Can the world absorb what China's battery industry is building?
Investors are betting that the Iran war will drive a global surge in energy storage demand — yet capacity maybe expanding faster than demand is materialising
China’s battery giants are one of the market’s biggest bets on a second global energy shock.
The war in Iran has pushed up oil and gas prices by around 30% since it started and investors are assuming this will accelerate the shift to electric vehicles and renewable energy worldwide.
The market capitalisation of China’s largest battery producer CATL has now hit 2.1 trillion RMB ($306 billion), according to Bloomberg, making it the third most valuable company listed in China. Shares have risen by 39% this year alone.
But for the broader Chinese battery industry even with that bullish assumption, there is a question of whether global demand will be enough for the amount of battery production capacity China is building, especially for large energy storage systems that help grids absorb renewable sources of energy.
China is expected to bring on 500 GWh of new energy storage battery production capacity this year alone, according to Gaogong Research (GGII), taking total domestic capacity to over 1,200 GWh by year end. In addition, 85% of this new capacity is for 500Ah+ large-format cells.
To put it in context, last year China installed 189.48 GWh of energy storage batteries domestically, according to the China Energy Storage Alliance. Even with strong growth at home, overseas markets will need to expand rapidly to absorb the additional capacity.
Exports of energy storage batteries picked up markedly in March, rising by 50% year-on-year to 13.8 GWh, yet that growth will need to continue all year in an uncertain global environment.
As its own electric vehicle market weakens China has even more of an incentive now to make sure the world shifts towards clean energy and electric vehicles. It is successfully expanding renewables at home, but that is not enough - it needs the rest of the world to continue buying Chinese batteries.
Regulator concerns
Chinese regulators have been repeating concerns over the domestic battery industry, in what risks sounding like a broken record. Beijing has been trying to crack down on excessive competition in its domestic electric vehicle and battery industries, which risks increasing overcapacity and reducing profits.
Four Chinese regulators again called a meeting with Chinese battery companies this month calling on them to “resist unreasonable and unfair competitive practices and safeguard a healthy and orderly market environment.”
It’s not hard to see why when you look at the numbers. Chinese exports of new energy vehicles (NEVs) surged by 130% in March, helping to offset a 18% domestic decline in retail sales.
But in energy storage, the export surge has yet to show up in the data. And the concern is that outside of the top players like CATL the batteries might not all find a home.
