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Anode material analysis report in-depth: 2019

The global lithium battery industry has benefited from the rapid development of vehicle electrification, driving the rapid growth of demand for lithium battery anode materials and huge market space. At present, the domestic lithium battery negative electrode industry has a concentrated pattern. Leading companies have both technological and cost advantages, have global competitiveness, and are expected to accelerate global substitution.

Introduction:

Why pay attention to the lithium anode material industry at the current point?

The rapid development of new energy vehicles around the world, especially overseas mainstream automobile companies, has started to accelerate the launch of electric models in 2020, driving rapid demand growth for downstream lithium batteries and their raw materials. China's four key raw materials for lithium batteries (negative electrode, positive electrode, separator, and electrolyte) accounted for 66% / 33% / 38% / 72% of the world's supply in 2018, of which China's negative electrode company has a high supply share, a good pattern, and global comparison. From the perspective, China's anode leader has both technology, product and cost advantages, and has obvious global competitiveness. It has entered the global lithium battery giants' supply chains such as LGC, CATL, and Samsung SDI. With the downstream volume, the global substitution of anode materials will accelerate, which is expected to enjoy Global new energy vehicle growth bonus.

The anode is one of the four key raw materials of lithium batteries, and it is expected to exceed 50 billion RMB in 2025. Anode material is one of the four key raw materials of lithium battery, which plays an important role in lithium battery life, energy density, power and safety. At present, the anode material is mainly from graphite, including artificial graphite and natural graphite, accounting for 95% of the share. The global shipment of graphite materials was 180,000 tons in 2018, and the market size was about 12.3 billion RMB. The rise of the new energy automobile industry has driven the rapid rise in demand for anode materials. The shipments was predicted as 230/310/400/1010 thousand tons in 2019/20/21/25 correspondingly, the market space is 15/19.4/24/52.2 billion RMB, CAGR 23% in 2019-2025.

Industry structure:

Japan once monopolized supply, now Chinese giants have risen.

Before 2000, Japan ’s negative electrode supply accounted for more than 95% of the world. As China achieved technological breakthroughs and established cost advantages, China / Japan ’s shipment share changed from 4% / 95% in 2000 to 66% / 30% in 2018. In 2018, CR4 accounted for 60% of global anode shipments, and BTR / Hitachi Kasei / Shanshan Technology / Putailai accounted for the top four, with shipments of 39 / 34 / 33 / 29, thousand tons. Chinese companies own three seats in Top 4, is leading China rising electrode industry go further.

Industry changes:

Artificial graphite is the trend, competition barriers are rising, and global substitution has begun.

1) Artificial graphite has the advantages of low expansion, long life, high magnification, etc., and is more suitable for power batteries and consumer soft pack batteries. It is accelerating the replacement of natural graphite. In 2012/2018, the global artificial graphite / natural graphite ratio was 28% / 64. %, 63% / 32%.

2) Power battery companies require negative electrode companies more stringent in large-scale supply capacity, product consistency, supply stability, cost than consumer battery requirements, and the competition barriers in the negative electrode industry have been further raised.

3) Domestic Lithium battery graphite anodes have replaced the imported. China has the world's most advanced man-made graphite factory. The expansion of overseas production capacity is very slow. Chinese companies are accelerating their shift to global substitution by virtue of their advantages in technology, products, costs, and production capacity.

Introduction: Why pay attention to the negative electrode at the moment?

Overseas new energy vehicle development enters inflection point, China's lithium battery supply chain accelerates the supporting part

Overseas new energy vehicles sold approximately 1 million units in 2018, are expected to exceed 1.2 million units in 2019. It is expected that sales will exceed 5 million units in 2025, with a CAGR of approximately 25%.

New electric vehicle models from overseas car companies will be launched intensively in the second half of 2019, will be the inflection point in 2020. The annual sales plan of electric vehicles by overseas auto companies is ambitious, with a total sales target of over 10 million by 2025. At the same time, in order to improve the competitiveness of electric products and reduce production costs, overseas car companies have introduced electric platforms that are being developed, which will lay the foundation for the introduction of electric models.

