Recently, multiple listed companies in China’s lithium battery industry have issued announcements of asset impairment, as the industry is facing profit pressures and risks of book losses.
As of January 21st, according to Wind’s classification of the lithium battery sector, 25 companies have issued performance forecasts for 2024, with only three companies expecting growth. Additionally, 14 companies forecast losses, while 7 are expecting declines.
Based on incomplete statistics, among the sampled companies in the lithium battery industry that have forecasted losses, enterprises such as CNBM International, Shenzhen New Star, and Jiangte Motor are planning to impair assets, with some companies expecting impairment amounts to reach 1 billion RMB.
According to reports by “First Financial Daily,” these companies plan to provide for asset impairments, involving losses in inventory, construction in progress, accounts receivable, credit impairments, etc., all of which are expected to significantly impact the operating performance in 2024.
Companies within the sector commonly mentioned in their performance forecasts that with the rapid development of the new energy vehicle market, the surge in demand for lithium battery materials, and the swift expansion of production capacity, industry competition has intensified, leading to substantial declines in sales prices, thus putting pressure on corporate profits. While facing profit pressures, asset impairments may further increase the book losses of lithium battery companies.
Leading player in the industry, Tianqi Lithium, during the preparation of its 2024 annual report, conducted impairment tests on its 48,000-ton lithium hydroxide project in Quinana, Australia. The company issued a risk advisory on January 19th, stating that if there is a need for subsequent asset impairment provisions for the mentioned project, and once confirmed, the amount of asset impairment losses will have a significant impact on the company’s 2024 annual operating performance.
CNBM International anticipates losses ranging from 2.28 billion RMB to 2.86 billion RMB in 2024, with long-term asset impairment provisions estimated at around 1.3 billion RMB to 1.9 billion RMB.
CNBM International stated: “The intensification of industry competition is making the survival space for non-leading companies increasingly narrow, and low-end outdated production capacity is gradually being eliminated. At the same time, the production volume of power batteries in the industry markedly exceeds the installation volume, leading to oversupply, intensified inventory consumption, and price wars.”
Shenzhen New Star expects losses between 250 million RMB to 350 million RMB, with 120 million RMB attributed to operational losses resulting from the price drop of lithium hexafluorophosphate, customer demand lower than expected, and 136 million RMB set aside for impairments on related production equipment, construction in progress, inventory, along with around 23 million RMB in credit impairment losses.
Tianci Materials, the largest producer of lithium hexafluorophosphate, forecasts a decline in net profit of over 70%.
Jiangte Motor’s disclosed asset impairment provision announcement shows a total of 188 million RMB in asset impairment provisions set aside for 2024.
One of the top companies in lithium iron phosphate, Longpan Technology, stated that due to goodwill impairments, the company expects losses of 590 million RMB.
Furthermore, in terms of lithium salt prices, the increase in lithium salt production in recent years has led to continuous price erosion, with lithium carbonate prices plummeting from 500,000 RMB/ton in early 2023 to around 70,000 RMB/ton, breaking through the cost lines of most companies, consequently increasing the risk of inventory impairments for related enterprises.