Episode 203: NEVs & BESS (Tu Le & Henrique Ribeiro)

In this episode of the Global Lithium Podcast, host Joe Lowry features Tu Lee from Sino Auto Insights and Henrique Ibero from S&P Global, discussing the burgeoning electric vehicle (EV) market in China and the global battery energy storage systems (BESS) landscape. Tu Lee highlights China's dominance in the EV sector, noting a significant rise in New Energy Vehicle (NEV) sales, driven by government subsidies and competitive pricing. Henrique Ibero discusses the rapid growth of BESS, emphasizing its increasing role in energy management due to improved economics and high energy price spreads. Both guests explore the implications of these trends on global markets and the future of energy storage and transportation.

• The Chinese market saw a total of 23 million passenger vehicles sold in the previous year, with 11 million being New Energy Vehicles (NEVs), which include Battery Electric Vehicles (BEVs), Plug-in Hybrid Electric Vehicles (PHEVs), and hydrogen fuel cell vehicles.
• NEVs accounted for approximately 60% of the global market for battery electric and plug-in hybrids, with a sales growth of 41% year-over-year.
• NEVs are becoming increasingly popular in China, with significant sales growth driven by subsidy programs and a price war initiated by Tesla in January 2023.

"The market was total around 23 million passenger vehicles sold. Of that there are about 11 million NEV. So for your audience that don't know what any of these are, it stands for new energy vehicle."

• Explanation: NEVs account for a significant portion of passenger vehicles sold in China, indicating a strong market presence.

"That sales growth is a subsidy program that was launched In April of 2024, that's one thing. The next thing, the hyper competition and a price war that was kicked off by Tesla in January of 2023."

• Explanation: The growth in NEV sales is attributed to government subsidies and competitive pricing strategies.

• The growth rate for PHEVs in China was 80% year-over-year, driven by legacy automakers offering PHEV variants to attract customers concerned about charging infrastructure and range anxiety.
• The average battery size for PHEVs varies, with significant differences between markets like the United States and China.
• There may be a slower demand for lithium due to the increasing sales of hybrids, which typically require smaller battery sizes compared to BEVs.

"Because of the mix of sales of hybrids is increasing significantly, you might see some incremental slower demand on the lithium side."

• Explanation: The rise in hybrid vehicle sales could lead to a decreased demand for lithium, as hybrids generally require smaller batteries.

• Autonomous vehicles (AVs) are expected to reduce the number of vehicles needed due to increased utilization through shared mobility, although cultural factors like privacy preferences may affect adoption rates.
• AVs will likely be on the road longer, increasing the average miles driven per vehicle, potentially impacting the total number of vehicles needed.

"But autonomous vehicles will pick somebody up, drop somebody off, pick somebody up, drop somebody off. So that could also decrease the number of vehicles, but it'll increase the miles driven on average per vehicle."

• Explanation: AVs could lead to fewer vehicles needed overall, but the vehicles in use would have higher mileage due to continuous operation.

• Chinese automakers, such as Zeekr, are making significant inroads into international markets, with partnerships and new offices in the United States.
• Analysts and industry professionals are impressed by the quality and competitiveness of Chinese vehicles showcased at CES.

"All that I heard was, wow, these guys are really serious. These, these cars are very, very impressive."

• Explanation: The quality of Chinese vehicles is gaining recognition, indicating their potential to compete globally.

• Chinese EV makers like BYD, Xpeng, and Nio are expanding aggressively into international markets, with BYD already present in over 95 markets globally.
• The expansion is supported by strategic moves such as BYD purchasing ocean-going ships to facilitate global distribution.

"BYD currently in over 95 markets internationally. The xpeng, they said at their press event they're in currently 35 markets with the goal of being in over 40 by the end of this year."

• Explanation: Chinese EV makers are rapidly expanding their global presence, positioning themselves as major players in the international automotive market.

• Chinese EV manufacturers are rapidly entering and dominating emerging markets, displacing traditional Japanese brands in regions like Thailand, Mexico, and parts of Africa and Latin America.
• In mature markets such as the US, Europe, and Japan, Chinese EV brands like Nio and BYD face more intense competition and will take longer to establish a significant presence.
• Tariffs in Europe, the US, and Canada pose challenges for Chinese EV imports, but countries with lower tariffs or friendly relations with China offer opportunities for market expansion.

"If you see the Chinese EV makers enter emerging markets now, I'm including Mexico, Southeast Asia, and Africa or parts of Latin America, they come in and they win right away."

• Chinese EV makers are capitalizing on less intense competition and demand for low-priced vehicles in emerging markets.

