Chinese battery maker CATL grants home brands a price reduction

Chinese battery manufacturer CATL, the world’s largest, will offer decisive price reductions for its battery packs. But only the domestic brands benefit. Tesla, the supplier’s biggest customer, isn’t included in the deal. So are the international trade frictions between the US and China also showing up in the automotive industry?

EV carmakers Nio, Zeekr, Huawei, and Li Auto will pay much less for their battery packs manufactured by CATL as the supplier is granting them a significant price cut. CATL regards these brands as their strategic customers eligible for a discount. Tesla, however, which runs a Gigafactory in Shanghai and is the manufacturer’s number one buyer, is left aside.

Half the price

CATL tethers its battery price to the cost of raw materials. The company promises its strategic partners a price of 200 000 RMB (€27 277) per ton for lithium carbonate as of the third quarter of 2023. That is more than half of the money currently on the table for the quintessential white salt. From its suppliers, CATL has reportedly negotiated a discount of 10%. The catch is that these strategic clients must purchase 80% of their packs from CATL.

The market price for lithium carbonate that has been declining since the end of last year after soaring to record levels during 2022 putting a strain on the EV maker’s pricing policies. These levels are not expected to rebound, as analysts – e.g., American bank Morgan Stanley – forecast a further price dip between 20 to 35% for the remaining year.

Backed by government

As for political reasons, CATL isn’t state-owned, according to its filings. However, the government put everything in place to keep the company under Chinese control, and after Nancy Pelosi visited Taiwan, the company delayed investment plans in the US.

As it has grown into an industrial giant and holder of the most crucial technology for the future of our mobility, the authorities want to avoid foreign meddling at any cost.

Eventually, there is a cost since the company’s rise has been heavily backed by government subsidies. A lot of the investment can be traced back to pockets with close relations to Xi Ping and… the son of Joe Biden.

According to the Wall Street Journal, Hunter Biden is a Chinese private equity firm shareholder that holds a stake in CATL. His involvement has led to vigorous debate in the US.

Reaction to Inflation Reduction?

Tesla being ousted from the favorable price reductions might also be explained by Biden’s Inflation Reduction Act, which favors local production of battery components if the buyers want to apply for tax credits.

This forces CATL to invest in the States to maintain and expand its market share. These plans include building sites with Ford, BMW, and General Motors.

Before the announced price reduction, Tesla had already struck a purchasing deal with the Chinese manufacturer extending to 2025, which might also explain their absence in the pool of strategic clients.

In Europe, the deal could prove beneficial for especially Nio and Zeekr. With a debut coming up this year for the latter, with the SUV X, this might result in a further price advantage compared to local brands. Nio is also present in Europe, but only in dedicated markets. At Newmobility, we tested their EL7 last week and posted a review.