From the rhythm point of view, new models based on forward electric platform development are expected to be launched successively from the end of 2019. For example, the first electric model ID.3 of Volkswagen's MEB platform has been released and mass production will be achieved by the end of the year. Now available, Porsche's high-end electric model Taycan has been launched, BMW's new electric platform iNext will be launched in 2021, and Daimler's eQ series models have begun to be launched. At the Frankfurt Motor Show 2019 (the world's earliest and largest international motor show), about 30 electric models were exhibited, the most ever. In summary, 2020 is expected to be the turning point for overseas electric vehicle boom.

Figure 1: Overseas mainstream car companies’ strategy platform, sales deployment

  Strategy name Electric platform Sales target Deployment of new energy vehicles
Tesla Strategy (published in June 2016) Platform 1:S/X Platform 2:3/Y Model Y Cybertruck
Volkswagen 2025 Plan "Looking at the Future" Strategy MEB PPE(High-end) 500,000 pure electric vehicle sales in 2020, 1 million vehicle sales in 2025, accounting for 20% of the company's total sales <25%, 22 million electric vehicles produced by 2028 20 new models in 2020,
Daimler New "first strategy" EVA (EQbrand) New energy sales account for 15% -25% of total sales by 2025 15 MEBs by 2022,
BMW Omtanke2025 strategy LifeDrive FSAR EV and PHEV sales double in 2021, and new energy sales account for 15% -25% of total sales in 2025 15 PPE by 2025
Volvo "Accelerate Transcendence" Strategy PMA 2025 new energy vehicle global sales reach 1 million, accounting for 25% of the brand   Launch of 70 pure electric vehicles by 2028
PSA. 2022 Alliance Renault “Drive the Future” Strategy   100,000 new energy sales expected in 2020, 20% share of European new energy market in 2020 EQ sub-brands, 10 models before 2025
Renault Nissan 2020 strategy   Before 2020, all cars will have electric options. By 2023, 25 electric models will be deployed, half of which will be pure electric.
Ford "Double Ten" Strategy and "Buick Blue"   New energy sales account for 10% -25% of total sales in 2020 All new models in 2019 will be EV or PHEV
GM 2030 Plan   By 2020, sales in China will exceed 100,000 vehicles per year Launch of 7 PHEVs and 4 EVs by 2020
Honda 2050 plan   New energy sales account for 2/3 of total sales in 2030 Renault, Nissan, and Mitsubishi will share platforms in the future. It plans to launch 12 EVs within 5 years. In 2020, Renault will launch 21 new vehicles. Among them, 20 are new energy models (8 EVs and 12 PHEVs)
Toyota   5.5 million electric vehicles (including 1 million EV / FCV models, 4.5 million PHEV / HV * 8) worldwide by 2025 13 models launched in 2020
Nissan Strategy (published in June 2016)   2020 EV will account for 20% of total sales by 2022. The Group will sell 1 million electric vehicles annually HV, PHV. EV models will be launched in 2017

The negative electrode pattern is clear, and the leading companies have global competitiveness, which is expected to benefit from global automotive electrification. Four of the top five companies in the global shipment of anode materials in 2018 were Chinese companies, namely BTR, Shanshan Technology, Jiangxi Putailai and Dongguan Kaijin. In the negative, positive, separator, and electrolyte sectors, Chinese companies account for 66% / 33% / 38% / 72% of global supply, respectively. Negative electrode is one of the four key raw materials. The domestic pattern is similar. Chinese companies have a high global market share and are globally competitive. They are expected to benefit from the global automotive electrification revolution and have a certainty high growth.

Anode material: one of the four key raw materials for lithium batteries

The negative electrode is a key raw material for lithium batteries, which has a great impact on performance

Lithium battery negative electrode is one of the key raw materials of lithium ion battery. Lithium-ion batteries have many advantages such as high voltage, high energy, long cycle life, and no memory effect. They have been widely used in consumer electronics, automatic tools, medical electronics and other fields. One of the key factors determining the performance of a lithium-ion battery is that the lithium-ion negative electrode provides outflowing electrons in a lithium-ion battery system. For the cost share of ternary battery core , graphite anodes account for around 8%.

Cathode material is main material of Li battery

As one of the four key raw materials, the role of graphite anode materials in the de-intercalation of lithium-ion batteries has a great impact on the safety and life of lithium batteries:

1) The expansion performance greatly affects the cycle life of the battery;

2) Specific capacity and first-time efficiency have a greater impact on battery capacity;

3) Indicators such as compaction density and electrode thickness also affect battery rate performance.