"The other quick dimension I would, I would look at, Joe, is the tariffs because Europe now has a tariff, the United States has a huge tariff, Canada has a pretty huge tariff."

• Tariffs are a significant factor influencing where Chinese EVs can be imported and sold successfully.

• China has built excess manufacturing capacity, especially in the EV sector, which it leverages to export vehicles to foreign markets.
• The Chinese domestic market is still growing, with predictions of vehicle sales reaching 26 to 29 million by 2035.
• Economic pressures and changing global politics are pushing Chinese EV makers to increase exports.

"They said double that. And that's probably capacity of China. And so what I do want to make a distinction of is that we're still seeing a lot of overcapacity on the ICE side, Joe, not as much on the EV side."

• China's manufacturing capacity, particularly in EVs, is significant, and the country is strategically managing this capacity to maximize exports.

"US consumers love Walmart, US consumers love Costco, but now there's an acute awareness to the excess capacity in China and, and the export numbers increasing and significantly."

• There is growing awareness and concern in the US about China's manufacturing capacity and its implications for global trade dynamics.

• There is speculation that a Chinese EV will be built in the US during a potential Trump administration, as economic growth and job creation are key political goals.
• Chinese EVs are gaining recognition for their quality, surprising many with their competitiveness compared to established brands.

"I see a Chinese EV being built in the United States."

• The potential for Chinese EVs to be manufactured in the US reflects the strategic economic interests and potential political developments.

"Would you say that the majority of people that see these Chinese vehicles are surprised at how good they are?"

• The quality and competitiveness of Chinese EVs are becoming increasingly recognized, challenging preconceived notions about their capabilities.

• The Chinese EV market is expected to undergo consolidation, reducing the number of brands as competition intensifies.
• Major players like BYD are experiencing significant growth, but the price war is likely to strain weaker competitors.
• Global market dynamics and protectionist policies may force Chinese companies to reconcile their domestic and international manufacturing capacities.

"The price war should continue through 2025, which is going to stretch a lot of the weaker players very, very, very, very thin."

• Intense competition and pricing pressures are expected to lead to market consolidation and challenge smaller players in the EV industry.

"Some of this capacity probably needs to be reconciled in the China market because before again, before all the tariffs and everything, the, the Chinese market was primarily, or the capacity in the China market was primarily used for the domestic market."

• Chinese EV manufacturers may need to adjust their strategies to balance domestic production with international expansion efforts.

• Chinese EV companies are forming strategic partnerships and considering joint ventures (JVs) to facilitate entry into foreign markets.
• The political landscape, particularly in the US, will influence the structure and success of these partnerships.

"If GM and Ford can't clean their house in a significant way very quickly, I wouldn't be surprised if GM and Ford tried to merge together in the medium term."

• The potential for mergers and strategic alliances highlights the evolving competitive landscape and the need for traditional automakers to adapt.

"A Chinese and US joint venture in the United States to build electric vehicles might not be attainable. Maybe it is in Trump's next four years."

• Political factors, including US-China relations, will significantly impact the feasibility and structure of future automotive collaborations.

• Tesla faces challenges in China due to the rapid product development cycles of local EV manufacturers.
• The competitive landscape in China requires continuous innovation and adaptation from Tesla to maintain its market position.

"Tesla in 2025 is supposedly going to refresh its model. Yeah. Now in the US and European market, some of those new features might be some of the leading features in that space. But in China, I guarantee you they're not going to be class leading."

• Tesla's need to innovate and refresh its offerings is critical to remain competitive, especially in the fast-evolving Chinese market.

• Tesla's brand resilience is noted, but recent price cuts have less effect on vehicle sales.
• Cultural shifts in China indicate a reduced preference for foreign brands, impacting Tesla's market.
• The need for new models and marketing strategies is crucial for Tesla in China.

"You have a cultural swing that I think is not in Tesla's favor."

• Tesla faces a cultural shift in China where local brands are becoming more preferred.

"Elon knows this. He's smart enough to know this."

• Elon Musk is aware of the challenges and necessary strategies for Tesla's success in China.

• China's market is not looking to eliminate foreign brands but seeks a balanced international market.
• Foreign direct investment remains crucial for China's automotive industry.

"China still needs foreign direct investment."

• Despite rumors, China values foreign investments and competition in its automotive sector.

"I see those clickbaity articles about, oh man, they're going to kick out all these foreign brands in China, blah, blah, blah. I just think that's complete nonsense."

• The idea that China will eliminate foreign brands is dismissed as misinformation.

• Uncertain future for U.S. automakers like Ford and GM in China.
• German automakers (Volkswagen, Mercedes, Audi) have significant exposure to the Chinese market.

