The initial "value" was 50000 yuan/ton, and in just 23 months, the "value" increased by 12 times. This is the price change of "white petroleum" lithium carbonate from January 2021 to November 2022. However, it took another two months, and the price of lithium carbonate dropped from 600000 yuan/ton to 200000 yuan/ton, halving the price. Although the price of lithium carbonate fell back as expected, the "subduction" price trend still far exceeded market expectations.

　　What are the reasons why the decline rate exceeded expectations?

　　Firstly, shift from supply and demand mismatch to oversupply.

　　Whether the price of lithium carbonate skyrockets or plummets, the essence lies in the supply and demand relationship. Before 2021, due to overcapacity and insufficient demand, lithium prices fell, making life difficult for lithium miners.

　　In 2019, Alita Resources, an Australian lithium mining company, announced bankruptcy and restructuring. In 2020, China's "big brother in the lithium industry", Tianqi Lithium, was deeply in debt crisis. Under the tense market environment, lithium miners are tending towards "conservative" production and no longer blindly expanding. After the wave of production reduction and shutdown in the lithium mining industry has passed, the production capacity of lithium carbonate has also relatively contracted. The turning point is in 2021, when the new energy industry ushered in an outbreak. The production capacity of electric vehicles is rapidly expanding, and the demand for power batteries is rapidly expanding.

　　As the main raw material for power batteries, the demand for lithium carbonate has increased significantly. However, "lithium production" is not a one-time achievement. The average production cycle of lithium mines is 6-8 years, and the average cycle of stopping production and resuming production is 2-5 years. It also takes time to catch up quickly. In addition, the limitations of refining technology have constrained the production of lithium carbonate, making it difficult for upstream enterprises to keep up with the explosive market demand, resulting in a two-year "supply and demand mismatch" and rising prices of lithium carbonate.

　　However, the mismatch between supply and demand is currently being alleviated. On the one hand, many battery companies have increased their lithium resource self-sufficiency rate. For example, the lithium carbonate equity production capacity held by Ningde Times and its lithium recovery capacity for battery recycling are conservatively expected to release approximately 203000 tons of lithium salt production capacity by the end of 2023. On the other hand, in the past two years, the price of lithium carbonate has increased, and the lithium mining industry has expanded and expanded production. After the production capacity is invested, the market supply increases.

　　CITIC Construction Futures predicts that the lithium supply from 2023 to 2025 will be approximately 1.1225 million tons, 1.5465 million tons, and 1.831 million tons of lithium carbonate, respectively; The demand for lithium is 1.1045 million tons, 1.3612 million tons, and 1.6515 million tons, respectively. Lithium carbonate has shifted from oversupply to oversupply.

　　Secondly, shift from "buying and selling" to "holding money and watching".

　　Since the beginning of the new year, the automotive market has started with a price war, with consumers holding onto their currencies and watching.

　　From January to March this year, the growth rate of electric vehicle sales was around 20%, which is a significant difference compared to last year's growth rate of nearly 100%. The sales growth rate of new energy vehicles is lower than expected, and the growth rate of power battery demand is also decreasing. The market is not nervous about the demand for lithium carbonate. There are very few inquiries now, let alone transactions. Orders have been reduced by at least half, "said a lithium salt mine official. At the end of February, the price of battery grade lithium carbonate continued to drop below 400000 yuan/ton. As of March, the price of battery grade lithium phosphate has already dropped below 300000 yuan/ton, and there are currently no signs of braking.

　　The overall market environment is bearish for lithium carbonate due to oversupply and lower than expected demand. Previously, Li Bin, the founder of NIO, predicted that the price of lithium carbonate was expected to drop to 200000 yuan/ton in the fourth quarter of this year. Previously, Ouyang Minggao, an academician of the CAS Member, said that a reasonable price balance point might be around 200000 yuan/ton. The "lithium ore rebate" plan of Ningde Times also locks the settlement price of lithium carbonate at 200000 yuan/ton.

　　Lithium carbonate is constantly declining, and based on the current trend, the price of lithium carbonate is expected to drop below 200000 per ton in the second quarter of this year. The market generally believes that there is still room for decline, and the wait-and-see sentiment is severe. This further led to a decline in the order volume of lithium carbonate and a continuous decline in prices.

　　Thirdly, shift from "hoarding and hoarding" to "bidding and selling".

　　The production cost of one ton of lithium carbonate is only 30000 to 50000 yuan, which is not high. However, the price has skyrocketed to 600000 yuan/ton. The phenomenon of "hoarding" and "hype" behind it is a major reason for the "crazy" rise in lithium prices. Chen Shihua, deputy secretary-general of the China Automobile Association, said that the extraordinary rise in the price of raw materials could not be simply attributed to the contradiction between supply and demand, which was an irrational rise.

