Power Battery Second-Tier Manufacturers Seek Ways to "Survive"

On July 10th in Nanjing, the global partner summit of Honeycomb Energy Technology Co., Ltd. (hereinafter referred to as "Honeycomb Energy") was underway. On the screen on stage was the theme "Symbiosis Toward the Light," a message of confidence that Honeycomb Energy hopes to convey to the hundreds of supplier partners in attendance.

However, faced with the expectations carried by these four words, the participants found it difficult to be at ease: in the past year of 2024, the brutal price war could be described as the "footnote of the year," and the pressure on profitability is a common portrayal of the entire battery industry.

Yang Hongxin, Chairman and CEO of Honeycomb Energy, has a more direct perception of this. In an interview with Economic Observer reporters, he did not shy away from the challenges the company faces in cost control and profitability. "Our original lack of profitability was mainly due to high costs," he admitted. "About 80% of the contribution to future profitability will come from cost reduction."

Yang Hongxin's remarks point not only to the issues faced by Hive Energy alone but also to the collective predicament of a large group within the entire industry. According to data from the China Automotive Power Battery Industry Innovation Alliance, as of June 2025, CATL (300750.SZ) and BYD (002594.SZ) together hold over 65% of the market share. In contrast, several companies ranked behind them, such as CALB (03931.HK), Gotion High-tech (002074.SZ), EVE Energy (300014.SZ), Sunwoda (300207.SZ), and Hive Energy, each have a market share between 2% and 8%, forming the "second tier" of the power battery industry.

In 2024, this sector experienced widespread profitability challenges. For example, Sunwoda's main power battery business suffered a net loss of 1.587 billion yuan that year; while Gotion High-Tech's revenue grew, its net profit attributable to the parent company was nearly stagnant; even EVE Energy, considered a pillar of this sector, showed in its Hong Kong stock prospectus reported in June 2025 that the gross margin of its power battery business was significantly lower than that of its energy storage and consumer battery businesses. This corroborates what its management conveyed during the annual report exchange meeting—that the company's power battery business was "not yet profitable" in 2024.

After entering the year 2025, some changes seem to be starting to occur: On July 23, CALB Co., Ltd. issued a "Profit Forecast" announcement, predicting that its net profit for the first half of the year will achieve a year-on-year growth of over 70%. However, does the improvement of one company mean that the entire sector has emerged from its most difficult period? Or has differentiation already begun, with some companies accelerating their lagging behind?

0.3 Yuan Era

In 2025, a governance campaign against “involution” is being carried out from the top down. On July 1st, Qiushi magazine published an article titled “Deeply Understand and Comprehensively Rectify ‘Involution-Style’ Competition,” pointing out that, “Unlike in the past, when vicious competition was mainly concentrated in traditional industries such as steel, cement, and light industry products, a prominent phenomenon now is that emerging sectors such as photovoltaics, lithium batteries, new energy vehicles, and e-commerce platforms have also become deeply trapped in it.”

In the lithium battery sector, the manifestation of "involution" is the current market situation where prices have already been driven down to the "floor level." According to the latest price data released by Truth Lithium Research on July 24, the average price of mainstream square-shaped lithium iron phosphate power cells has dropped to as low as 0.32 yuan/Wh. Additionally, according to Bloomberg New Energy Finance, the global average price of lithium battery packs in 2025 has fallen to a historic low of $115/kWh, with China's price at only $94/kWh, the lowest worldwide. The strategy of using low prices to gain market share has long begun to erode profits across the entire industry chain. According to data from East Money Choice, among 104 lithium battery sector listed companies on the A-share market in 2024, 65 have experienced a decline in net profit, and more than 60 have seen a decrease in gross margin.

“At present, there is indeed an oversupply in the industry. In the beginning, everyone started at a similar technological level, so homogeneous competition is hard to avoid,” Lin Boqiang, Director of the China Institute for Energy Policy at Xiamen University, told the Economic Observer on July 24.

In addition to issues of overcapacity and product homogenization, second-tier power battery manufacturers are also facing structural challenges brought about by the rapid shifts in mainstream market technologies. According to the latest data from the China Automotive Power Battery Industry Innovation Alliance, in the first half of 2025, the installed volume of lithium iron phosphate (LFP) batteries surged by 73.0% year-on-year, accounting for over 81% of the market share, while the installed volume of ternary batteries declined by 10.8% year-on-year.

In terms of profitability, the profitability of industry leader CATL has become a benchmark for assessing the situation of other manufacturers. According to SNE Research data, CATL's global market share for power battery usage reached 37.9% in 2024, maintaining its position as the global leader for consecutive years. In 2024, CATL achieved a total operating income of 362.013 billion yuan, with a net profit attributable to shareholders of the listed company reaching as high as 50.745 billion yuan. Even in the highly competitive price war of the power battery business, its gross profit margin remained at 22.27%.

