The lithium battery sector is undergoing significant turmoil in 2023, primarily driven by a pronounced slowdown in the growth of the new energy vehicle (NEV) marketThis slowdown has inflamed discussions about overcapacity within the lithium industry, compounded by falling lithium salt prices that have pushed many lithium battery companies into an alarming profitability crisisShockingly, some enterprises have even reported a switch from profits to losses in their mid-year performance forecasts for 2023.

On July 16, 2023, the lithium battery cathode material manufacturer, Deyang Nano (300769.SZ), unveiled its mid-year performance expectations, predicting a staggering net loss between 1.04 billion to 1.17 billion yuan for the first halfThis is an alarming drop when contrasted with the previous year, which recorded a profit of 1.28 billion yuanAs a direct consequence of this announcement, the company's stock plummeted over 10% in early trading the next day, closing at 121.7 yuan per share, marking a 7.72% decline.

Deyang Nano was established in 2007 and focuses on the research, development, production, and sale of crucial lithium-ion battery materials

Their main offering is phosphate-based cathode materials that are extensively applied in NEV drive batteries and energy storage systemsThe company's severe loss projection for the first half of 2023 stands in stark contrast to the achievements of the previous year; in 2022, Deyang Nano reported a remarkable revenue of 22.557 billion yuan, showcasing a year-on-year growth of 355.3%, with a net profit soaring 190.33% to 2.407 billion yuan.

The root cause of Deyang's dire forecast lies primarily in the sharp decline in lithium salt prices, particularly lithium carbonate, which is a fundamental raw material for lithium battery cathodesThe early part of 2023 saw lithium carbonate prices nosedive from over 500,000 yuan per ton to below 300,000 yuanBy April, prices even dipped to an alarming 200,000 yuan per tonMeanwhile, prices for lithium iron phosphate, Deyang’s main product, also tumbled, hitting approximately 70,000 yuan per ton in April 2023.

This downward trend has reverberated throughout the industry; other lithium-related companies, such as Longpan Technology (603906.SH) and Fengyuan Co

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(002805.SZ), also reported dismal forecasts for the first half of 2023, predicting substantial losses attributed to plummeting lithium salt prices and an overall market oversupplyFor instance, Longpan anticipates a net loss of between 628 million to 760 million yuan.

As of now, Deyang Nano's stock has effectively halved over the past year, with its value plummeting from a peak of 265.36 yuan per share in July 2022 to a startling low of 86.96 yuan in April 2023. Even with some recovery observed in the last two months, the stock remains less than half its peak value.

However, amidst this dismal forecast, Deyang Nano's management has suggested a potential turnaround beginning in May 2023. They have indicated a gradual recovery in downstream demand, signifying an uptick in production capacity usageBy June, the company reported achieving full production output, translating into higher sales prices and a gradual restoration of profitability

Furthermore, new products such as manganese lithium iron phosphate are reportedly on course for volume production in the latter half of the year.

Following Deyang's announcement, investor skepticism began to surfaceNotably, on July 17, a discourse emerged during an investor teleconference where some individuals expressed disbelief regarding the scale of the projected losses, citing conversations just days earlier that suggested the company's performance was not as grimThis revelation raises questions about the potential implications of the disclosed information and strategic communication with shareholders.

In a broader context, the lithium iron phosphate (LFP) market is marked by significant structural overcapacityHuang Xinqiao, the chairman of Hunan Yune (301538.SZ), reiterated in the first quarter of 2023 that the LFP industry is grappling with considerable overproduction

Hunan Yune is a leader in the phosphorous-based cathode material sector and has reported being the top supplier of LFP products for three consecutive years.

The demand for phosphorous-based materials remains robust, particularly due to the booming sales of new energy vehiclesThe entry of established phosphorous chemical companies such as Zhongke Taibai (002145.SZ), Annada (002136.SZ), and Longbai Group (002601.SZ) into the lithium battery space represents a new wave of competitionCurrent estimates suggest that the production capacity for LFP and manganese lithium iron phosphate has already surpassed 2.5 million tons and could potentially exceed 10 million tons with planned projects not yet in operation.

Deyang Nano's market share remains commendable, constituting about 15.1% with a shipment volume of roughly 172,000 tons in 2022—second only to Hunan YuneTheir strategic focus on manganese lithium iron phosphate as a means to reinvigorate growth appears promising