Lithium battery negative electrode is the key technical difficulty of lithium battery fast charge technology. When a lithium-ion battery is charged, lithium migrates to the negative electrode. The large current cause the negative electrode potential to be more negative, which increases the pressure of the negative electrode to quickly accept lithium and the tendency to generate lithium dendrites. Lithium dendrites may reduce battery performance, shorten battery life, and even puncture the separator and cause battery short circuit. During fast charging, the negative electrode needs to meet the lithium diffusion kinetics requirements to solve the increased safety problem of lithium dendrite formation. Therefore, the main technical difficulty of the fast charging core is the insertion of lithium ions into the negative electrode.

Precipitation of lithium ions leads to the formation of lithium dendrites       Microscope Observation chart of lithium dendrites

Graphite materials are the mainstream of the anode, silicon carbon anode is the focus of research and development

There are many types of anode materials, and graphite materials are the mainstream in the market. Lithium battery anode materials can be divided into more than a dozen types according to materials and performance. It can be divided into graphite-based anode materials and non-carbon-based materials in large categories. Among them, graphite anode materials have good overall performance and high cost performance, occupying 95% of the current market of anode materials. Graphite anode materials are mainly divided into artificial graphite, natural graphite and mesocarbon micro beans, etc.

Table 8: Graphite is the mainstream of cathode material market

Graphite materials have excellent overall performance, and carbon-silicon composite materials are the focus of research and development of anode materials. Graphite anode materials have better comprehensive performance in all aspects and high cost performance. Although the Lithium titanate material has a low specific capacity, it has high first-time efficiency and cycle life, good fast charging performance, and convenient use. Graphene has a higher specific capacity, but its first-time efficiency and lifetime are poor. Silicon carbon composite materials have poor cycle life and safety, but the specific capacity is much higher than other materials, and the fast charge performance is good, which is the current focus of enterprises research and development.

Figure2: Corporation of main cathode material in Li battery

Natural graphite Artificial graphite Mesophase carbon graphite Graphene Silicon carbon composite Lithium titanate
Specific capacity (mAh / g) 340-370 310-360 300-340 400 * 600 4200 165-170
First efficiency (%) 90% 93% 94% 30% 84% 99%
Cycle life (times) > 1000 > 1500 > 1000 10 300-500 > 30000
Operating Voltage 0.2V 0.2V 0.2V 05V 03-0.5V 1.55 V
Fast charge performance common common common poor good good
Magnification performance poor common good poor common good
safety good good good good poor good
advantage Mature technology and supporting technology, low cost Mature technology and supporting technology, good circulation Mature technology and supporting technology, good rate performance, good cycle performance Excellent electrochemical energy storage performance; fast charging speed can improve the load capacity of lithium batteries Higher theoretical energy Excellent rate and dimension: excellent high and low temperature performance; excellent cycle performance; excellent safety performance
Disadvantage Low specific energy; poor safety performance; poor rate performance Low specific energy; poor safety performance; poor rate performance Low specific energy; poor safety performance; high cost Immature technology and supporting technology; high cost Technology and supporting technology are immature; high cost; charge and discharge volume deformation; low conductivity Immature technology and dubbing technology; high cost; low energy density
Direction of development Reduce costs and improve circulation Increase capacity; reduce cost; reduce internal resistance Increase capacity; reduce cost; Cost reduction; solve the problem of matching with other materials Cost reduction; solve the problem of matching with other materials Cost reduction; solve the problem of matching with other materials and increase energy density

Over 50 billion RMB value space in 2025, Chinese companies accelerate their rising speed

Benefiting from increased demand for new energy vehicles, CAGR is expected to be 20% in five years

Market space:

The emergence of new energy vehicles, the graphite market space exceeds 50 billion RMB. Considering the rapid rise of the global new energy automobile industry and the rapid rise in demand for power batteries, according to our calculations, the market space of graphite anode materials is expected to exceed 20 billion RMB by 2021, of which artificial graphite is about 17 billion RMB. It is estimated that by 2025, the scale of the anode material industry is expected to exceed 50 billion RMB, and artificial graphite will exceed 38 billion RMB.