For the "second tier" squeezed in the middle, this is an unattainable figure. Taking Sunwoda as an example, its 2024 annual report shows that the company’s power battery business entity, "Sunwoda Power," recorded a net loss of 1.587 billion yuan for the year. During the same period, the company’s overall asset-liability ratio climbed to 63.44%. By the end of 2024, the company’s accounts receivable had increased by 29.2% year on year.

Even the core strength of the sector, EVE Energy, was not spared. Its Hong Kong IPO prospectus submitted in June 2025 shows that the gross profit margin of its power battery business in 2024 was 14.2%, significantly lower than that of its energy storage batteries (14.7%) and consumer batteries (27.6%).

So, since it is so difficult for the power battery business to turn a profit— even becoming a "bleeding point" for some companies—why have so few second-tier manufacturers chosen to scale back or exit in the past year or two? Instead, they have continued to invest, intensifying the "internal competition." The answer to this question may perhaps be hidden in the shareholder lists and business structures of these companies.

Taking CALB as an example, its prospectus and public information show that an investment platform with a state-owned background from Jintan District, Changzhou, is one of its cornerstone shareholders; Xiamen Jinyuan Investment Group, wholly owned by the Xiamen municipal government, is an important strategic shareholder; and its predecessor, AVIC Lithium Battery, was incubated by Chengdu-based military state-owned enterprise Chengfei Integration (002190.SZ). Meanwhile, CALB’s core production bases planned domestically are located in Changzhou, Jiangsu; Xiamen, Fujian; Chengdu, Sichuan; Wuhan, Hubei; and Hefei, Anhui.

Deep cooperation with automakers is another crucial "lifeline" for manufacturers in the second tier. For example, Volkswagen (China) is not only the largest shareholder of Gotion High-tech, but also brings stable order expectations and global synergies. Similarly, SVOLT Energy, which originated from Great Wall Motors (601633.SH), has its survival and development closely tied to Great Wall Motors’ electrification strategy. As Yang Hongxin, Chairman and CEO of SVOLT Energy, mentioned in an interview, Great Wall Motors’ position as the controlling shareholder enables SVOLT to better understand and practice "long-termism" in its strategic choices.

For Sunwoda and EVE Energy, their strong consumer electronics and energy storage battery businesses serve as "cash cows," continuously "injecting funds" into their loss-making power battery divisions, in exchange for a ticket to the trillion-yuan market of the future.

In Lin Boqiang's view, the formation of this pattern is not entirely a bad thing for the country's entire industry. "These (production capacities) are actually concentrated in China, which may not necessarily be a bad thing for us — expanding the industry and then gaining a share in the international market." Lin Boqiang analyzed, "But for the development of other domestic industries (second-tier manufacturers), it may still depend on future market space, including the level of technological innovation of these enterprises."

"Survive"

Facing profitability challenges, manufacturers in the second tier have unanimously prescribed the first "remedy": elevating cost control to an unprecedented strategic priority.

Yang Hongxin's assessment is quite representative: “(In order to achieve profitability in the future,) about 80% of the contribution will come from cost reduction.” Based on this judgment, he has set a goal for SVOLT to turn a profit by 2026.

Yang Hongxin gave reporters a detailed breakdown of his "cost-reduction strategy": First is cost reduction in manufacturing, with the focus on improving utilization rate and yield rate, and reducing the significant losses incurred during production ramp-up and downtime. He also stated that, through a series of improvements, the company's first-pass yield rate has exceeded 90%, while the scrap rate has decreased by 28% year-on-year.

Secondly, there is cost reduction through design, which is a more fundamental measure. Yang Hongxin stated that SVOLT Energy has been promoting cost reduction through technology for two to three years, with an average annual reduction of 5% to 10%. The new generation of products starting in the second half of this year is expected to see a 14% reduction in overall design costs (BOM costs). Finally, there is cost reduction through management, such as by deep collaboration with customers to increase order accuracy from about 70% in the past to 90%, significantly reducing the waste of production resources caused by order fluctuations.

The cost control measures promoted by Yang Hongxin have already begun to show results. According to information officially disclosed by SVOLT Energy, its factory in Thailand has managed to achieve profitability ahead of others, even against the backdrop of an overall downturn in the local new energy vehicle market, demonstrating the effectiveness of its cost control system.

Regarding cost reduction, Gotion High-Tech has explicitly stated at its investor communication meeting that it will continue to optimize costs by enhancing the automation and intelligence levels of its production lines and optimizing supply chain management. Similarly, EVE Energy has also made it clear in its Hong Kong IPO prospectus that it is committed to "improving the automation level and production efficiency of its production lines" and "optimizing raw material procurement strategies" to cope with ongoing cost pressures.

