China’s Share Of Global Battery Production To Hit 70% By 2020, But Japan’s Panasonic Still Leads 1

A $240 billion market opportunity

Electric vehicles makers have a big role to play in the ongoing electric vehicle revolution. Electric vehicles (EVs) are steadily replacing internal combustion engines (ICEs), in light of increasing awareness related to the damaging effects of carbon emissions. Wall Street analysts predict that we’re looking at a $240 billion EV market opportunity in 20 years. According to estimates, EVs will account for as much as 40% of auto sales and 30% of global car parc over the next 20 years.

Rising demand, falling cost

Batteries make-up about 1/3rd of the cost of an electric vehicle. Hence, unprecedented demand for lithium-ion batteries is expected as manufacturers look to keep pace with demand. And, on a macro level, they would help reduce carbon emissions and oil dependence. Goldman Sachs (GS) estimates the lithium-ion battery market to be worth $40bn by 2025 and to be dominated by China (FXI) (YINN). And, given the current and predicted decline in the cost of manufacturing these batteries (see chart above), battery makers should see sunnier days ahead.

China and South Korea are poised to grab their share

The global lithium-ion battery market is expected hit $46.2 billion by 2022, with a CAGR of 10.8% during the 6 years beginning 2016. The demand for lithium-ion batteries in the automobile industry is expected to surge with the increasing demand for EVs. Asia-Pacific (VPL) is widely expected to dominate this market throughout 2015-2022.

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Presently, Japan’s Panasonic is the largest supplier of electric vehicle batteries globally. However, China’s BYD (1211.HK) (BYDDF) (BYDDY) and CATL, and South Korea’s Samsung SDI and LG Chem are also taking big strides to grab their fair share in the opportunity lying ahead of them.

China’s global market share in battery production is projected to rise to more than 70% by 2020. With over 140 EV battery manufacturers, the country is expected to lead the way in batteries. In 2016 alone, 507,000 EVs were sold in China, a 53% jump from the previous year figure. While taking the necessary steps to boost supply, China will also be instrumental in creating demand with their target of having 5 million EVs on its roads by 2020, as compared to the 1 million today.

On the other hand, South Korea’s (EWY) EV battery makers LG Chem (051910.KS) (051915.KS) (LGCLF), Samsung SDI (006400.KS) (006405.KS) (SSDIF), and SK Innovation (096770.KS) (096775.KS), are working to establish their manufacturing facilities in Europe (VGK) (EZU), the fastest growing market for electric cars in the world (ACWI) (VTI).

In Part 2, we’ve compiled a list of the key stocks to watch, as Chinese and Korean battery makers position themselves to profit from the electric revolution.

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