From the perspective of the electric vehicle supply chain, an electric car requires 7,000 lithium batteries or half the cost of the car. Therefore, compared with downstream demand-end electric vehicle manufacturers, upstream and midstream manufacturers enjoy a higher gross profit margin. Transforming business opportunities, CTBC Investment will launch the "CTBC Battery and Energy Storage ETF" from November 11th to 13th.
CTBC Investments General Manager Eric Chang stated, electric vehicles will affect the landscape of market trends in the next ten years. However, in terms of the electric vehicle supply chain, compared with downstream demand side electric vehicle manufacturers, the upstream and midstream battery manufacturers enjoy a higher gross profit margin. Battery supply is tight, leading to the upstream and midstream battery manufacturers outperforming downstream automakers in 2021. It is the market consensus that those who seize the batteries will seize the world.
CTBC Battery and Energy Storage ETF Fund Manager Chia-Feng Chan stated, according to forecasts by energy consulting agency Rystad Energy, as the world abandons oil and switches to electricity, oil demand will gradually decline after peaking in 2026. National defense strategies will also shift from oil storage to electricity storage. The demand for energy storage will rise. In addition, each electric car requires approximately 7,000 to 8,000 lithium batteries which will cause demand for batteries to expand a million fold.
Chia-Feng Chan stated, the largest demand for batteries comes from electric vehicles. As the demand for electric vehicles has accelerated since the second half of 2020 future battery supply will not be able to keep up with the pace of demand. According to the SNE Research report, batteries are expected to be in short supply around 2025 and it may continue all the way until 2030.
Chia-Feng Chan indicated, the battery supply emergency can be seen even now. American automaker Ford announced in December last year that it would stop taking electric F-150 reservations. The reason is a shortage of lithium batteries. Ford CEO even publicly stated that the current demand for batteries is even greater automotive chips.
Chia-Feng Chan explained, due to tight supply, key battery suppliers will grow faster than automobile manufacturers in 2021. According to Bloomberg statistics, Tesla, the market’s most watched electric vehicle leader grew by 53.9% in 2021 while CATL, the world's largest electric vehicle battery manufacturer, grew by 64%, and the world's largest lithium miner Albemarle Corporation grew 58.9% in the same period.
Another major source of battery demand growth is in energy storage. Chia-Feng Chan stated, in order to achieve carbon neutrality, countries must increase renewable energy power generation. Bloomberg estimates that photovoltaics, wind power, and other renewable energy sources will provide nearly 70% of the world’s electricity in 2050. In electricity generation, the share of fossil fuels will drop to 24%.
Green energy is disposed towards intermittent power generation which leads to unstable power supply in the power grid and even the risk of systemic crashes. Chia-Feng Chan stated that the integration of renewable energy into the power grid requires energy storage technology as a supporting tool, stabilizing the output of renewable energy by "shaving peaks and filling valleys.” According to ESS InfoLink, the global lithium battery storage market will grow at a compound annual growth rate of 30% to 40% by 2030.
While demand is rising, battery manufacturers also benefit from a high gross profit margin. Chia-Feng Chan stated, in terms of the electric vehicle supply chain, compared with electric vehicle manufacturers on the downstream demand side, the midstream and upstream battery manufacturers enjoy higher gross profit margins and are “continuing to strengthen themselves.” The ICE FactSet Battery and Energy Storage Technology Index tracked by the CTBC Battery and Energy Storage ETF has had a return rate of 233.9% in the past two years.
The ICE FactSet Battery and Energy Storage Technology Index is based on representative countries such as the United States, China, Japan, South Korea, and Hong Kong, and more than 25% of the revenue of the constituent stocks must come from battery-related businesses. Upstream raw material and equipment manufacturers and midstream battery assembly plants each account for 15 of the 30 constituent stocks, including the world's top two battery raw material manufacturers and electric vehicle battery manufacturers.