Japanese companies once monopolized, China continued to break through

Chinese companies have achieved domestic substitution and accelerated global supply. As Chinese companies achieve technological breakthroughs in natural and artificial graphite, Chinese companies ' global market share increased from 4% in 2000 to 66% in 2018, and Japanese companies' share fell from 92% in 2000 to 30% in 2018. From the perspective of share, at present, Chinese companies have realized domestic substitution of anode materials and are accelerating the process of global supply.

China has leading anode companies and has global competitiveness. From the domestic perspective, the current domestic anode industry is CR471%, BTR, Shanshan Technology, PuTailai (Zichen) and Kaijin Energy have formed the first echelon. From a global perspective, the global competitiveness of Chinese anode companies is obvious. In addition to Hitachi Kasei, which has a global share of 18% in 2018, several other Japanese companies, such as JFE Chemical, Japan Carbon, Mitsubishi Chemical shares are less than 4%. Three of the top four global suppliers are from China, and Chinese companies have a clear competitive advantage.

Industry trends: artificial graphite is the trend, and scale effects build barriers

Artificial graphite permeability is expected to continue to increase

The comprehensive performance is dominant. The penetration rate of artificial graphite is currently over 60%, and in the long run it will be over 80%. Artificial graphite has a long cycle life and good safety. It is more suitable for power batteries and consumer soft-pack batteries. The penetration rate has exceeded 60%. In the future, as the demand for new energy vehicle power batteries increases, with the improvement of requirements such as its high energy density and fast charge, cycle times and low temperature characteristics, the advantages of artificial graphite anodes will become more prominent. According to our calculations, it is estimated that by 2025, the global artificial graphite penetration rate can reach 80%.

Table12:

Industry scale and integration require raising barriers

Power battery requirements for negative electrode companies will build industry competition barriers. Power battery companies require negative battery companies more stringent in supply requirements, product consistency, supply stability, and cost than consumer battery demand, which is expected to further increase the competition barriers in the negative electrode industry.

The artificial graphite has a complicated process and high barriers to production. The raw materials for the production of artificial graphite include petroleum coke and needle coke. Asphalt is the binder and is made through four main processes of crushing, granulation, graphitization, and sieving. The production process is relatively complicated. The crushing and sieving links are relatively simple, and the pelletizing and graphitizing links are the key to reflecting the technical threshold of the negative electrode industry and the production level of the enterprise. For example, Putailai has unique technology in secondary granulation and forms a competitive advantage.

Table 13: Putailai Artificial graphite processing technology

Negative electrode capacity is expanding rapidly, and the share is expected to continue to focus on the leading players. From the perspective of capacity planning, the industry's capacity expansion is rapid, and most companies are actively deploying graphitization capacity. The anode capacity of Jiangxi Zichen in 2018 is about 30,000 tons, and it will increase to 50,000 tons in 2019. It is expected that it will reach 80,000 tons in 2020 and exceed 100,000 tons in the long run. In addition, Putailai plans to increase Capital to hold Shandong Xing Feng’s graphitization and plans to build a graphitization capacity of 100,000 tons in Inner Mongolia Xing Feng, which will gradually reach capacity in the second half of 2019. The rapid expansion of anode production capacity and the layout of graphitization capacity will ensure that leading companies in the industry have a discourse power and the industry concentration is expected to further increase.

Figure 4: Expansion plans for anode and graphitization capacity of major domestic anode companies (10,000 tons)

Company 2019Cathode capacity Expansion plan Graphitization capacity Graphitization expansion plan
BTR 4 8 3 0.8
Shanshan 4.8 5 0.7 5
Putailai 5 5 1 10
Shenzhen Sinuo 2 - 1 -
Xingcheng Graphite 1.2 3 2 1
Kaijin 2.5 - 1 -
Xiangfenghua 2 - 1 0.3
Others 2.38 3.8 - -
Total 23.08 24.8 7.7 16.1

The integration trend of leading enterprises is clear, creating long-term cost barriers. Take the global negative electrode leading companies Putailai and Shanshan as an example. In 2018, Putailai will build a 50,000-ton graphitization production line in Inner Mongolia (with a long-term plan of 100,000 tons). In 2019, the company plans to adopt convertible bond to construct carbonization capacity in Puyang. In the same year, the company purchased and revitalized carbon materials to lay out needle coke and petroleum coke capacity, and the integration trend was clear. Shanshan built a 100,000 tons integrated anode production line in Baotou, Inner Mongolia in 2018, and is expected to start production by the end of the year. At the same time, Kaijin Energy, Xiangfenghua, Xingcheng Graphite and other companies have also begun to deploy graphitization and move towards integration.

