Overcapacity in negative electrode materials, a slowdown in sales growth of new-energy vehicles, a significant year-on-year decline in negative electrode material prices, and narrowing profit margins across the industry—multiple factors are constraining the operating environment for negative electrode companies, making it increasingly challenging for them to thrive.

On the evening of October 30, Shanshan Co., Ltd. disclosed that its third-quarter revenue reached 5.241 billion yuan, representing a slight year-on-year increase of 3.41%. However, its net profit amounted to 189 million yuan, down 65.48% year-on-year and falling by 57.07% quarter-on-quarter compared to the second quarter. Shanshan Co., Ltd. stated that the negative electrode business was significantly impacted by changes in the industry’s market environment, with product prices declining year-on-year—a key factor contributing to the drop in its net profit.

Another major negative-electrode manufacturer, Putailai, also released its financial report on October 27. In the third quarter, the company achieved revenue of 3.881 billion yuan, a year-on-year decrease of 14.1%; net profit came in at 324 million yuan, representing a year-on-year decline of over 60%. Putailai explained that, since the beginning of this year, the negative-electrode material industry has seen ample production capacity, and downstream battery customers have entered a phase of destocking. As a result, the industry is facing pressure from both insufficient demand for capacity utilization and declining prices.

“Overall, in recent years, the barriers to entry for deploying negative-electrode materials have been steadily declining. Most companies are engaged in low-end, homogeneous competition. The industry lacks new growth drivers, which is the primary reason behind the decline in profit margins in the negative-electrode sector,” a senior executive from a leading domestic negative-electrode manufacturer told Zhenli Xinmei.

01. The only way out is “involution.”

Unlike the overall supply-demand imbalance in the global negative-electrode material market from 2019 to 2022, in 2021, market demand surged dramatically, leading to a severe shortage of graphitization capacity. As a result, companies accelerated their investments to expand production, and firms from outside the industry have also been steadily entering the market. Currently, the entire negative-electrode material market remains in a state of structural overcapacity, with highly intense homogeneous competition.

“Since the beginning of the year, the prices of negative-electrode material products have been steadily declining. We believe that at the current low price levels, the profit margins of most companies have already been squeezed down to near-cost levels—and in fact, a significant proportion of companies have even started incurring losses...” said a senior executive from Shangtai Technology on October 25 during an institutional research visit.

In response, Zhenli Xinmei also conducted a verification. A head of a negative-electrode company—who requested anonymity—told Zhenli Xinmei, “Basically, profits have to be squeezed out of cost control. For example, having an integrated layout for materials and benefiting from lower electricity prices at the production sites can lead to slightly higher profit margins. Nowadays, most of the leading graphite-processing companies tend to handle this stage themselves, making it easier to keep costs under control.”

The “graphitization” process it refers to is one of the core stages in the manufacturing of negative-electrode materials, accounting for as much as 40% of the material’s total cost. The graphitization process involves several steps, including furnace cleaning, furnace loading, energizing, cooling, and furnace unloading. A single production cycle typically lasts between 15 and 30 days, and both electricity costs and labor expenses are relatively high. “In the past, when supply couldn’t meet demand, negative-electrode companies were reluctant to take on this work themselves and instead outsourced it to carbon manufacturers. Now, however, even the processing fees can no longer cover costs, so many companies have started doing the work themselves.”

The official judged that, given the current severe overcapacity in the industry, it will take some time for the medium- and high-cost, low-quality capacity to be completely eliminated. Until then, companies can only wait. “We estimate that the fourth quarter will still be challenging. The industry is bound to undergo another round of consolidation—everyone will be competing fiercely! Optimistically speaking, we don’t expect to see clear answers until at least the end of 2024.”

02. Negative-electrode companies are venturing into cross-industry play.

Faced with the current situation in the negative-electrode sector, many companies have started crossing over into new industries to find fresh growth opportunities.

The positive-electrode business has surpassed the negative-electrode business for the first time, as Betray charges ahead on “two legs.” As the global leader in negative-electrode materials, Betray is not only transitioning toward the positive-electrode sector but also saw its high-nickel ternary revenue officially exceed that of negative electrodes in Q2 this year. In the first half of the year, Betray sold over 170,000 tons of negative-electrode materials, generating revenue of 6.327 billion yuan; sales of positive-electrode materials exceeded 19,000 tons, yielding revenue of 6.900 billion yuan—marking a new chapter in Betray’s development. Thanks to its dual-track strategy, Betray enjoyed a remarkably prosperous third quarter. For the first three quarters combined, the company achieved operating revenue of 20.31 billion yuan, up 15.61% year-on-year, and net profit of 1.365 billion yuan, up 0.53% year-on-year. Both revenue and net profit attributable to shareholders reached record highs for the same period in previous years.

布局偏光片，跨界之王再转型。2020年6月，杉杉股份启动以11亿美元价格收购LG化学在中国大陆、中国台湾和韩国的LCD偏光片业务及相关资产，并成立偏光片企业杉金光电，自此开始偏光片业务的布局。“偏光片”又称“偏光膜”，是液晶面板的关键组成部件，核心技术长期以来为日韩企业把控。杉杉希望在光学领域进行自主替代，寻找自己新的盈利增长点。

Pute Lai is partnering with CATL to develop composite current collectors. In addition to its expertise in negative electrodes and graphitization, Pute Lai has also made extensive investments in membrane materials, coating technologies, and automated equipment. Notably, Pute Lai maintains close business ties with CATL. In October, Pute Lai announced a joint venture with CATL to enter the composite current collector business, aiming to leapfrog competitors in next-generation lithium-ion battery technology. Like Sungrow, although the new business is yet to yield significant returns, its future prospects look highly promising.

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