Where Will The Lithium Battery Leader Go Under The Market Crash?

Dong Peng, researcher of the 21st Century Capital Research Institute

Zhang Tianren, deputy to the National People's Congress and chairman of Tianneng Co., Ltd., said recently that it is suggested to further support the recycling of power lithium batteries and promote the circular economy.

Zeng Yuqun, member of the National Committee of the Chinese people's Political Consultative Conference and chairman of Ningde times, submitted two proposals during the two sessions of this year, namely "proposal on accelerating the construction of new electrochemical energy storage infrastructure and supporting the implementation of national strategic objectives of 3060" and "proposal on strengthening the protection of intellectual property rights of lithium batteries".

History still remembers that Ford Model T made cars enter daily life at a low price. 1908 also became an important milestone in the history of automobile industry. Over the next 17 years, the price of the model dropped from $825 to $290, and it was a sales miracle of 15 million vehicles.

How similar.

One hundred years later, Tesla released its first electric car roadster, as well as the model s, model X and model 3, which were launched on the market since then. The same is that the prices of the products are constantly falling, and the sales volume occupies the front row

On the other hand, there is the rise of new domestic car making forces such as Weilai, Xiaopeng and ideal, as well as the participation of Mercedes Benz, BMW and other traditional giants in automobile electrification.

One of the core of electrification is undoubtedly the power battery as an energy storage carrier.

Whether it is the ternary battery with higher energy density or the lithium iron phosphate battery with outstanding cost advantage and stability, even if there are differences in the technical routes, the most certain raw material is still lithium.

In this context, the new energy industry chain has become the hot pursuit of the capital market.

In addition, in the second half of 2020, China's new energy vehicle sales bottomed out and rebounded, leading industries in vehicle, power battery, and lithium battery continued to soar. The upstream lithium industry giants such as ALB and FMC surpassed the lithium price highs in the three years since 2018, and their stock prices reached a record high.

However, since the end of January, domestic and foreign lithium giants, including Yabao, have begun to decline continuously. The correction rates of two lithium giants in a share market are both more than 30%. Ganfeng lithium industry has retreated 34.5% from the January high, while Tianqi lithium has experienced the largest drop of 40.3% in the same period.

Other peer companies, such as Sichuan dynamic power, Yahua group and Shengxin lithium energy, have all experienced a round of adjustment of at least 30%. The lithium battery sector has also become one of the weakest sectors in the market since February.

So, after the terror kills falls, where will lithium lead stock go?

1. Lithium price hits bottom and "inflection point" is established

Although lithium is a rare metal, due to the change of terminal demand, the price operation of lithium is independent of the nonferrous industry in recent years, and it is highly related to the new energy vehicle industry, which has been particularly obvious since 2015.

In 2015, the domestic new energy vehicle industry is in the subsidy stage, and the output has increased significantly, which has driven the demand for lithium compound products such as lithium carbonate and lithium hydroxide.

It is also under the background of sudden outbreak of terminal demand and imbalance of supply and demand that the price of lithium compound products rises sharply.

Among them, due to the relatively stable demand side, lithium carbonate fluctuated below 40000 yuan / T for a long time before 2015, and then, stimulated by the large-scale demand of new energy vehicles, the price of lithium carbonate soared to nearly 170000 yuan / ton in March 2018.

This brought the average price of battery grade lithium carbonate to 148200 yuan / ton in 2017, and lithium hydroxide hit 155900 yuan / ton.

In the process of price rise, the industry has set off the expansion of lithium concentrate, lithium carbonate and other products, and the supply relationship of products tends to balance from tension to surplus.

Superimposed on the weakening demand side caused by the decline of domestic subsidies for new energy vehicles in 2018, the price of battery grade lithium carbonate fell continuously until around 44000 yuan / T in the second half of 2020.

During this period, the price of lithium concentrate fell simultaneously. Australian mines, as the main supplier, stopped production, reduced production or even went bankrupt. The upstream production capacity was clear.

