As the year comes to a close and new beginnings loom, Yiwei Lithium Energy, a mid-tier manufacturer of power batteries, unexpectedly finds itself in the spotlightOn December 25, 2024, the company announced a cooperative agreement with a group client in the Americas, in partnership with its subsidiary Yiwei Malaysia, to supply battery cells for energy storageSoon after, media reports speculated that this mystery client was none other than Tesla, marking Yiwei's emergence as the third company to supply energy storage batteries to the electric vehicle giant, following industry leaders Contemporary Amperex Technology Co(CATL) and BYD.

In response to the swirling rumors regarding its supply to Tesla, Yiwei Lithium issued a statement on the same evening, emphasizing its commitment to maintaining client confidentiality and adhering to commercial confidentiality agreements while complying with disclosure regulations

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Despite this disclaimer, prevailing opinions assert that Yiwei’s focus on the energy storage sector may have successfully aligned the company with Tesla’s expansive ambitions in this arenaFollowing the announcement, Yiwei's stock price surged nearly 10% over just three trading days, pushing its market capitalization briefly above the 100 billion yuan mark.

However, when looking at longer-term trends, it's essential to acknowledge that Yiwei is still considerably below its historical peakIn November 2021, Yiwei's stock price surpassed 150 yuan per share, with a market value that once exceeded 280 billion yuanChallenges in the power battery sector, alongside intensified market competition and issues of overcapacity, have led to significant declines in Yiwei's core business profit margins and a slowdown in performance growth.

According to the latest financial reports, Yiwei Lithium recorded revenues of 34 billion yuan in the first three quarters of 2024, marking a year-on-year decrease of 4.16%, and a net profit of 3.18 billion yuan, down by 6.88%. In this context, the company’s market capitalization plummeted to 64 billion yuan, reflecting an almost 80% decrease from its historic heights.

Yiwei Lithium's founder, Liu Jincheng, remarked at the China Electric Vehicle Hundred Person Forum in March 2024, “In the power battery industry, we don’t even qualify to compete in this hyper-competitive environment; no one can beat BYD or CATL.” With pressure mounting in its core power battery business, Yiwei has set its sights on energy storage as a critical area for growth

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During the first three quarters of 2024, power battery shipments reached 20.71 GWh, a modest increase of 4.96% year-on-year, while energy storage battery shipments reached an impressive 35.73 GWh, reflecting a staggering growth rate of 115.57%. This shift indicates that Yiwei’s energy storage output has now significantly outpaced its power battery output.

Since its inception, Yiwei Lithium has navigated the evolution of the battery landscape with a diverse portfolio touching on consumer batteries, electricity meter batteries, e-cigarettes, and power batteries, securing its position as one of the few lithium battery platform enterprises that master core technologies across consumer, power, and storage marketsFollowing the intensification of competition in the power battery sector, Yiwei’s strategic pivot towards the comparatively less competitive energy storage domain highlights its adaptability and market acumen

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Can this tactical maneuver lead to a resurgence in the company's fortunes?

The Struggles of the Power Battery Sector

Founded in 2001, Yiwei Lithium initially specialized in the production of primary lithium batteries primarily used in electric meters and tire pressure monitoring systemsBy 2008, it claimed the title of the country’s largest producer of lithium primary batteries, followed by an initial public offering on the ChiNext in 2009.

Subsequently, by entering the lithium secondary battery sector, Yiwei Lithium strategically targeted 3C (computer, communication, consumer electronics) lithium-ion pouch batteries, swiftly becoming the world’s largest supplier of e-cigarette batteriesIn 2014, it obtained a majority stake in the leading e-cigarette manufacturer, Miquel (now known as Smoore International), which has become the globe's top producer of vaping devices.

In 2015, Yiwei expanded its R&D efforts, developing cylindrical batteries for power tools and electric scooters, as well as "bean batteries" for small electronic devices, covering a broad array of consumer battery needs

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The introduction of the Jin Dou battery in 2019—a compact, highly sealed, and energy-dense product—allowed Yiwei to integrate into Samsung’s supply chain, capitalizing on the rising demand for wireless earbuds and other wearables.

Since 2015, Yiwei has committed to entering the power battery market, diversifying across lithium iron phosphate, ternary cylindrical, and pouch batteriesIn collaboration with South Korea's SKI, the company secured orders from Daimler, marking a definitive advance into the sectorBy 2020, Yiwei’s self-developed pouch technology gained traction with Xpeng Motors, positioning it among the top ten domestic thin-film battery suppliers.

In 2023, shipments of Yiwei Lithium’s power batteries reached 28.08 GWh, marking a year-on-year increase of 64.22% and securing 4.45% of the domestic market, ranking it fourth nationallyHowever, its global market share stands at approximately 2.3%, placing it ninth globally.

This year has seen a noticeable deceleration in the growth rate of Yiwei’s power battery shipments

According to Q3 reports, the company’s battery shipments amounted to 20.71 GWh, reflecting a mere 4.96% year-on-year increaseYiwei attributed this slowdown to the persistent competitive pressures in the automotive market, where certain major passenger vehicle clients saw less-than-expected sales, adversely affecting battery installation volumes.

Heightened raw material costs have further influenced Yiwei’s profitability, leading to a marked drop in the gross margin of its power battery segment, which stood at just 11.45% in the first half of 2024, nearly three percentage points down from the previous year.

