A Chinese investment project worth nearly a billion dollars has now turned into a ghost town. This lithium battery factory, covering 300 acres, was once one of the most notable companies in the area, with an annual output valued in the billions. The facility had it all - a technical research center, exhibition hall, office building, and factory spaces across 16 buildings. Now, the whole site stands abandoned.
"Look, the entire park is empty. We used to have thousands of people here," laments a man from Jangsu. Nearby, another lithium battery factory spanning 100 acres with seven or eight buildings and 50 acres of vacant land has also closed down. Despite their shutdown, the factories' equipment remains in fairly good condition.
This situation reflects the broader shutdowns in China's lithium battery industry this year. Insiders report that the entire new energy sector is under immense pressure, with declining orders and factory closures becoming the norm.
The industry's journey has gone through stages of growth, boom, and ultimately bust. In 2009, both central and local governments launched dual subsidies for the electric vehicle industry, kickstarting China's lithium battery sector. Initially, local governments rushed to launch projects, and lithium battery plants sprang up everywhere.
In 2020, the Chinese government's dual carbon targets fueled a rapid rise in energy storage projects, creating another surge in new facilities. However, by 2022, the industry faced overcapacity, with enough batteries for 2 million vehicles unsold, equaling about 100 gigawatt-hours.
From 2022 to 2024, over 700 projects, each worth over a billion dollars, were hastily started, totaling an investment of 3.5 trillion yen. This led to an even greater surplus, with China's lithium battery production capacity reaching 3.3 times the demand in 2023. Capacity utilization dropped from 76% in 2022 to just 50% in the first half of 2024.
The Cascading Crisis
The lithium battery industry is now facing a full-blown crisis, impacting the entire supply chain from upstream raw materials to downstream demand. The crisis first showed up in the upstream raw material market, with lithium carbonate prices plummeting by 80% from their peak in November 2022.
This situation is no coincidence, but rather the inevitable outcome of China's predatory economic strategies to undercut competitors on the global market. The Chinese government manipulated lithium prices to create a temporary advantage, forcing Western competitors into losses. However, this also caused domestic lithium companies to cut back production or shut down entirely.
The difficulties extend beyond lithium suppliers, as essential materials like separators and electrolytes also struggle with plummeting orders and stockpiles that haven't sold for 6 to 8 months. This distress is reflected in the financial reports of several lithium battery material suppliers, with inventory surging over 100% year-on-year and revenue dropping by 20 to 30%.
The situation is even worse for midstream manufacturers, with revenue for 107 listed lithium battery companies in the first quarter of 2024 falling by 18% year-over-year, and net profits slashed in half. Downstream demand continues to shrink, with growth in sales for new energy vehicles in China slowing to below 20% in the first quarter of 2024, far lower than the over 90% growth rate seen in the same period in 2023.
This breakdown throughout the industry chain is driving the industry into a severe deflationary spiral. The crash in upstream raw material prices forces suppliers to cut production to reduce losses, while overcapacity in the midstream sector worsens company losses. Shrinking downstream demand leads to a steady drop in orders, and export barriers add further strain, leading to a vicious cycle that's difficult to break.
Even industry giants like CATL have seen revenue decline for three consecutive quarters, with a 35% year-over-year drop in net profit in the third quarter of this year. Smaller companies are facing even greater challenges, with some declaring bankruptcy and leaving behind debts and abandoned projects.
As the Chinese lithium battery industry grapples with its crisis, the global market is undergoing significant changes. The United States, Japan, and Europe are all making strategic moves to reduce their reliance on Chinese products and develop domestic supply chains.
In the US, Nevada-based Lionel is investing over $1 billion to build the world's first large-scale lithium-sulfur battery production facility, a revolutionary technology that eliminates dependency on resources controlled by China. Japan has also seen a breakthrough in battery technology, with a new lithium iron oxide-based battery developed by Hokkaido University.