Starting from the third quarter of 2019, in addition to talison lithium concentrate, which is jointly held by Tianqi lithium and Yabao, is still in normal operation, Alita has entered into bankruptcy restructuring, wodgina has been shut down for maintenance, Pilbara phase II capacity construction has been carried out in stages, and the capacity release cycle has been delayed

The improvement of supply-demand relationship provides a medium and long-term logic for the stability of lithium series products.

Until April 2020, the domestic auto industry sales bottomed out, and the year-on-year growth rate turned positive for the first time after 21 consecutive months of decline, driving the new energy vehicle industry to bottom out and pick up.

After the rebalancing of supply and demand in 2018, the price of lithium products began to bottom out and rise. Among them, the price of battery grade lithium carbonate has increased from 44000 yuan / ton at the end of July 2020 to 77000 yuan / ton so far, with a cumulative increase of 75%.

On the one hand, it is affected by the rebound of terminal demand, on the other hand, it is also driven by upstream Salt Lake production and downstream enterprises' seasonal replenishment of inventory.

It should be pointed out that at present, there is no uniform price for lithium carbonate, lithium hydroxide and other products in the domestic market. The mainstream quotation agencies include Shanghai Nonferrous Metals Co., Ltd., Baichuan Information Co., Ltd., and business associations, and their prices are slightly different.

For example, according to the data of Baichuan information on March 3, the mainstream quotation range of domestic battery grade lithium carbonate market has risen to between 81000 yuan and 84500 yuan per ton, with the average price rising to 82700 yuan / ton.

According to the 21st Century Capital Research Institute, it is enough to reflect the trend of price change. Judging from the medium and long-term industry supply and demand, product price operation, production cost and other factors, the inflection point of lithium price is very clear.

2. The industrial chain has lifted the tide of "expanding production", and the demand increase is not worrying

Other features at the bottom of the industry include a significant increase in terminal capital expenditure, especially in the new energy vehicle industry since the second half of 2020.

Different from other industries, the power battery industry has been rapidly established since its emergence.

As far as the domestic market is concerned, it has also formed the pattern that Ningde is the dominant one.

According to the data of Gaogong lithium battery research institute, the top domestic power battery installed capacity enterprises in 2020 are Ningde times, BYD and LG Chemical, with a total market share of 74.83%.

Among them, Ningde times has a market share of 50.09%, and its main supporting automobile enterprises include Weilai, Yutong Bus, Xiaopeng and Tesla, etc.

Based on this logic, the 21st Century Capital Research Institute believes that judging the demand for lithium battery materials in the domestic market in the next few years only needs to grasp the "main contradiction" of Ningde era. However, since the second half of 2020, Ningde era has launched a "Crazy" expansion action.

Compared with the previous data in 2020, it can be seen that the pace of production expansion in Ningde era is obviously accelerated. In 2019, the total investment amount of five production expansion projects announced by the company is about 30.054 billion yuan.

Since August 2020, the total investment amount of eight expansion projects announced by Ningde times has reached 86.5 billion yuan.

At the same time, the investment amount of a single project is much higher than that in 2019. At that time, the project with the highest single amount was "Yibin manufacturing base project of power battery". The investment amount was not more than 10 billion yuan, and the amount of this round of expansion projects was generally more than 10 billion yuan.

In addition, domestic head power battery enterprises such as BYD and AVIC lithium battery, as well as Japanese and South Korean head battery enterprises such as Samsung SDI, LG Chemical and Panasonic in overseas markets are also expanding production capacity.

In order to meet the capacity release of head power battery enterprises, enterprises such as cathode materials, negative materials and electrolyte have expanded their production simultaneously.

Take A-share listed companies as an example, including the 50000 ton lithium iron phosphate cathode material project of Fulin Jinggong, the 24000 ton lithium battery ternary material intelligent chemical plant of Shanshan, the 20000 ton high nickel positive electrode project of rongbai technology and the 20000 ton high nickel ternary cathode material project of GuoXuan high tech.