Table 14: Integrated layout of major anode companies

Domestic enterprises accelerate to form global supporting

Domestic negative electrode companies are accelerating forward to global supporting, and the booming volume is imminent. Putailai and Shanshan's artificial graphite products have obvious advantages and entered the LG Chem and Samsung SDI supply chains. BTR has entered the Japan and South Korea supply chain with its advantages in the field of natural graphite. Taking LG Chemical as an example, although the current installed capacity of LG's chemical power batteries is the fourth in the world (SNE research caliber) in 2017/2018 / 2019H1, but with expectation to support Tesla's Shanghai plant after the end of 2019, and the intensive launch of leading car company customers in Europe and America, the supply chain will have great flexibility. We predict that Putailai’s revenue share of LG Chemical and Shanshan’s revenue share of LG Chemical in 2019 will be 20% / 7%, respectively, and will increase to 36% / 11% in 2020, with greater flexibility.

Table 15: Domestic key raw materials for A-share listed companies supporting LG Chem, Samsung SDI, and Panasonic

Opportunities in overseas supporting and global substitution, looking for high-quality companies in three dimensions.

Global lithium battery giants benefit from overseas new energy vehicles entering the stage of rapid growth, and the anode materials supporting global lithium battery giants are expected to benefit. It is recommended to find high-quality companies from three dimensions:

1) The main business is artificial graphite, with technology and product capabilities, has entered the lithium battery giant's supply chain;

2) With financial strength, sufficient production capacity and large-scale supporting capabilities;

3) Cost advantage.

The artificial graphite leading players PuTailai and Shanshan have deep technical foundations and products with global competitiveness. They have entered overseas supply chains such as LG Chemical, Samsung SDI, CATL, etc. The production capacity is accelerated, and it is expected that they can be continuously reduced cost through technological upgrading and industrial chain extension and competitiveness are expected to accelerate global substitution.

Dimension 1: Mainly manufactured artificial graphite, entering the global supply system

Master the core technology of artificial graphite, superior product performance. Artificial graphite is the mainstream trend of the industry in the future, so domestic leading companies with artificial graphite will benefit the most in future competition. Shanghai Shanshan created FSN-1 explosion products, helping the domestic artificial graphite anode industry rank among the world's first echelons. Subsequently, Jiangxi Zichen developed the G series products and cut into top global supply chains such as Apple to help domestic artificial graphite anode companies occupy the world's highest-end market. Jiangxi Zichen and Shanghai Shanshan are the most technologically advanced companies in the domestic artificial graphite anode industry.

Table 16: History of China domestic cathode technology

Grasp the trend of artificial graphite, the performance of leading companies' products is excellent. Compared with natural graphite, traditional artificial graphite has a short board with a lower gram capacity. Generally, the discharge capacity of artificial graphite is difficult to achieve above 350mAh / g, while natural graphite is generally between 350-360mAh / g. With the continuous breakthrough of technology, taking Puitaitai as an example, the current G1 series products have a discharge capacity of 358.5mAh / g, and the high-end G9 products have a discharge capacity of more than 360mAh / g.

Figure 5: The performance of the products of Putailai, Shanghai Shanshan and other products has exceeded the performance indicators of BTR

Index Unit Putailai Shanshan BTR
G1 G9 G49 FSN-1 P15 S360-L1
Types Nature graphite Nature graphite
Grain type pm 20.9 20.5 13.2 15.3 15.4 17.39
True density g/cm3 2.25 2.25 - 2.24 2.24 -
Ash % 0.02 0.02 - 0.01 0.01 -
Tap density g/cm3 0.88 0.8 1.11 1.1 1.13 M0.85
Compaction density g/cm3 1.65 1.7 - 1.45-1.55 1.55-1.65 1.6-1.7
Specific surface area m2/g 1.5 1.75 1.85 1.4 1.4
Discharge capacity mAh/g 358.5 360.7 - 342.3 352.7 350.7
Discharge efficiency % 93 93.8 - 92.9 93.5 94
Price 10000RMB/T