"Ford is effectively a single product, single market company."

• Ford's dependence on specific products and markets presents challenges.

"The German automakers... have much more exposure to the China market."

• German automakers are heavily reliant on the Chinese market for profits.

• BESS installations grew significantly in 2024, driven by improved economics and cost reductions.
• High energy price spreads and volatility enhance the attractiveness of BESS.

"In 2024, the capacity additions grew 47% from 2023."

• BESS installations saw substantial growth due to economic improvements.

"This combination of lowering costs with high power price spreads significantly decreased the payback period for BESS."

• Improved cost efficiency and energy price dynamics favor BESS investments.

• Countries with high energy costs and renewable penetration are ideal for BESS.
• BESS serves multiple functions beyond energy arbitrage, including grid regulation and infrastructure support.

"Chile... prices just go through the roof and make up a very interesting price arbitrage opportunity for battery storage."

• Chile exemplifies a market where BESS is beneficial due to energy cost dynamics.

"There are other significant revenue mechanisms for storage other than just energy shifting."

• BESS provides diverse revenue opportunities, enhancing its market appeal.

• No country currently relies predominantly on renewables, but BESS is essential for integrating renewables.
• The growth of renewables does not necessarily require a majority share to justify BESS investment.

"I am not aware of actually any country which has the majority of generation coming from renewables."

• The current global energy landscape lacks a majority reliance on renewables.

"As long as you have, let's say 20ish, 25, 30%... you are already in a position where you really need storage."

• Even moderate renewable penetration necessitates BESS for energy reliability.

• Renewable energy deployment is increasing worldwide, but fossil fuels remain essential.
• Battery storage is crucial for firming up renewable capacity, but current technologies like lithium-ion are not enough for a fully decarbonized system.
• Alternative storage technologies are needed for long-duration storage but are currently niche and not expected to expand significantly in the next 5-10 years.

"Renewables deployment is just going up and up like every year and pretty much everywhere, which... doesn't mean that we are anywhere close to the death of fossil fuels."

• Renewable energy is growing, but fossil fuels are still critical in the energy mix.

"If we think about storage in this five to 10 years horizon, we're basically talking about lithium ion battery energy storage systems."

• Lithium-ion batteries remain the primary technology for energy storage in the near future.

• LFP batteries are becoming the dominant type in new installations.
• The forecast for LFP battery deployment in 2025 is significant, indicating a growing market share.

"Since last year or maybe 2022, we're talking virtually 100% of what is being added is LFP."

• LFP batteries are now the predominant choice for new battery installations.

"Our latest forecast at the Clean Energy Technology Service was near 210 gigawatt hours for capacity additions in 2025."

• The projected deployment of LFP batteries is substantial, reflecting their growing importance.

• Sodium-ion batteries were previously considered a potential competitor but face significant challenges.
• The cost and energy density of sodium-ion batteries are major barriers to their adoption.

"The past 18 months have pretty much condemned sodium ion to irrelevance in the best market."

• Recent developments have diminished the prospects for sodium-ion batteries in the market.

"If sodium ion is really to compete... either it will have to cost less than half of lithium ion products or achieve some technology breakthroughs."

• Sodium-ion batteries need significant cost reductions or technological advancements to be viable.

• Second-life batteries from EVs are technically possible but not yet a significant contributor to energy storage.
• Current incentives and prices do not favor the use of second-life batteries in storage systems.

"You do have some startups... talking about pilot scale projects using second life batteries from EVs. But again, this is virtually null."

• Second-life battery projects are minimal and not yet impactful in the market.

"Maybe you just see those end of life batteries going straight into recycling for the collection of, of the valuable materials."

• Recycling of end-of-life batteries may be more viable than repurposing them for energy storage.

• China is a dominant player in the global battery energy storage market, with significant manufacturing and regulatory advantages.
• The market is expected to remain concentrated in China until at least the end of the decade.

"China accounts for over half of the global best capacity additions on a gigawatt or gigawatt hour basis."

• China leads in battery storage capacity additions, and this trend is expected to continue.

"They have the advantage of having the manufacturing capacity in place... and they have supportive regulation."

• China's manufacturing and regulatory environment supports its dominance in the energy storage market.

• The energy storage market is expected to grow significantly by 2030, with substantial capacity additions.
• The evolving energy landscape presents opportunities for new grid developments and energy storage solutions.

"What we are forecasting to be added in 2030 is 2.5 times the capacity that was added in 2024."

• The energy storage market is projected to expand considerably by 2030.

"There's a lot of potential out there."

• The future holds significant opportunities for energy storage as global energy needs evolve.