Will CATL’s bargain sales hurt Korean EV battery makers?

China’s Contemporary Amperex Technology Co. (CATL), the leading global electric vehicle battery manufacturer, has started a price war in the world’s largest EV market by offering discounts to some local automakers, stoking concerns over the profitability of its smaller South Korean rivals.

LG Energy Solution Ltd., SK On Co. and Samsung SDI Co., are likely to weather CATL’s price cuts, however, as they have inked deals with several global EV makers to reflect changes in raw material costs for battery prices, analysts said.

Those South Korean makers already fixed profit margin ratios as they supply batteries to carmakers through joint ventures with them, the industry experts added.

As worries about their profitability eased, their shares rebounded on Tuesday in the Seoul stock market. LG Energy, the world’s No. 2 battery maker, ended up 0.78% at 520,000 won ($400) while the main Kospi rose 0.16%. SK On’s parent SK Innovation Co. advanced 2.14%.

On Monday, those stocks dropped after foreign media reported CATL slashed cell prices for some Chinese automakers, reflecting a decline in lithium costs, to win more orders in the local market. South Korean battery makers have already been losing shares in the global market against Chinese competitors.

EV MAKERS WITH ONLY 4% OF GLOBAL MARKET

CATL signed contracts with a handful of EV manufacturers such as Nio Inc., Li Auto Inc. and Huawei Technologies Co. including a term that the battery giant will settle a portion of the price of power supply with those automakers based on a price of 200,000 Chinese yuan ($29,137) per ton of lithium carbonate for the next three years, according to those reports.

Currently, battery-grade lithium carbonate is quoted at about 470,000 yuan, the foreign media said.

CATL’s discount is expected to cut sales prices of battery cells by 14% compared with the current levels, South Korea’s Samsung Securities Co. estimated.

The move is unlikely to trigger battery price cuts worldwide, the brokerage house headquartered in Seoul said.

“The EV makers, which signed discounted deals with CATL, account for only about 4% of the global market,” said Chang Junghoon, a battery and display analyst for Samsung. “The pressure for price cuts is unlikely to spread to other battery makers.”

CATL aimed to maintain its grip through the discount in the local market, a cash cow that helps the company win overseas orders at lower prices, amid intensifying competition with domestic rivals such as BYD and China Aviation Lithium Battery Co. (CALB), industry sources in Seoul said.

For the target, CATL added a condition in the supply contracts that the EV makers must procure 80% of their batteries from the cell behemoth.

(Updated with share prices)

Write to Hyung-Kyu Kim at khk@hankyung.com

Jongwoo Cheon edited this article.