The product quality is excellent, and it has entered the overseas high-end supply chain. The inspection time for battery materials such as negative electrodes is longer. Generally, the verification time for digital negative electrodes is 6-12 months, and the inspection time for negative electrodes for power batteries is 18-24 months, which has customer barriers. Therefore, in the case of high demand for overseas power batteries, anode companies that have entered the overseas supply chain and achieved large-scale supply are expected to benefit the most. At present, companies such as Putailai, Shanshan have entered the supply system of overseas battery leaders LG Chem, Samsung SDI, etc., and have realized large-scale supply, with greater flexibility in the future.

Figure 6: Major domestic artificial graphite anode companies have entered overseas supply chains

Company Country Main product Main client 2018 shipments(10000t)
Putailai China Artificial graphite Samsung SDK LG Chemical 2.96
Shanshan Technology China mainly Artificial graphite LG Chemical 3.3
CSECO China mainly Artificial graphite SKI 1.5

Dimension 2: Strong financial strength, with large-scale production capacity

Leading enterprises have strong financial strength and clear expansion plans. The anode industry requires approximately RMB 2000-3000 million investment per 10,000 tons of production capacity. As anode materials are increasingly demanding for scale, only the industry's leading companies have the financial strength to rapidly expand production capacity. From the perspective of the currency funds in hand, the listed companies Shanshan and Putailai have currency funds in hand that are much higher than their counterparts, and their capacity expansion plans are clear, which is expected to further form a scale effect. However, companies such as Kaijin Energy, Cseco and Xiangfenghua have relatively tight monetary funds and clear financing needs, and need to pay attention to their refinancing progress.

The Inner Mongolia factories of Putailai and Shanshan are already the largest and most advanced factories in the world. Putailai and Shanshan have built advanced graphitization plants in Inner Mongolia. Taking Shanshan Inner Mongolia Baotou's 100,000-ton production base as an example, according to the official disclosure of Shanshan, compared to independent unit operations, the production efficiency is + 40%. The number of employees is -50%, the number of material turnover is small, and the quality is more guaranteed. The production base in Baotou, Inner Mongolia has a fully-automatic closed material conveying system, including modified production lines, finished product production lines, and carbonized production lines. It has a more advanced material processing system to achieve automatic control of the entire station.

Putailai Inner-Mongolia new energy factory            Shanshan Inner-Mongolia new energy factory

Dimension 3: Clear integration trend and prominent cost advantage

Raw materials and graphitization are the main production costs of artificial graphite. For the cost of the negative electrode, the cost of raw materials (acicular coke, etc.) and graphitization processing account for more than 85%, so the cost control of the negative electrode is mainly reflected in these two links. Taking Jiangxi Zichen as an example, in the cost structure of its artificial graphite products, raw materials (primary graphite, coke, asphalt) account for about 40%, labor costs account for about 2%, and processing costs (mainly graphitization) account for around 52%, manufacturing costs account for about 6%. Therefore, changes in the price of raw materials and changes in processing costs (mainly graphitization) will greatly affect the profitability of enterprises.

The demand for graphite electrodes promotes the increase in the cost of graphitization processing, and the trend of the integration of negative electrode graphitization appears. As the demand for graphite electrodes increased in 2017, the cost of graphitization processing increased from 15,000 RMB / ton to 23,000 yuan RMB / ton, and the price rose by more than 50%, which caused greater cost pressure on anode companies. In order to ensure long-term cost competitiveness, Negative electrode companies began to extend the industrial chain, deploy graphitization capacity, and control costs.

Table 23: Domestic processing cost of artificial graphite has a obvious rising in 2017-2018

The advantages of integration and electricity cost reduce the graphitization cost of anode companies. The cost of graphitization is mainly composed of electricity costs, crucibles, and manufacturing costs. Among them, about 14,000 kWh of electricity is needed for graphitization of each ton of anode material. According to the industrial electricity price of 0.7 RMB / kWh, it is about 98,000 RMB / ton, accounting for about 1/3 of the cost of graphitization. Therefore, the construction of graphitization capacity in low electricity price areas will directly promote cost reduction. China's Inner Mongolia electricity price is about 0.35 RMB / kWh, which is 64% / 43% lower than Japan / South Korea.