　　Under policy constraints, the price of lithium carbonate has begun to decline. In November 2022, the General Office of the Ministry of Industry and Information Technology and the General Office of the State Administration of Market Supervision and Administration issued the Notice on Doing a Good Job in the Coordinated and Stable Development of the Supply Chain of the Lithium Ion Battery Industry Chain, clearly proposing that local market regulators should strengthen efforts to strictly investigate and deal with the upstream and downstream hoarding, price gouging, unfair competition and other acts of the lithium battery industry, so as to maintain market order. Starting from December, the price of lithium carbonate gradually declined. After the change in supply and demand, there has been a surge in "hoarding", and currently lithium miners are "bidding and selling", causing the price of lithium carbonate to plummet.

　　The current spot trading price range is 196000 yuan/ton to 218000 yuan/ton. However, some lithium miners have already quoted prices below 200000 yuan/ton to accelerate their selling. The shipping prices of some traders have dropped to 170000 yuan/ton to 180000 yuan/ton. At present, the phenomenon of "de inventory" in the industry is continuing, and some lithium salt manufacturers are under inventory pressure, and may continue to reduce prices and sell off.

　　What are the impacts on car companies?

　　The most direct impact of the price reduction of battery grade lithium carbonate on new energy vehicle companies is the reduction of battery costs and the increase in gross profit margin. The commonly used power batteries in the market are ternary lithium batteries and lithium iron phosphate battery, both of which use lithium phosphate as raw materials, while lithium carbonate accounts for a large part of the cost of power battery raw materials. Lithium iron carbonate battery, taking BYD's power battery as an example, BYD points out that the cost of lithium carbonate currently accounts for more than half of the battery cost. For ternary lithium batteries, taking the 523 power battery as an example, lithium carbonate accounts for even 72.8% of its cost structure.

　　According to research institutions, the price of lithium carbonate has decreased by 100000 yuan per ton, and the cost of 10KWh batteries has decreased by about 700 yuan. Since November last year, the price of lithium carbonate has decreased by over 300000 yuan. Taking the single car model with a 60KWh battery installed as an example, the battery cost has been reduced by over 12000 yuan. However, for new energy vehicle companies that use different KWh and types of batteries, the cost reduction varies.

　　Last year, NIO CEO Li Bin introduced that every 100000 yuan change in lithium carbonate price will affect NIO Automobile's gross profit margin by approximately two points. CEO An Conghui of Jikron stated that for every 10000 yuan change in battery price, the impact on Jikron is 575 yuan and the impact on gross profit is 0.2%. For domestic new energy vehicle companies, the price reduction of battery grade lithium carbonate is a long drought and a rainy day. Firstly, last year Tesla lowered prices to seize market share. Many new energy vehicle companies have either officially lowered prices or guaranteed prices for a limited period of time. In the face of Tesla's economies of scale and cost advantages, the pressure on domestic new energy vehicle companies can be imagined.

　　This year, a wave of price cuts for fuel powered vehicles has hit the new energy vehicle market, with one of the most direct manifestations being the slowdown in the growth rate of domestic new energy vehicles. Adding to the "debuffs" of new energy subsidies and exits, domestic new energy vehicle companies are facing heavy pressure, especially for some new power vehicle companies. This time, the price reduction of lithium carbonate has reduced cost pressure for domestic new energy vehicle companies and brought more room for price adjustment.

　　Analysts have pointed out that a significant reduction in the price of lithium phosphate will inevitably lead to a reduction in the price of new energy vehicles, forming a crushing trend on the fuel vehicle market.

　　However, Cui Dongshu, Secretary General of the Federation of Automobile Manufacturers, pointed out that the healthy battery industry chain will reduce pressure on new energy vehicle companies, but it will not have an impact on the prices of new energy vehicles in the short term. The price negotiations between car companies and battery manufacturers are based on quarterly arrangements. Therefore, the recent continuous decline in lithium carbonate prices will not affect the pricing of car companies.

　　However, despite the short-term impact of "long-term orders", there has been no significant recovery in short-term market demand, and raw material prices are still expected to have room to explore.

　　In the long run, with the change in the supply and demand relationship of lithium carbonate, the "bargaining power" is shifting to the downstream market. Therefore, the cost advantage brought by the price reduction of lithium carbonate to new energy vehicle companies is beyond doubt. The essence of a "price war" is a "cost war", where controlling costs is as important as obtaining orders, and prices adjust according to the emphasis at different stages. The decline in the price of lithium carbonate will add more chips to the new energy vehicle market.