Europe is also taking steps to establish its own lithium mines and reduce its 97% reliance on China for lithium supply. The EU has also introduced stricter environmental and safety standards, leading to a 45% year-over-year drop in China's battery exports to Europe and the US.
These actions by democratic nations are fundamentally challenging China's dominance in the global lithium battery supply chain, making it increasingly difficult for Chinese companies to expand internationally.
The bursting of the lithium battery bubble exemplifies the failure of achievement-driven projects in China. These projects, marketed as engines of local economic growth, have often been marred by favoritism and government-business collusion. Local officials eager for short-term achievements allocated substantial public funds and resources to companies with close connections, while companies took advantage of subsidies and tax breaks to aggressively expand production lines and inflate investment figures.
Ultimately, instead of fostering industry upgrades, the money lined private pockets and further enriched local elites. The result is that these lithium battery projects, once hailed as part of the new energy revolution, have been left into disarray, with high-end equipment worth millions sold off at low prices to overseas buyers.
This situation highlights a key feature of China's economic development model: rapid expansion and short-term gains followed by economic fallout and abandoned projects, company struggles, and labor issues. As Western countries reduce reliance on Chinese products and Gen Z workers resist high-stress, low-pay jobs, companies face a growing struggle to recruit and retain employees, making high-end manufacturing even harder to achieve.
The wave of closures in the lithium battery industry may be just the beginning of a larger economic unraveling in China as the global economy and domestic demand continue to lag. The Chinese government's attempts to mask structural issues with policy intervention merely delay the crisis without addressing the root causes. As economic pressures mount, China faces a harsh reality: the once-vaunted economic miracle is rapidly unraveling, and the Chinese model of growth heavily reliant on subsidies and achievement-driven projects has reached its limits.
Part 1/12:
The Bursting of China's Lithium Battery Bubble
The Decline of a Once-Booming Industry
A Chinese investment project worth nearly a billion dollars has now turned into a ghost town. This lithium battery factory, covering 300 acres, was once one of the most notable companies in the area, with an annual output valued in the billions. The facility had it all - a technical research center, exhibition hall, office building, and factory spaces across 16 buildings. Now, the whole site stands abandoned.
Part 2/12:
"Look, the entire park is empty. We used to have thousands of people here," laments a man from Jangsu. Nearby, another lithium battery factory spanning 100 acres with seven or eight buildings and 50 acres of vacant land has also closed down. Despite their shutdown, the factories' equipment remains in fairly good condition.
This situation reflects the broader shutdowns in China's lithium battery industry this year. Insiders report that the entire new energy sector is under immense pressure, with declining orders and factory closures becoming the norm.
The Rise and Fall of China's Lithium Battery Boom
Part 3/12:
The industry's journey has gone through stages of growth, boom, and ultimately bust. In 2009, both central and local governments launched dual subsidies for the electric vehicle industry, kickstarting China's lithium battery sector. Initially, local governments rushed to launch projects, and lithium battery plants sprang up everywhere.
In 2020, the Chinese government's dual carbon targets fueled a rapid rise in energy storage projects, creating another surge in new facilities. However, by 2022, the industry faced overcapacity, with enough batteries for 2 million vehicles unsold, equaling about 100 gigawatt-hours.
Part 4/12:
From 2022 to 2024, over 700 projects, each worth over a billion dollars, were hastily started, totaling an investment of 3.5 trillion yen. This led to an even greater surplus, with China's lithium battery production capacity reaching 3.3 times the demand in 2023. Capacity utilization dropped from 76% in 2022 to just 50% in the first half of 2024.
The Cascading Crisis
The lithium battery industry is now facing a full-blown crisis, impacting the entire supply chain from upstream raw materials to downstream demand. The crisis first showed up in the upstream raw material market, with lithium carbonate prices plummeting by 80% from their peak in November 2022.
Part 5/12:
This situation is no coincidence, but rather the inevitable outcome of China's predatory economic strategies to undercut competitors on the global market. The Chinese government manipulated lithium prices to create a temporary advantage, forcing Western competitors into losses. However, this also caused domestic lithium companies to cut back production or shut down entirely.