For second-tier manufacturers that have lost profits in the price war, "seeking efficiency from within" has become an unavoidable and mandatory task.

In Lin Boqiang's view, the root of this extreme cost control still lies in technology. "All our technological advancements are aimed at reducing costs; the real economic barrier, after all, is a technological barrier."

However, if cost reduction is merely a conservative strategy to survive at the table, then seeking a breakthrough under the shadow of giants requires a second remedy—betting on a more risky and imaginative differentiated technological path.

In this regard, SVOLT's choice is also quite intriguing. According to data from the China Automotive Power Battery Industry Innovation Alliance, by the first half of 2025, the domestic market share of lithium iron phosphate (LFP) batteries has exceeded 81% and is still growing rapidly, while the share of ternary batteries has declined year-on-year. However, despite this "one-sided" market trend, SVOLT has clearly identified "parallel development of ternary and LFP batteries" as its core strategy and continues to invest in both.

For Yang Hongxin, making such a choice primarily involves economic considerations. According to price data from Zhenli Research on July 24, the average price of square ternary power cells is 0.39 yuan/Wh, significantly higher than the 0.32 yuan/Wh level for square lithium iron phosphate cells. This means that on the client side, ternary products have greater bargaining power and potential profit margins, which is undoubtedly very attractive to second-tier manufacturers urgently needing profits.

A deeper consideration comes from observing the "rigid demand" of a specific market. Yang Hongxin analyzed that as the battery capacity of range-extended and plug-in hybrid models increases (for example, above 50 kWh), limited by the space in the vehicle's chassis, the higher energy density of ternary batteries will become an inevitable choice.

In addition, the demands of high-end overseas customers have also played a decisive role. "Foreign car manufacturers and Chinese car manufacturers have different philosophies when it comes to making cars," Yang Hongxin said. "Chinese car makers are willing to modify the suspension, control arms, and so on to make room for the battery. However, in Europe and the United States, the traditional automotive DNA is very strong, and the chassis and driving departments are very powerful. They allocate less space for the battery, which in turn forces the use of products with even higher energy density."

At the same time, this is also a proactive "differentiated competition." Yang Hongxin believes that currently, among the top ten domestic power battery companies, only three have a ternary product ratio exceeding 30%. "The competition in lithium iron phosphate is very fierce, mostly reflected in price wars. Ternary technology is very complex, with high barriers to entry and fewer competitors." Outside the "red ocean" of lithium iron phosphate, establishing a "blue ocean" with higher technical barriers is exactly the strategy of SVOLT Energy.

In the mainstream lithium iron phosphate (LFP) sector, some companies are also seeking differentiated breakthroughs. For example, with the increasing penetration of fast-charging batteries, the market demand for LFP cathode materials with higher energy density and tap density is growing rapidly. Material manufacturer Fulin Precision (300432.SZ), leveraging its technological advantage in high tap density LFP products, secured a long-term order of 420,000 tons from industry leader CATL last year, which helped it turn profitable in 2024.

The effectiveness of this differentiated "bet" has also been validated by SVOLT Energy's business data. According to official information, the company has cumulatively supplied over 100,000 battery packs for BMW MINI and overseas models of the Stellantis Group. Its overseas shipments are expected to account for 30% of the total in 2025. In terms of technology, thanks to its long-term investment, SVOLT Energy has also achieved a leading position in shipment volume within the rapidly growing stacked battery segment.

The success of SVOLT Energy in overseas markets is not an isolated case, but rather a reflection of the overall spillover of advantages from China's lithium battery industry. In this regard, Lin Boqiang believes that "going global is a necessity," because production capacity is highly concentrated domestically, while Chinese companies have significant advantages in the global market. "Our industrial chain remains highly competitive. The technology is about the same level or even slightly better, but the costs are much lower, and that's the advantage," said Lin Boqiang.

However, whether it is the production line transformation required for extreme cost reduction or the forward-looking R&D needed for differentiated bets, both require continuous and substantial capital investment. For the generally loss-making second-tier manufacturers, relying solely on their own "self-sustaining" capabilities is obviously insufficient. The support and investment from their underlying shareholders thus become the prerequisite for implementing these strategies, and of course, this also includes financing from the secondary market.

In fact, attempting to open up capital market financing channels and proactively stockpile "ammunition" for the next, even more brutal, round of elimination has become a common choice among second-tier manufacturers: at the end of June 2025, EVE Energy officially submitted its prospectus to the Hong Kong Stock Exchange; on July 1, Sunwoda also announced its plan to pursue an H-share listing.

Of course, this may also indicate that the "tug-of-war" in this market competition is far from reaching the finish line. As Yang Hongxin said, "Engaging in new energy is not a matter of one or two years; it requires ten years of patient cultivation to witness the battlefield of this trillion-yuan market."