In terms of electrolyte, one of the leading domestic companies, duofluoroduo and Yuntianhua, in the form of a joint venture, has added 5000 tons of lithium hexafluorophosphate in Anning, Yunnan Province; in overseas markets, Mitsubishi Chemical also plans to increase the production capacity of 10000 tons of electrolyte by 2023, and the total capacity will be increased to 30000 tons.

The organization also noted the expansion of the whole industry chain of the new energy vehicle industry. According to the incomplete statistics of Sichuan financial securities, in January 2021, there were 18 expansion projects of lithium battery industry at home and abroad, including 9 battery projects, 8 material projects and 1 structural parts project, with a total amount of over 68 billion yuan.

From the point of view of expanding production and subdividing industries, almost the entire lithium battery industry chain has expansion plans.

Among them, the power battery expansion plan includes cylindrical and square batteries; the lithium battery material expansion plan involves ternary cathode materials, lithium iron phosphate materials, copper foil, separator, electrolyte, even in the field of battery material recycling.

The 21st Century Capital Research Institute believes that this round of expansion driven by power battery will bring certain demand support for upstream raw materials such as lithium, cobalt and nickel in the next few years. Combined with the supply and demand cycle of their products, the relevant industries are expected to have different degrees of prosperity improvement.

3. The profit margin is expected to increase strongly, and the performance will be realized in half a year at the latest

Compared with the historical price trend, the profit margin of lithium battery is highly related to the price of lithium carbonate and other products.

Ganfeng lithium industry is one of the "two giants of lithium industry" in China. Its main products include lithium carbonate and lithium hydroxide. The revenue of lithium series products accounts for more than 77%.

From 2016 to 2017, when the price of lithium carbonate remained at the high point of 170000 yuan / T, the gross profit rate of lithium series products increased from 43.55% to 45.38%; from March 2018, the lithium price fell continuously, and by the end of 2019, it had dropped to 53000 yuan / T, during which the gross profit rate of lithium series products of the company decreased gradually from 45.38% in 2017 to 39.97% in 2018 and 27.17% in 2017.

The gross profit rate of Tianqi lithium industry is higher than that of Ganfeng lithium industry, but the profit of Tianqi lithium industry in the same period also keeps the same change trend. The gross profit rate of its derivative lithium products business reached 74.38% in 2016, and then decreased year by year, and dropped to 48.54% in 2019.

Now, the price of lithium carbonate has risen to 77000 yuan / ton, and the gross profit rate of related products of "two giants of lithium industry" will also hit the bottom and rise.

Reflected in the capital market, it is the improvement of enterprise profit expectation.

Regardless of Tianqi lithium industry, which has not yet returned to normalization due to debt problems, take Ganfeng lithium as an example. In the past half a year, its wind consistency forecast value has been generally raised by the seller's organization, and its expected net profit in 2021 has been raised from 1.167 billion yuan to the latest 1.509 billion yuan.

In 2017, when the lithium price was at an absolute high level, the peak net profit of Ganfeng lithium industry was only 1.469 billion yuan.

According to the 21st Century Capital Research Institute, considering that the accelerated rebound of lithium price started at the end of December 2020 and the price of lithium carbonate remained low in the fourth quarter of the same year, the improvement effect of lithium price increase on the performance of related companies is still to be verified.

As these two lithium industry leaders belong to the world's top five lithium chemical products manufacturers, some of their products adopt the "long-term single sales" mode. For example, the price of Ganfeng lithium industry's long-term association is calculated by the relevant formula, and the price is adjusted once a quarter. The main variables affecting the long-term association price are the market prices of lithium carbonate and lithium hydroxide. The specific price data will refer to the overseas third-party quotation And the government, Customs announced prices.

Another part of the sales of products for "loose", flexible adjustment.

