BYD’s request to suppliers for a 10% price cut is expected to lead to a 7% decrease in battery production costs compared to 2024 – and a consolidation in the battery industry as suppliers fail due to margin pressure, analysts have said.
Aaron wade, head of battery costs at analyst house CRU wrote on LinkedIn that the push by Chinese battery and auto maker BYD is an effort to further reduce the production costs for its vehicles. BYD and Chinese auto manufacturer SAIC Motor are widely reportedly to have requested 10% price reductions.
Wade calculated the 10% cut in material input prices for 2025 would result in a 7% cut in production costs, “a profound saving given that the average gross profit margin for Chinese battery manufacturers is roughly 15%.”
He anticipates a lot of pushback from suppliers, given that the intense price competition and an overcrowded market is already causing most Chinese midstream suppliers to operate at close to, or even below, the cost of production.
Wade told BEST the cost of cells (in $/kWh) can be broken down into two contributing factors: the cost of the materials ($) and the performance of the cell (kWh). In conjunction with the cut in supplier costs, the new BYD blade design is likely to be higher performing, enabling the same amount of material to store more energy, increasing the kWh. “Therefore the combination of supply chain cost reductions and product innovation are likely to result in further decreases in production costs,” he said.
He noted the bargaining power rests with the major battery cell manufacturers and that may give room for concessions from suppliers. He said: “This may not be sustainable into the long term, but the Chinese industry has proven to be resilient and adaptable.”
Sam Adham, head of battery materials at CRU, told BEST: “BYD and CATL are already way ahead of the rest of the China market in terms of cost, scale and technology. We have been foretelling about consolidation since the beginning of last year, but Tier 2 and 3 manufacturers in China have endured longer than expected. Eventually there will be bankruptcies but in the meantime almost all investments in new capacity have been pulled back.”
He added that apart from China, the consolidation already unfolding in the rest of the world is “nothing to do with Chinese competition” but rather the lack of experience of new manufacturers in building batteries at scale.
