lithium market is expected to double by 2030 as EV demand accelerates. The race is on.

Read more: North America’s largest lithium mine can now break ground – that’s great news for EVs

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