Theoretical calculation of graphitization cost reduction:

Assumption 1: The unit price of anode materials will decrease by 10% in 2019;

Assumption 2: Direct materials, direct labor, and manufacturing costs in 2019 are unchanged compared to 2018;

Assumption 3: Graphite processing profit per ton is RMB 0.3 million; Inner Mongolia electricity cost is RMB 0.3 / KWh, and electricity cost in eastern region is RMB 0.8 / KWh. The reduction of electricity cost brings about RMB 0.3 million / ton. (Effects of deductions, etc.)

It is calculated in three cases:

1) Without this cost reduction measure, the unit gross profit margin is expected to decrease from 33.9% in 2018 to 26.6%;

2) If the cost reduction caused by graphitized self-supply alone is considered to be RMB 0.3 million / ton, the unit gross profit margin is expected to decrease to 31.5%.

3) If the graphitization self-supply and electricity costs are saved by RMB 0.3 million / ton each, the unit gross margin is expected to rise to 36.5%.

Figure7: Calculation of the impact of graphitized self-supply and Inner Mongolia low electricity costs on the gross profit margin of unit graphite products (only considering price changes)

Anode material 2018A 2019ENo cost reduction 2019E * Consider Graphitization 2019E- Consider graphitization and electricity savings
Unit price (10,000 tons) 6.77 6.09 6.09 6.09
Unit cost (ten thousand yuan / ton) 4.47 4.47 4.17 3.87
(1) Graphitized self-supplied, (1) Graphite self-supplied, cost reduced by 0.3 million yuan / ton
Cost decreased by 0.3 million yuan / ton (2) Inner Mongolia plant, electricity costs fell by 0.3 million yuan / ton
Processing cost (including graphitization) 229 2.29 1.99 1.69
direct material 1.83 1.83 1.83 1.83
Direct labor 0.09 0.09 0.09 0.09
Manufacturing costs 27 0.27 27 0.27
Unit gross profit (10,000 yuan / ton) 2.3 1.62 1.92 2.22
Gross profit margin 33.90% 26.60% 31.50% 36.5%

Anode material is one of the four key raw materials of lithium battery, which plays an important role in lithium battery life, energy density, power and safety. At present, the anode material is mainly graphite, including artificial graphite and natural graphite, accounting for 95% of the share. The rapid development of new energy vehicles around the world, especially overseas mainstream auto companies, has started to accelerate the launch of electric models in 2020, driving rapid demand growth for downstream lithium batteries and their raw materials. It is estimated that the shipments in 19/20/21/25 will be 230/310/400/1010 thousand tons, the market space will be 15/19.4/24/52.2 billion RMB, CAGR 23% in 2019-2025. China's four key raw materials for lithium batteries (negative electrode, positive electrode, separator, and electrolyte) accounted for 66% / 33% / 38% / 72% of the global supply in 2018, of which Chinese negative electrode companies have a high supply share, and the top four global shipment Chinese companies account for three seats. From the perspective of global comparison, China's anode leader has both obvious advantages in technology, products, and cost, and has obvious global competitiveness. It has entered the global lithium battery giants' supply chains such as LGC, CATL, and Samsung SDI. Instead, it is expected to enjoy the global new energy vehicle growth dividend.

Three changes are currently taking place in the industry:

1) The penetration rate of artificial graphite continues to increase. Artificial graphite has the advantages of low expansion, long life, high magnification, etc., and is more suitable for power batteries and consumer soft-pack batteries, and accelerates the replacement of natural graphite. The global artificial graphite / natural graphite ratio was 28% / 64% in 2011/2017. 60% / 34%.

2) Industry barriers have gradually increased. Power battery companies have more stringent supply requirements, product consistency, supply stability, and cost for negative battery companies than consumer battery demand, and the competition barriers for the negative electrode industry have been further raised.

3) From import substitution to global substitution. Domestic Lithium graphite anodes have replaced of imported. China has the world's most advanced artificial graphite factory. The expansion of overseas production capacity is very slow. Chinese companies have accelerated their shift to global subsitution of their advantages in technology, products, cost and production capacity.

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