China may have achieved supremacy in the global electric vehicle market, but all is not well with the Chinese companies that produce a key ingredient in EV batteries. Top lithium producers Tianqi Lithium Corporation and Ganfeng Lithium Group both warned shareholders in July that they would record net losses for the first half of 2024, blaming “volatility in the lithium market”.

It’s a dramatic reversal in fortunes for two national champions in China’s lithium industry, who each recorded more than $3 billion in profits just two years ago. Tianqi expects a net loss of up to 5.5 billion renminbi ($774 million) for the first half of 2024, while Ganfeng projected a net loss of up to 1.25 billion RMB ($174 million).

Lithium-ion batteries account for more than 90 percent of the battery storage market today, according to the International Energy Agency (IEA), with demand expected to increase rapidly as the world transitions towards EVs. China is already the world’s largest EV market with around 8.1 million sales, or 60 percent of the global total in 2023, according to the IEA. 

For Tianqi and Ganfeng, this should on paper mean robust demand for lithium, a mineral sometimes referred to as “white gold”.

However, lithium prices actually fell by more than 75 percent throughout 2023, and have not rebounded this year, according to economic data firm Trading Economics. In November 2022, a ton of lithium carbonate was valued at almost 600,000 renminbi ($89,000), while in July this year it was worth just $12,750. The slump is largely down to over supply in the EV market, despite demand for vehicles remaining steady. 

“Sales of electric vehicles actually look fairly resilient,” says Martin Jackson, head of battery raw materials at market intelligence firm CRU Group. “The huge fall in [lithium] prices is related to the supply overreacting to the price environment that we’ve seen over the last couple of years.”

One of Tianqi’s largest overseas investments is also at risk of backfiring. In 2018, Tianqi spent more than $4 billion to acquire a 23.8 percent stake in Sociedad Química y Minera de Chile (SQM), one of the world’s largest lithium producers. SQM operates a mining project in the Chilean region of Salar de Atacama, one of the largest lithium production bases globally.

…the general theme in the supply chain is that everyone seems to be trimming their costs and protecting their margins as much as possible.

Martin Jackson, head of battery raw materials at market intelligence firm CRU Group

Following an announcement from Chilean president Gabriel Boric last year that the country’s lithium industry would be nationalized, SQM is now moving towards a joint venture with a Chilean state-owned mining company to jointly manage Salar de Atacama. It’s a move that Tianqi worries will erode its influence in SQM, prompting Tianqi to warn in June that its interests might not “be effectively protected” if these moves reduced the influence of directors which represent its interests on SQM’s board.

Despite their current problems, Chinese lithium producers have typically enjoyed higher profit margins than their foreign counterparts, according to a CRU Group research note, which could put them in a better position to withstand periods of low lithium prices.

“One thing to consider is that they are sitting with a lot of liquidity that could protect them from a bearish market over the next year or so,” says Jackson from CRU. “But the general theme in the supply chain is that everyone seems to be trimming their costs and protecting their margins as much as possible.”

Meanwhile, warnings of oversupply appear to be little deterrent to Ganfeng. The graphic below shows some of its domestic and overseas projects which will dramatically increase supply between now and 2030:

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