Equity Cooperation Will Grow into The Primary Approach for Upstream And Downstream Companies in New Energy Battery Industry Chain to Cooperate

Equity Cooperation Will Grow into The Primary Approach for Upstream And Downstream Companies in New Energy Battery Industry Chain to Cooperate

At the end of March, Huayou Cobalt announced that the Company has achieved strategic cooperation intention with Volkswagen (China) Investment Company Ltd. (referred to in short as Volkswagen (China)) and Tsingshan Holding Group Company Ltd. (Tsingshan Holding) in terms of upstream and downstream cooperation in battery cathode material industry chain. The three parties aim to co-establish a new company to develop resources and produce cathode materials. The approach of binding upstream and downstream companies for a newly established company will probably grow into a primary approach for upstream and downstream cooperation in new energy battery industry chain.

1.Huayou Cobalt establishing Joint Venture with upstream and downstream companies

Firstly, Huayou Cobalt co-established upstream joint venture with Volkswagen (China) and Tsingshan Holding. All parties agree to make deployments in nickel-cobalt resource development in Indonesia, i.e. co-establishing world-class power battery raw material manufacturing base. The joint venture plans to construct an annual capacity of 120000 tons of nickel metal and 15000 tons of cobalt metal,

which is able to secure adequate nickel and cobalt supply for 160GWh batteries.

Secondly, Huayou Cobalt co-established downstream joint venture with Volkswagen (China). The both parties plan to establish one or more joint ventures in Guangxi of China in accordance with Chinese laws, dedicated to the investment in new energy lithium cathode material integrated projects that are engaged in the refining of nickel-cobalt sulfate and the manufacturing of ternary precursors and ternary cathode materials.

2.The equity cooperation approach is conducive to the outcome of mutual benefit through interest binding

The equity cooperation approach is more conducive to the outcome of mutual benefit through interest binding, compared to the former upstream and downstream product supplying.

Firstly, Tsingshan Holding, an upstream resource company, has well solved the problem of product marketing through securing Huayou Cobalt and Volkswagen (China).

Secondly, Huayou Cobalt, an intermediate company, has enhanced the deployments in nickel resource and the right of speech through securing the upstream Tsingshan Holding and the downstream Volkswagen (China).

Thirdly, from the perspective of Volkswagen (China), battery is the core part of NEV as well as the crucial element for cost down. Volkswagen (China) plans to realize China localized manufacturing of its 15 types of NEVs by 2025, and plans to sell 1500000 NEVs in China. Accordingly, Volkswagen (China) plans to work with its joint venture partners to co-invest EURO 15 billion in the deployments in electric vehicles in China from 2020 to 2024. The cooperation with the aforesaid two companies has basically secured the supply of nickel and cobalt and new energy lithium cathode materials, thus solving the worries in raw material supply.

Fourthly, the cooperation enables the three companies to each perform its own functions, as an entire team. This results in a deeper interdependency among upstream and downstream companies in new energy battery industry chain, which leads to stronger systematic anti-risk capability and more optimized collaborative benefits.

3.Equity cooperation has grown into a major choice for many new energy battery material companies including Huayou Cobalt to play their roles

Huayou Cobalt has single-handedly managed and facilitated this cooperation. Benefiting from the favorable partnership between Huayou Cobalt and the aforesaid two companies, all parties involved this time have mutual understanding and trust, which lays a solid foundation for the cooperation this time between the three parties. As a matter of fact, Huayou has practiced equity cooperation in battery material field and gained big success. In this February, Huayou Holding, Eve Lithium, YUNTIANHUA, and SEMCORP have entered into New Energy Battery Whole Industry Chain Project Cooperation Agreement with Yuxi of Yunnan. The Agreement involves two major points: Firstly, the four companies will work with Yuxi government to co-establish two companies, one of which is engaged in mineral resource development and the other of which is engaged in deep mineral processing. The joint venture will be controlled by Yuxi government, and the other parties hold shares in proportion; secondly, the four companies will construct supporting battery projects involving new energy battery, lithium battery, isolating membrane, iron phosphate and lithium iron phosphate, and copper foil in Yuxi, centering on target mineral resources of Yuxi. The projects will be guided by industrial advantageous party, and the other parties are allowed to hold shares appropriately.

In addition to this project, the four companies have established multiple equity cooperation companies with each other, which makes them an inseparable community of shared interests. For instance, Eve Lithium and SEMCORP established a joint venture in Jinmen of Hubei; Eve Lithium acquired Huayou Cobalt share affiliated to Huayou Holding at the rate of RMB 1.8 billion; SEMCORP acquired 76.36% equity of Newmi Tech that is affiliated to YUNTIANHUA.

This huge coalition invests in Yuxi for two purposes: first of all, acquiring precious lithium ore resources of Yuxi, and second of all, competing other giants in power battery field through the construction of the coalition.

4.Equity cooperation will become a classic paradigm for upstream and downstream cooperation in new energy battery industry chain

At present, the problem of raw material supplying has become a crucial handicap for China’s new energy battery industry development. Since long ago, crucial raw materials like nickel, cobalt and lithium are in short supply and are at high price, which leads to the rise in power battery price. Since the beginning of this year, there has been an increase of 15%-20% in power battery price, and panic buying is commonly seen in battery purchasing from some big plants. When the river rises, the boat floats high. Automobile companies are forced to raise their price of end products. “Black Swan” incidents emerge in endlessly, and the surge in nickel price in LME in early March is still vivid in our mind, making everyone still in a state of shock.

In this context, upstream and downstream companies in new energy battery industry chain work with each other to bind interests and resist risks from price fluctuations through equity cooperation. This is an important access to solving the problem of raw material, and this will definitely develop into a significant trend. From what we have seen so far, the upstream companies that grip nickel, cobalt and lithium resources enjoy strong position. They are highly favored and lay aside all anxiety and rest content, and downstream companies compete for the opportunities to cooperate with those upstream companies. Downstream have to improve their own strengths to win the opportunities. More than that, they have to actively seize the opportunities. It is predicted that the competitions between middle and downstream companies will tend to get intense and polarized.