The difficulties extend beyond lithium suppliers, as essential materials like separators and electrolytes also struggle with plummeting orders and stockpiles that haven't sold for 6 to 8 months. This distress is reflected in the financial reports of several lithium battery material suppliers, with inventory surging over 100% year-on-year and revenue dropping by 20 to 30%.
Part 6/12:
The situation is even worse for midstream manufacturers, with revenue for 107 listed lithium battery companies in the first quarter of 2024 falling by 18% year-over-year, and net profits slashed in half. Downstream demand continues to shrink, with growth in sales for new energy vehicles in China slowing to below 20% in the first quarter of 2024, far lower than the over 90% growth rate seen in the same period in 2023.
The Vicious Cycle of Decline
Part 7/12:
This breakdown throughout the industry chain is driving the industry into a severe deflationary spiral. The crash in upstream raw material prices forces suppliers to cut production to reduce losses, while overcapacity in the midstream sector worsens company losses. Shrinking downstream demand leads to a steady drop in orders, and export barriers add further strain, leading to a vicious cycle that's difficult to break.
Even industry giants like CATL have seen revenue decline for three consecutive quarters, with a 35% year-over-year drop in net profit in the third quarter of this year. Smaller companies are facing even greater challenges, with some declaring bankruptcy and leaving behind debts and abandoned projects.
Global Shifts and Restructuring
Part 8/12:
As the Chinese lithium battery industry grapples with its crisis, the global market is undergoing significant changes. The United States, Japan, and Europe are all making strategic moves to reduce their reliance on Chinese products and develop domestic supply chains.
In the US, Nevada-based Lionel is investing over $1 billion to build the world's first large-scale lithium-sulfur battery production facility, a revolutionary technology that eliminates dependency on resources controlled by China. Japan has also seen a breakthrough in battery technology, with a new lithium iron oxide-based battery developed by Hokkaido University.
Part 9/12:
Europe is also taking steps to establish its own lithium mines and reduce its 97% reliance on China for lithium supply. The EU has also introduced stricter environmental and safety standards, leading to a 45% year-over-year drop in China's battery exports to Europe and the US.
These actions by democratic nations are fundamentally challenging China's dominance in the global lithium battery supply chain, making it increasingly difficult for Chinese companies to expand internationally.
The Reckoning of China's Economic Model
Part 10/12:
The bursting of the lithium battery bubble exemplifies the failure of achievement-driven projects in China. These projects, marketed as engines of local economic growth, have often been marred by favoritism and government-business collusion. Local officials eager for short-term achievements allocated substantial public funds and resources to companies with close connections, while companies took advantage of subsidies and tax breaks to aggressively expand production lines and inflate investment figures.
Part 11/12:
Ultimately, instead of fostering industry upgrades, the money lined private pockets and further enriched local elites. The result is that these lithium battery projects, once hailed as part of the new energy revolution, have been left into disarray, with high-end equipment worth millions sold off at low prices to overseas buyers.
This situation highlights a key feature of China's economic development model: rapid expansion and short-term gains followed by economic fallout and abandoned projects, company struggles, and labor issues. As Western countries reduce reliance on Chinese products and Gen Z workers resist high-stress, low-pay jobs, companies face a growing struggle to recruit and retain employees, making high-end manufacturing even harder to achieve.
Part 12/12:
The wave of closures in the lithium battery industry may be just the beginning of a larger economic unraveling in China as the global economy and domestic demand continue to lag. The Chinese government's attempts to mask structural issues with policy intervention merely delay the crisis without addressing the root causes. As economic pressures mount, China faces a harsh reality: the once-vaunted economic miracle is rapidly unraveling, and the Chinese model of growth heavily reliant on subsidies and achievement-driven projects has reached its limits.
Stories like these scare me a lot because it proves to me that no matter how high a business rises, it can still fall flat to the ground