What are the reasons for the rush to build factories overseas? What impact will it have on the industrial structure?

Continuing from the previous topic, which Chinese lithium companies have already put into production or are planning/constructing overseas production capacity? What are the reasons for the rush to build factories overseas? What impact will it have on the industrial structure? Here, I will sort it out.

1. The coordinated "going overseas" of the lithium battery industry chain is accelerating

As the global market scale of new energy vehicles, energy storage, etc. continues to expand, the demand for lithium batteries continues to grow, and Chinese related companies can better meet overseas demand with their advantages in technology, cost, etc.

At present, whether it is downstream car companies or mid- and upper-stream lithium battery and lithium battery material companies, their overseas factory destinations and models are more diversified, not only "landing" factories in overseas mainstream markets, but also "settling" in emerging markets; not only direct investment in factory construction, but also new models such as technology "going overseas" have emerged.

From the perspective of car companies, in Europe, since this year, BYD's vehicle plant has landed in Hungary, Chery has announced its landing in Spain, and Leapmotor will use the European factory of Stellantis Group to achieve localized production. SAIC Group, Changan, Nezha, etc. are also planning to build factories in Europe.

In Southeast Asia, BYD, SAIC MG, Great Wall, Nezha, GAC, Changan, Chery and other car companies have entered the local market, and some Chinese brand new energy models have been put into production in local factories.

In addition to car companies, a large number of lithium battery companies have recently announced plans to build factories or conduct technical cooperation overseas. Lithium battery and material companies are also accelerating their overseas layout at a speed that is more in line with the former. The coordinated "going overseas" of the lithium battery industry chain is becoming one of the main trends in the development of the industry.

2. Main reasons

As one of the core components of the new energy industry, the industry generally believes that the market demand for lithium batteries will maintain a high growth momentum.

From the perspective of the global market, institutions predict that by 2030, the global power battery market demand will reach 4.8TWh; according to Bloomberg forecast data, by 2030, the global energy storage battery market demand will reach 1TWh.

It is not difficult to see that the high prosperity of the market demand is still one of the main reasons for driving Chinese lithium battery industry chain companies to build factories overseas. At the same time, filling the supply gap, optimizing the supply chain, increasing product gross profit margins, and avoiding trade/policy barriers are also important reasons for Chinese lithium battery companies to build factories overseas.

In terms of filling the supply gap, lithium batteries are in short supply in major and emerging new energy markets around the world, such as Europe, North America, and Southeast Asia, and Chinese lithium battery companies have advanced technology and production/supporting experience in lithium batteries, which can fill the market gap.

On the one hand, Chinese car companies have increased their overseas factory construction, driving Chinese lithium companies to follow the "going overseas" to set up factories and supply; on the other hand, in regions other than China, South Korea, and Japan, local companies lack lithium battery technology and lithium battery production costs are high, resulting in local electric vehicles and energy storage integration prices lacking competitiveness, especially due to the lack of industrial chain supply, which provides huge market space for Chinese lithium companies.

According to media reports, Northvolt, Europe's largest local battery company, was exposed to have withdrawn a 2 billion euro battery order (originally planned to be delivered this year) by BMW because the quality of the batteries provided by Northvolt has not met expectations. This also proves that it is still difficult for Europe to achieve self-supply of batteries, and Chinese lithium companies can fully meet market demand.

In terms of supply chain optimization and configuration, overseas factories can supply customers nearby, improve supply chain efficiency and reduce logistics costs, so that Chinese lithium companies can win more overseas market share.

In terms of increasing product gross profit margin, the gross profit margin of overseas markets is higher than that of domestic markets, which can provide companies with greater profit margins.

According to data, in 2023, CATL's domestic sales gross profit margin was 21.80%, while its overseas business gross profit margin was 25.19%; EVE Energy's overseas business gross profit margin reached 24.72%, which was also higher than its domestic gross profit margin. Farasis Energy also stated that its overseas gross profit margin is higher than that in China, and the gross profit margin of (supply) high-end models is 15% to 20%, and even higher in some regions.

In terms of avoiding trade/policy barriers, with the introduction of bills such as the EU "Critical Raw Materials Act" and the US "Inflation Reduction Act", as well as the imposition of tariffs on new energy vehicles, power batteries and key materials, Chinese companies building factories overseas may reduce the impact of relevant policies and achieve overseas localized supply.

As a result, landing overseas has become one of the choices that domestic leading lithium companies have made to consolidate their global competitiveness.

3. Overseas production capacity is gradually released

On the whole, at this stage, Chinese lithium companies' overseas factory construction and technical cooperation have entered a substantive stage.

According to the data, at present, CATL's German battery factory has been put into production, and its Hungarian factory is under construction; it also plans to adopt a technology licensing service model to help Ford and other European and American automakers build their battery factories, and continue to strengthen cooperation with downstream through localized factory construction and technology licensing.

Eve Energy's battery factories in Malaysia and Hungary are under construction. Among them, its Hungarian factory is adjacent to the BMW automobile factory. It is reported that after the battery factory is put into production, a set of aerial transmission equipment will be installed to directly transport the produced batteries to the BMW vehicle factory.

At the same time, based on the CLS global cooperative operation model, the joint venture battery factory of Eve Energy and Cummins, Daimler Trucks, and Paccar has started construction recently. The factory will produce square lithium iron phosphate batteries, which will be mainly used in designated North American commercial vehicle fields, with an annual production capacity of approximately 21GWh, and is expected to start shipping in 2026. In the future, the factory will obtain the license for the production, manufacturing and sales of battery cell products from EVE Energy and pay the licensing fee. The battery cells it produces will be mainly sold to the joint venture partner.

Gotion's G?ttingen factory in Germany, Fremont factory in the United States, and joint venture factory in Thailand have been put into production one after another. It also plans to build a new battery factory in Morocco to continuously expand its overseas production capacity supply.

The module and battery pack production line with an annual output of 6GWh of Farasis Energy's Turkish battery factory was put into production in March 2023, forming support and radiation capabilities for business expansion in Europe, the Middle East, Africa, and South Asia.

Honeycomb Energy's Thailand factory was put into production in February this year, realizing mass production and supply of products. It is reported that the factory realized local battery supply in the local area in just 5 months.

According to rough statistics, the battery bases put into production, under construction, and deployed by China's leading lithium battery companies in overseas markets have reached hundreds of GWh of battery production capacity; at the same time, lithium battery material companies such as Dangsheng Technology, Shanshan Co., Ltd., Xinzhoubang, Guotai Huarong, B&T, Putailai, and Tianci Materials are also accelerating their pace of "landing" overseas.

Industry analysis points out that the pace of overseas factory construction by Chinese lithium companies has significantly accelerated, which has become an important manifestation of the implementation of internationalization strategies and expansion of market share by related companies; with the emergence of technical cooperation models such as CLS, it means that my country is not only a product supplier, but also a global lithium battery technology exporter; material companies building factories overseas will also strengthen the collaboration capabilities of China's lithium battery industry chain.

However, it should be noted that building factories overseas is not as easy as building factories in China. Overseas companies will face a series of challenges such as lack of overseas infrastructure, cumbersome local approval procedures, and differences in employment policies/laws and regulations/cultural customs.

Considering the overseas layout of domestic enterprises, a project that only takes one year to build in China may take 3-4 years overseas. Enterprises need to be prepared for the long overseas construction period. At the same time, overseas factories are extremely challenging in terms of environmental protection and employment from planning to operation. Enterprises also need to pay attention to this in order to adapt to the overseas competitive environment.