This looks like the end of the road for AUZ for the time-being - at least 12 months until the battery slump works its way through. Given the falling demand for EV batteries and the over-capacity (in the wake of the ending of Chinese subsidies), there are unlikely to be any SKI replacements knocking at the door. If there were high level opportunities, they would have been ramped at the AGM.
Secondary battery chicken game 'The opening'… China's third largest bankruptcy-
50 fewer battery companies in three years… Oversupply Aftermath
▲ Water town in Shandong, China. (Photo = Waterma Homepage)
Waterma, China's third-largest electric vehicle battery maker, finally goes bankrupt. The number of Chinese battery makers, which exceeded 150 just three years ago, dropped to 100 last year. As the oversupply lasts for many years, the battery industry is undergoing restructuring.
On the 19th, according to the industry, Zen Rui Wocheng announced on the 13th (local time) that the Chinese People's Court in Shenzhen, China, approved the bankruptcy of subsidiary Waterma.
Waterma's external debt amounted to 19.7 billion yuan (3.27 trillion won). The total price of 599 suppliers is about 5.4 billion yuan (about 890 billion won). Its net profit dropped 87.86% in the third quarter, to -2.61 billion yuan (about -430 billion won). Revenue was only 440 million yuan (about 71.3 billion yuan).
Founded in 2002, Waterma is the leading company in the research and development of Chinese electric vehicle power batteries. As of 2016, the company's value has grown to the top three in China, with a record value of 5.2 billion yuan (approximately 86 million yuan) and net profit of 455 million yuan (approximately 751 billion yuan).
Debt increased and defaulted on debt. The 13.58% stake held by the obscure genius, the main shareholder, was foreclosed by the courts, and accounts opened in 13 banks were also frozen.
It's not just Waterma that's worsening its financial structure. CATL is affecting earnings as its receivables increase. The balance of receivables in CATL has increased from 238.98 million yuan in 2016 (about 400 billion won) to 69.83 billion yuan in 2017 (about 1.5 trillion won). In the same period, gross margin decreased from 38% to 36%.
Later companies, such as the Yong Encyclopedia and the Tang Dynasty, are no different. China's BAK is also proceeding with a lawsuit about 900 million yuan (about 150 billion won).
According to the Chinese market researcher Gao Gong Industrial Research Institute (GGII), seven of the top 10 battery installed capacity in January-September recorded negative growth compared to the previous year.
As profitability hit bottom, bankruptcy is not a few. The number of battery makers, which amounted to 155 in 2016, dropped to 130 in 2017, and just over 100 last year. Next year, only 10-20 are expected to survive.
The reason why Chinese battery makers are struggling is oversupply. As China's government subsidies increase supply, demand cannot keep up. At the end of last year, market research firm Transford analyzed that China's electric vehicle battery production capacity was 134GWh, four times the demand (30GWh).
The outlook is not good this year. Transford forecasts battery demand at 54 GWh this year. Less than half of the 164GWh capacity estimate.
Later companies have a hard time surviving, as CATL and some companies dominate the battery market. The combined share of CATL and BYD is over 40% in 2017.
In addition, global subsidiaries are expected to enter China as the EV subsidy policy is abolished from 2021. As Korean companies such as LG Chem, Samsung SDI, and SK Innovation expand their investments in China, local latecomers' pies are expected to shrink.
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