BYD Plans to Seek Lithium Supply to Curb Rising Battery Cost

Updated on
  • BYD says it'll improve design to help lower battery costs
  • Prices of lithium carbonate tripled last year in China

BYD Co., China’s largest electric car and bus manufacturer, plans to obtain supplies of lithium to guard against spiraling costs of the raw material used in vehicle batteries, amid rising pressure on automakers to lower prices.

Besides seeking to “get hold of lithium resources,” BYD will also improve designs of its batteries to help lower costs, the company said in an e-mail to Bloomberg News. Macquarie Group Ltd. estimates the power units make up about two-thirds of the cost for BYD’s E6 electric car and K9 bus.

The prices of lithium carbonate -- a key element in lithium-ion batteries -- tripled in China last year and have continued to surge in 2016, according to Asian Metals Inc., an industry consultancy. Prices are rising as Chinese automakers step up their production of new-energy vehicles even as domestic lithium-mining capacity remains restrained.

Curbing component costs is taking on increasing importance as China is said to consider cutting the amount of subsidies for electric buses and imposing a price ceiling for qualifying passenger vehicles. That may put pressure on automakers to rein in expenses to protect their profit margins, according to Cui Dongshu, secretary general of the China Passenger Car Association.

BYD fell as much as 3.4 percent in Hong Kong trading, the biggest intraday decline in more than two weeks. The benchmark Hang Seng Index slid 1.1 percent.

Incentives for electric buses may be cut by an average of 32 percent, with funding for the largest models reduced by as much as 49.5 percent, people familiar with the matter said this week. Electric passenger vehicles costing more than 350,000 yuan ($54,000) also won’t be eligible for government subsidies under the proposal, which is under review and subject to approval by the State Council.

BYD declined to provide details on how it plans to secure access to lithium supplies. Chairman Wang Chuanfu this week forecast the company may sell as many as 150,000 new-energy vehicles this year, compared with the 58,000 it delivered in 2015.

The company is also China’s biggest producer of lithium-iron phosphate batteries, which go into models such as the Tang and Qin sport utility vehicles. In 2011, BYD bought an 18 percent stake in Zhabuye Lithium, a lithium and boron mining company in Tibet, for 202 million yuan ($31 million).

The rising lithium prices have spurred big gains for explorers and miners in Australia. Pilbara Minerals, which is targeting to bring a Western Australia lithium mine to production in 2018, has risen almost 11-fold in the past 12 months in Sydney trading. Chinese producers Sichuan Tianqi Lithium Industries Inc. and Jiangxi Ganfeng Lithium Co.’s stocks have more than doubled in the last year.

“Increased mining capacity and increased materials recycling should minimize the impact of raw material prices on a longer-term basis,” said Janet Lewis, a Hong Kong-based analyst at Macquarie. “The pressure is primarily on the battery makers to reduce their costs.”

— With assistance by Tian Ying

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