Therefore, the rise of lithium carbonate and other products may have a certain lag in improving the company's profits. The specific change of profit margin can only be determined when the first quarter report is disclosed at the earliest, and the specific profit rate improvement situation needs to wait for the interim report data to come out.

4. The flexibility of A-shares is higher than that of US stocks, and Q4 shares of funds set a new record

It is also in the context of the above-mentioned inflection point of lithium price and the reversal of industry profit expectation, Qiqi, including Yabao, sqm, Tianqi lithium and Ganfeng lithium, has reached a record high.

Take Ganfeng lithium industry, which has the largest cumulative increase, as an example. When the last round of lithium price was high, the stock price of the company was 67.34 yuan after the resumption of rights, and the peak at the end of January 2021 was 149.3 yuan.

Abbott's 2017 high was $137.43, and January's high was $188.35.

According to the statistical historical data, the largest increase in the range of the four leading enterprises is basically the same from the beginning of 2020 to March 3, 2021, which is generally around 300%. Only Tianqi lithium has a slightly greater stock price elasticity due to its own reasons such as the cancellation of debt overdue factors.

In terms of the total market value ranking, Yabao was overtaken by Ganfeng lithium industry. In terms of RMB, the latest market value of Ganfeng lithium industry is 141.98 billion yuan, while that of Yabao company is 115.86 billion yuan.

Combined with the data of the largest increase in the range, we can draw the conclusion that in this round of lithium price rebound cycle, the leading trend of lithium battery listed in A-share market is obviously stronger than that of American stock peers.

For this reason, in the context of the industry wide stock price pullback in February 2021, the adjustment range of A-share "lithium industry's two giants" is higher than that of the US stock market.

From the peak in January this year, the maximum withdrawal ranges of Yabao and sqm from the high point were 25.28% and 18.34%, respectively, while the maximum withdrawal ranges of Ganfeng lithium industry and Tianqi lithium industry were 34.7% and 40.3%, respectively.

From the perspective of stock price rhythm, the leading lithium battery companies in the U.S. stock market have taken the lead to stop the decline, and the related targets of a shares still have a downward trend this week. On March 4, Ganfeng lithium and Tianqi lithium reached a new low since February adjustment, and the above withdrawal data expanded again.

Although the secondary market is weak, the overall prosperity of new energy vehicles is still in an upward trend.

In January this year, China's power battery output totaled 12.0 GWH, an increase of 317.2% year-on-year. Among them, the output of lithium iron phosphate battery increased by 493.6% year on year.

Changes from the fundamentals are limited. The weakness of the lithium battery plate is more related to the excessive increase of its own stock price and the rotation of the secondary market plate. The photovoltaic industry also has a similar situation recently.

In January this year, lithium battery industry once occupied the first place in the growth list of Shenwan sub industry. After excluding new shares, there were 3 lithium battery stocks among the top 5 stocks in the whole market.

Tracking to the institutional position, it can also be seen that the fund significantly increased its holdings of lithium battery plate in the fourth quarter of 2020.

Compared with historical data, it can be seen that the number of shares held by the fund in the fourth quarter of 2020 has increased significantly to 470 million shares, significantly higher than 290 million shares in the third quarter.

Among the 9 sample companies included in the lithium sector, except Tibet Mining and Tianqi lithium, which has debt problems, all other lithium stock funds are in the state of net increase. Compared with the fourth quarter of 2017, when lithium carbonate was at a high point of 170000 yuan / T, the number of shares held by the fund in lithium mining stocks was also at an absolute high.

After entering February, the bulk commodities represented by petrochemicals and nonferrous metals rose sharply, and the secondary market plate began to rotate again. At this time, the lithium battery plate, which has accumulated a considerable increase, has increased the pressure on profit taking.

5. The valuation of leading companies has dropped significantly, and the profit requirement may be higher than that in 2017

The two variables that affect the stock price are fundamentals and secondary market.

