Automakers are accelerating their entry into the battery R&D arena: Vertical integration across the entire industry chain is gradually becoming the mainstream approach.

        Lithium salt prices remain stubbornly high, driving up the costs of power batteries across the board. As a result, automakers are increasingly ramping up their efforts to develop and produce batteries in-house, with many even expanding their reach upstream into lithium mining and refining—a trend that’s hardly new anymore. So far this year, following announcements from GAC Aion and NIO about establishing their own battery companies and accelerating their investments in upstream lithium resources, rumors have also surfaced suggesting that XPeng Motors is poised to enter the realm of self-researching and self-producing power batteries. These speculations gained traction after XPeng recently set up a new company—Guangzhou Pengbo Automotive Technology Co., Ltd.—with a registered capital of 5 billion yuan. The company is headed by Xia Heng, co-founder and president of XPeng Motors, and is wholly owned by XPeng Power Battery (Hong Kong) Limited. Its business scope includes engineering and technology research, experimental development, manufacturing of automotive parts and accessories, as well as battery production. "However," an internal XPeng Motors source clarified on November 23 to reporters from the 21st Century Business Herald, "the new company is a wholly-owned subsidiary of XPeng and, in essence, won’t introduce any entirely new business operations. At this stage, there are no immediate plans for business restructuring either."
However, this July, a product announcement from China's Ministry of Industry and Information Technology revealed some intriguing clues. The parameters disclosed for the Xpeng G9 (specifications | price inquiry) indicated that its ternary lithium battery was manufactured by Guangzhou Zhipeng Manufacturing Co., Ltd., which was established in January 2021, with Xia Heng serving as its legal representative. Although Xpeng Motors has not officially confirmed whether it independently develops batteries, it’s an undeniable fact that, as automotive intelligence accelerates rapidly, more and more automakers are entering the power battery sector through various strategies—such as in-house R&D, building their own facilities, joint ventures, or even taking equity stakes. Meanwhile, while automakers are focusing on batteries, they’re also ramping up investments in chip technology and intensifying efforts to develop software capabilities internally, making vertical integration across the entire industry chain an increasingly dominant trend.