Latest reports indicate that, as of 2024, the cumulative installed capacity of power batteries in China has reached 548.4 GWh, a year-on-year surge of 41.5%. The top three players—CATL, BYD, and China Innovation Aviation—occupy substantial market shares of 45%, 24.7%, and 6.68%, respectively.

Among the mid-tier battery producers, companies such as Hive Energy, Sunwoda, Ruipu Lanjun, and Zhengli New Energy have reported installation growth rates exceeding 80%, significantly outpacing industry averages

In contrast, Yiwei's power battery installation growth rate of merely 8.34% has positioned it third from the bottom among the top 15 domestic firms, with its market share dropping from 4.45% to 3.43% and its industry rank sliding from fourth to fifth.

Betting on Lithium, Refusing to Settle

In a sharp contrast to its struggles in the power battery segment, Yiwei has made remarkable gains within the energy storage fieldThroughout 2023, Yiwei reported energy storage battery shipments totaling 26.29 GWh, a striking increase of 121.14%, securing the third position globally, placing it behind only CATL and BYD.

In the first half of 2024, Yiwei surpassed BYD to claim the second-largest position worldwide in energy storage outputBetween January and September 2024, it achieved 35.73 GWh in shipments, representing a 115.57% increase year-on-year, far exceeding the 55% growth rate of CATL’s energy storage operations during the same period.

This explosive growth has established a tripartite balance in Yiwei’s primary business, comprising consumer batteries, power batteries, and energy storage batteries

In 2023, the segment allocations were 49% for power batteries, 33% for energy storage, and 17% for consumer batteries, while mid-2024 saw the proportion of revenue generated from energy storage rise to 35.89%.

Given the rampant overcapacity in the power battery sector, energy storage presents a relatively less contested landscapeThis is reflected in the gross margins, with Yiwei's energy storage segment consistently outperforming its power battery counterpart since 2023. Hence, the enhancement of the energy storage segment's revenue share serves to improve Yiwei’s overall profitability.

As major economies in Europe and North America approach a period of declining interest rates, the cost-effectiveness of energy storage solutions is expected to become increasingly apparent, prompting significant growth in demand for both large-scale and residential energy storage installations

According to InfoLink's forecasts, global energy storage cell shipments are projected to rise by 35%, reaching 266 GWh in 2024. The global energy storage market is anticipated to experience a compound annual growth rate of 38.4% from 2023 to 2027, with new global demand exceeding 1 TWh by 2028.

To seize overseas market opportunities, Yiwei is not only introducing high-capacity storage cells to key international clients such as Powin and Wartsila but is also ramping up its foreign production capacityIn December 2024, Yiwei’s Malaysian factory marked a significant milestone with its equipment commissioning ceremonyThe facility, which began construction in August 2023, is set to begin operations in the first quarter of 2025, aiming to be Yiwei’s first overseas production site capable of mass delivery.

Yiwei has set ambitious targets for energy storage shipments in 2024, aspiring to reach 50 GWh—almost double that of 2023. Success in this goal could further distance the company from rivals such as BYD, Ruipu Lanjun, and Haicheng Storage.

Notably, after experiencing growth challenges in its electric vehicle segment, energy storage has become a critical growth engine for Tesla

In Q3 2024 alone, Tesla's energy storage product installations soared to 6.9 GWh, up by 73%, with a gross margin reaching an impressive 30.5%—making the energy storage division its fastest-growing and most profitable sector.

With the collaboration with Tesla, Yiwei is poised to enhance its energy storage scale and market share significantly, presenting promising business prospectsThe partnership with Tesla also mitigates concerns regarding potential overcapacity challenges faced by Yiwei.

In July 2024, Yiwei announced plans to raise 5 billion yuan through the issuance of convertible bonds to support projects including a 23 GWh cylindrical lithium iron phosphate storage battery and a 21 GWh large cylindrical passenger vehicle battery project.

This move was met with scrutiny from the Shenzhen Stock Exchange, which issued multiple inquiries regarding the necessity and rationality of raising capital again in light of previous undertakings that have yet to be fulfilled, ongoing declines in product gross margins, and the significant amount of cash and trading financial assets the company holds.

On December 26, 2024, just one day after announcing the cooperation agreement with the mysterious American customer, Yiwei received approval to register for the issuance of 5 billion yuan in convertible bonds, which helped allay concerns regarding perceived excessive and frequent financing activities.

By December 2024, 41 power battery companies were reported to have provided support for vehicle installations in China's new energy sector, a decrease of two compared to the previous year

The top ten companies dominate the market, holding an impressive 95.2% market share, an increase of 0.3 percentage points from the previous year, indicating the competitive landscape has matured.

Yiwei's power battery clients primarily include mid-tier automakers such as Xpeng, Changan, and GAC Aion, which present moderate competition when compared to leading firms like CATL, LG, Samsung SDI, and BYD, who maintain self-sufficient ecosystemsAs a second-tier player, Yiwei is confronted with risks of being sidelined, facing challenges in surpassing dominant competitors.

Given these dynamics, Yiwei's strategic pivot towards the relatively untapped energy storage market showcases its market sensitivity and strategic flexibilityEvidently, with its second-place ranking in global energy storage shipments and the recent collaboration with Tesla, the future of Yiwei Lithium Energy is anything but stagnant