China Tamps Down Lithium Battery Makers Amid Overcapacity

China issued new guidelines for its lithium-ion battery industry on Wednesday — a move aimed at tackling its rapid expansion and a plunge in prices due to overcapacity.

The guidelines, issued by China’s Ministry of Industry and Information Technology, aim to ‘guide’ lithium battery firms towards scaling back manufacturing projects that only expand production capacity.

They also aim to enhance technology innovation and product quality, while trimming output costs of the industry, the ministry said.

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Rapid expansion of production capacity along the lithium battery supply chain has led to a plunge in prices for products, including battery and raw materials in the world’s biggest market.

Much of the industry’s growth was enabled by billions in state subsidies as Beijing attempted to build an early dominance in the production of lithium-ion batteries.

Between 2009 and 2019, Beijing spent $100 billion on subsidies for the industry and for electric vehicles (EVs), allowing China to dominate the industry, according to the Atlantic Council.

Many battery manufacturers set up shop in an effort to take advantage of growing demand and the Chinese government’s EV subsidies.

But that rapid expansion of production capacity led to a sharp plunge in prices that has been eroding companies’ profits. Lithium prices plunged more than 80% last year and have hovered around those levels since.

The state of the industry has led to calls for Beijing to tackle overcapacity. In March, the chairman of Zhejiang Huayou Cobalt called on Chinese authorities to take swift measures as firms were tackling “suspended operations… idled equipment and staff layoffs.”

He added that China’s lithium iron phosphate capacity will reach 5.75 million metric tons in 2025, while global demand will likely remain about 2.67 million tons that year.

With new guidelines, China will look to ‘transform’ and ‘upgrade’ the industry towards ‘high-quality development’, the industry ministry said on Wednesday.

Industry planning and launch of new projects should be in line with national development of resources, ecological protection and energy saving management, the ministry said.

Projects built on farmland and ecological zones will have to be shut down, or strictly reined in and gradually removed, according to the new guidelines. They will take effect from Thursday.

Reuters, with additional inputs from Vishakha Saxena

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]