        In fact, behind automakers' efforts to strengthen vertical integration within their supply chains lies the growing tension and anxiety between expanding production capacity and persistent supply shortages. Since 2021, sales of new-energy vehicles have surged dramatically, driving lithium salt demand far beyond expectations—and consequently sending the price of lithium carbonate, a key raw material for lithium-ion batteries, skyrocketing. According to data released by Shanghai Steel Bund on November 23, the spot average price of battery-grade lithium carbonate reached 590,000 yuan per ton, nearly ten times higher than the approximately 62,000 to 67,000 yuan per ton recorded in early January last year.
The rising costs driven by the surge in raw material prices for power batteries have also been directly passed on to automakers. On November 23, BYD issued a price adjustment notice, announcing that it would revise the official suggested retail prices of its Dynasty, Ocean, and Denza series of new-energy vehicles—increasing them by between 2,000 and 6,000 yuan. Customers who paid deposits and signed contracts before January 1, 2023, will not be affected by this price hike.
BYD stated that the reasons behind this price hike include two key factors: first, the upcoming reduction in subsidies for new-energy vehicles next year; and second, the rising prices of battery raw materials. This marks BYD's third announcement of vehicle price increases within the year. Influenced by the declining new-energy subsidies and escalating raw material costs, several automakers have already implemented two rounds of price adjustments this year. The first round, concentrated in February, saw relatively modest price hikes—mostly ranging from 3,000 to 5,000 yuan—while the second round, which took place in May, prompted over 20 automakers to follow suit with more significant and widespread price increases, ultimately pushing the final retail prices of more than 40 models higher across the market.
It’s not hard to see that the factor of rising raw material prices continues to permeate throughout the industry. Chen Hong, Chairman of SAIC Motor Group, candidly admitted, "Affected by the pandemic, the safety and stability of both the industrial chain and supply chain are facing severe challenges—especially now, as the sharp increase in prices of upstream battery raw materials has become particularly unsettling. In just about a year, the price of lithium carbonate has surged tenfold, leaving automakers and other downstream enterprises in the value chain essentially working for the benefit of upstream mining companies, forced to bear enormous cost pressures." "Meanwhile," he continued, "the relentless rise in power battery prices has driven the proportion of battery costs in a vehicle to exceed 40%, even surpassing 50% in some cases. This skyrocketing battery expense has already pushed up Changan Automobile's per-vehicle costs by anywhere from 5,000 yuan to as much as 35,000 yuan—costs that the company must absorb entirely on its own." Zhu Huarong, Chairman of Changan Automobile, added, "The pace at which battery costs have climbed far outstrips the value that technological advancements have brought to consumers."
It's worth noting that although the market for new-energy vehicles continues to expand, most automakers or NEV businesses—aside from a few standout companies like BYD and Tesla, which enjoy substantial sales volumes and strong vertical integration capabilities within their supply chains—have yet to break free from the vicious cycle of "losing more money the more they sell." Zeng Qinghong, Chairman of GAC Group, bluntly stated, "Due to the relentless rise in upstream material prices, battery companies are accelerating their move toward vertical integration. Currently, with the exception of Tesla, all other new-energy vehicle manufacturers are operating at a loss—they’re simply not making any profit."
GAC Aion, determined not to remain merely "employees" of lithium mining and battery companies, has established Inpul Battery Technology Co., Ltd. The new company will leverage its expertise in battery technology to drive the industrialization of self-developed and self-produced batteries, as well as handle the manufacturing and sales of these proprietary battery products. "In the future, 30% of GAC Aion's high-end batteries will be developed and produced in-house, while the remaining 70%—covering mid-to-low-end models—will be manufactured through outsourcing with external battery partners," GAC Aion Deputy General Manager Xiao Yong told reporters from the 21st Century Business Herald. Meanwhile, aiming to reduce its heavy reliance on upstream suppliers, NIO has also embarked on an ambitious journey toward battery self-production. Following the establishment of a dedicated battery R&D team, the launch of a new battery R&D project in Shanghai, and a strategic investment in an Australian mineral company to accelerate the development of the San Jorge lithium project in Argentina, NIO took another significant step this October by founding NIO Battery Technology (Anhui) Co., Ltd. The company boasts a registered capital of RMB 2 billion and is wholly owned by NIO Holdings Co., Ltd.
NIO Chairman and CEO William Li candidly stated, "It's a normal strategic move for automakers to produce their own batteries." Reportedly, NIO will adopt a dual-supply model in the future—combining in-house battery development with external procurement. The company’s self-developed batteries are expected to enter mass production and debut in vehicles by the second half of 2024, initially equipping NIO’s new brand models priced between 200,000 and 300,000 yuan. However, due to the rising cost of batteries per vehicle, NIO’s vehicle gross margin for the third quarter of 2022 dipped to 16.4%, down from 18% in the same period last year and slightly lower than the 16.7% recorded in the second quarter of 2022. "Currently, no automaker has reduced production simply because they can’t secure enough batteries," Li noted. "Moreover, the recent surge in battery prices is no longer driven by supply-and-demand dynamics—instead, it reflects broader market conditions. Surprisingly, lithium carbonate prices haven’t fallen as anticipated in the fourth quarter." Li believes that lithium carbonate prices will eventually return to more normalized levels, though he admits it remains challenging to predict exactly when this reversal will occur.
In addition to new forces like Tesla and NIO, in recent years, industry giants with strong technological and financial capabilities—such as Volkswagen, BMW, General Motors, Ford, and Toyota—as well as domestic automakers including GAC, Great Wall, Geely, and SAIC, have all been actively entering the power battery sector through various strategies: self-research, independent development, joint ventures, and equity investments. Cui Dongshu, Secretary-General of the China Passenger Car Association, told a reporter from 21st Century Business Herald, "Looking ahead, 'vehicles are king' will undoubtedly become the dominant trend, and vehicle manufacturers must take the lead in shaping the entire automotive industry chain. For companies venturing into the new-energy vehicle market, possessing robust supply-chain capabilities will be crucial to achieving profitability—especially in the battery industry, where mastering this key area outright is essential."

In the era of fuel-powered vehicles, traditional automakers' control over the supply chain typically stopped at building their own engine factories, rarely expanding further upstream. Industry chain collaboration was largely based on specialized divisions of labor. However, automakers are now joining the mining frenzy while building their own power battery factories. They're simultaneously producing vehicles and mining. This unprecedented development in the century-long history of the automotive industry is now taking place in the new energy vehicle era, and automakers' enthusiasm for integrating vertical supply chains continues to grow.

