CATL cutting battery costs for some of its customers

According to reports in the local Chinese press, CATL has embarked on a program aimed at its core customers and it offers them substantial cost reduction for purchasing battery packs. The program is apparently only available to Nio, Li Auto, Huawei and Zeekr. It seems that for whatever reason Tesla is missing out on this promotion together with many other CATL customers.

The offer on the table is quite significant. In exchange for commitment from the customers to purchase at least 80% of their battery requirements from CATL, the company will charge them for the lithium carbonate at RMB 200,000 per metric ton for the next three years.

That’s a huge saving considering that the current price of battery-grade lithium carbonate stands at RMB 470,000 per metric ton. At current exchange rates that’s over $68,000 and the discounted rate is just $29,000.

The program will reportedly go live from the third quarter of this year and some companies have already begun the partnership signing procedures. The decision to offer the discount to only some customers was apparently driven by their predicted sales performance over the next three years.

It is unprecedented to see such a huge price cut offered to customers, CATL already asked its suppliers to cut cysts by 10 percent but it’s hard to imagine where the rest of the savings will come from.

The offer to only a few chosen customers starts looking highly preferential and other clients will have some tough decisions to make. CATL is the largest battery supplier at the moment but it is already facing stiff competition and this move looks to be pre-emptive to ensure the core customers don’t switch suppliers.

There will be angry executives out there, some companies will move away from CATL, but with the current market demand only growing, EV manufacturers won’t have much choice but to stay with CATL.

It is interesting why would CATL exclude Tesla from this offer. Nio has already signed the strategic partnership agreement with CATL last month, despite being the second largest customer of CATL, right behind Tesla. Although Nio exclusively uses CATL batteries in its cars, the company wants to develop its own technology and is looking to use other suppliers as well.

Li Auto was using exclusively CATL battery packs until recently, when it introduced cheaper versions of its EV models with batteries from Sunwoda and Svolt Energy. XPeng has scaled down its contracts with CATL and that may explain why it is not being offered the preferential treatment.

It is a rather interesting development, particularly when it comes to the exclusion of Tesla who until now was CATL’s biggest customer. If the reports are correct, and CATL took this decision purely based on the predicted sales performance of its customers, then it does not look good for Tesla.

The battery market is changing rapidly and the new players are getting bigger, and CATL simply started feeling a little bit hot under the collar. It most likely decided to focus on customers it wields some power over, who don’t have many other options and who can deliver serious order numbers. It will be interesting who steps up and takes over the supplies and which companies will remain with CATL.

So, if the price of lithium carbonate is reduced by more than half, does that mean the car prices will halve as well? Unfortunately, no. The industry average content of lithium metal in an EV battery is about 160g per kWh. That translates into 850 g per kWh of lithium carbonate.

A 100 kWh battery will have 85 kg of lithium carbonate which at current prices means $5,780. At the discounted rate offered by CATL it will come at $2,465. That is a significant saving though, and we would hope to see some of it end up being reflected in lower EV prices.

Via