According to the 21st Century Capital Research Institute, the former has limited changes in the short and medium term, while the latter is affected by market expectations, which affects the short-term rise and fall of stock prices.

As far as the lithium battery industry is concerned, the two are currently in the process of continuous "Deviation", but it is not expected to last for a long time.

On the one hand, the growth of the future profit scale of related companies will inevitably bring about the decrease of the company's valuation level. On the other hand, after the considerable decline in February so far, the decline of valuation level of some individual stocks is very obvious.

Taking Ganfeng lithium industry as an example, the earnings per share from 2017 to 2019 were 1.98 yuan, 1.07 yuan and 0.28 yuan respectively. In 2020, although it did not fully share the dividend due to the rise of lithium price, the current EPS has rebounded to 0.76 yuan. If the gross profit rate of the company rises significantly in the first half of the year, its earnings per share will also increase accordingly.

In addition, after the decline in February, the valuation level of Ganfeng lithium industry has dropped significantly. According to the historical best performance of 1.98 yuan in 2017, the peak value of valuation in late January was 75 times, and on March 4 it had dropped to 49 times.

The adverse factor is that, since 2017, the total equity of "two giants of lithium industry" has increased to a certain extent due to their own financing needs, which has a dilution effect on the company's profits.

If earnings per share wants to reach the peak in 2017, it needs higher profit scale of relevant companies to support.

In the fourth quarter of 2017, the total equity of Ganfeng lithium industry was 742 million shares. After the latest period of debt to equity swap, the total equity of Ganfeng lithium has increased to 1.351 billion shares.

Tianqi lithium is the same, with a total equity of 1.142 billion shares at the beginning of 2018, and the current total equity is 1.477 billion shares.

Considering the dilution effect of the increase in the number of equity on net profit, the secondary market's demand for its profit may be higher than that in 2017. In other words, the net profits of Ganfeng lithium and Tianqi lithium are 1.469 billion yuan and 2.145 billion yuan respectively, and the future earnings per share will reach 1.98 yuan, and the corresponding net profit scale will need to reach 2.67 billion yuan and 2.92 billion yuan.

However, the growth of profitability, like the ramp up of production capacity, is a slow and large-scale process in a medium and long period, which can not be achieved overnight.

The short-term visible turning point will also be dominated by the first quarter report disclosed in April, which determines whether the aforementioned performance growth logic can be verified.

If the profitability improvement is obvious, or even beyond expectations, the adjustment of lithium battery plate may end at this point.

6. Operating variables of lithium battery industry

Although external enterprises including Xiaomi, Foxconn and other industries are also seeking "cross-border" car manufacturing, there are also some variables in the next few years only for the upstream lithium battery industry of new energy.

First of all, after lithium price bottoms out and rebounds, will it stimulate the supply side capacity to increase again? This determines the rising height of lithium compound products in the future.

Recently, some cases have appeared in the industry.

At the end of January, Yongxing materials announced that it planned to build a 20000 ton battery grade lithium carbonate project on the basis of the completed and up to capacity battery grade lithium carbonate project with an annual output of 10000 tons. At the end of February, GuoXuan holdings signed a strategic agreement with Yichun Municipal People's government, the former will invest 11.5 billion yuan to construct lithium carbonate production, lithium battery supporting materials and other industrialization projects, and the project is expected to start in mid-2021.

Secondly, how about the promotion of the power exchange mode in the new energy vehicle industry? If it is spread in a large scale, there will be an additional considerable increase in the demand for power batteries on the existing basis, which will drive the upstream demand for lithium, cobalt, nickel and other raw materials.

Thirdly, in the current market share of LiFePO4 battery and ternary battery, will there be other new technical routes in the future with the trend of cost reduction? Then it has a negative impact on the demand of raw materials.

All of these factors will become important variables affecting the operation of lithium battery materials, which will lead to the revaluation of relevant enterprises' value in the capital market.