Huaan Securities believes that automakers' upward expansion into the battery sector aims to strengthen their voice in the supply chain, helping to secure battery supply and increase efficiency while reducing costs. This move, while affirming the high prosperity of the electric vehicle and lithium battery industries, is also likely to intensify competition. Leading battery manufacturers are expected to leverage their technological, financial, production capacity, and customer advantages to navigate global competition. However, while the goal of reducing costs, ensuring supply, and avoiding being controlled by others may seem appealing, it's important to note that neither building their own battery factories nor mining lithium is their core expertise for automakers. "First, when automakers bypass upstream lithium iron phosphate or battery manufacturing, they're directly entering a more upstream process, but this may not be their true expertise. This may be a stopgap measure. Second, the expertise required for mining is completely different from that required for car manufacturing. Jumping from one industry to another carries significant risks. Not only must we consider supply chain security, but we must also carefully consider whether we have core competitiveness as the overall industry landscape expands." Zhang Li, Chairman of Dahe New Energy, believes that a more long-term sustainable development model should be considered, allowing car manufacturing to remain car manufacturing and energy to remain energy.

Some analysts also point out that for the entire new energy vehicle industry, a strong supply chain requires players and companies with different roles in the supply chain to fully leverage the division of labor and become strong players within the chain. If battery manufacturers switch to car manufacturing, and car manufacturers switch to battery manufacturing, they will fall into a vicious cycle of ineffective investment, resulting in a massive waste of manpower, capital, and resources. It's worth noting that rising raw material prices have prompted automakers, unwilling to be mere workers, to enter the battery manufacturing industry. The nearly two-year chip crisis has also spurred more automakers to enter the chip manufacturing industry. "The spot market price of chips is very distorted. In the past two years, the price has increased by dozens or even hundreds of times. Only the chairman and general manager of the main manufacturer can get the goods. Ordinary purchasing staff can hardly see them. We go to the chip manufacturer in Shanghai to get the goods. The Starbucks downstairs is the information distribution center." An executive of a domestic car company told the 21st Century Business Herald reporter, "In the short term, everyone has to buy at high prices. In the medium term, we have to implement a dual-core product strategy and develop two systems, which leads to high costs and long cycles. But under the current circumstances, we have to adopt a double insurance strategy in order to survive." The "chip shortage" continues to test the automotive industry, and the demand for chips is high. The rapid growth in demand has prompted automakers to enter the chip manufacturing sector. Currently, there are three main approaches: First, emerging car manufacturers such as Tesla, NIO, and Xpeng are choosing to develop their own chips, attempting to gain dominance in chip technology and supply. Second, they are establishing joint ventures or strategic partnerships with chip suppliers to jointly develop chips. For example, Volkswagen Group's software company CARIAD has established a joint venture with chip manufacturer Horizon Robotics to develop high-level autonomous driving technology. Third, they are making equity investments in existing chip companies. For example, GAC Group has invested in Cansemi Semiconductor twice in a row, while SAIC and Great Wall Motor have entered the chip market through strategic investments. "The main reason for the chip shortage is the rapid development of new energy vehicles. The demand for new energy vehicles, smart electrification, and in-vehicle chips has increased dramatically, resulting in the current production capacity of automotive-grade chips being unable to meet the overall market demand." Recently, Xu Daquan, Executive Vice President of Bosch China, told a reporter from 21st Century Business Herald that this mistake was made "three to four years ago" – at that time, Tier 1 companies and automakers failed to anticipate the rapid growth of new energy and smart vehicles and failed to place orders with chip companies three or four years ago. Xu Daquan believes the chip shortage issue remains unresolved, and the forecast for next year is not optimistic. Currently, there's still a gap in automotive chip supply, and some chips are quite large. "Developing our own batteries is just a microcosm of intensifying industry competition. The main theme of future competition will be in-house production and development of core supply chains (chips, operating systems)," an automotive industry insider told reporters. The pandemic has significantly altered the development landscape of the entire automotive industry chain, and vertical integration of the supply chain has become a major trend. However, automakers must make informed decisions about what to integrate and what not to integrate.

Reprinted from Sina Auto

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