Since the beginning of this year, more than 30 new construction projects in power batteries for NEVs, and energy storage systems have been launched across China. Their quantity, investment amount and planned production capacity are all higher than those set up in the same period last year, according to the China Industry Technology Innovation Strategic Alliance For Electric Vehicle.

Apart from rising raw material prices, ensuring high-quality manufacturing capacity and a stable supply of lithium carbonate while expanding production has become a huge challenge for all battery manufacturers, said Ding Rijia, a professor specializing in energy economies at the China University of Mining and Technology in Beijing.

Lithium carbonate is a raw material used to make lithium batteries. Lithium mainly comes from lithium ores and salt lakes.

In addition to replenishing some raw materials with higher prices, Tang Xiaosong, head of the supply chain management unit of Shuangdeng Group Co Ltd, said most manufacturers in this sector have been relying on long-term purchase agreements to sustain their operations because the acceleration of battery production, the supply of raw materials for lithium batteries, such as lithium carbonate, have been in short supply since last year while prices have notably soared.

However, the price of battery-grade lithium carbonate has fallen in China since April this year, thanks to the ease of supply and demand. The price of this kind of industrial material has dropped from a record high of 502,500 yuan per metric ton in early April to 461,500 yuan per ton by the end of April.

Affected by the COVID-19 pandemic, the delivery time and cost of transportation of lithium ore imports have further increased this year, while downstream battery companies are still accelerating production expansion. The combination of these two factors has resulted in a still-tight supply of lithium carbonate, said Sun Shige, executive vice-president of Jiangxi Dongpeng New Materials Co Ltd, a Xinyu, Jiangxi province-based material supplier for lithium batteries.

The company, shipping lithium carbonate to countries including the United States, Germany, France, Japan, Republic of Korea and India, said its orders have been lined up through October.

"Since the price of lithium carbonate has dropped recently, the inventories stocked by manufacturers have gradually decreased," said Sun. "Many lithium carbonate manufacturers chose to build a closer partnership with domestic mining companies to ensure supply and stabilize prices through new supply deals and jointly developed projects.

"Even though the price increase of lithium carbonate is not sustainable, having a long-term cooperation with upstream mining companies is fairly practical in lowering manufacturers' costs, otherwise they will go to the spot market to buy high-priced raw materials," he added.

Zhao Xinliang, general manager of Yinchu Kefeng New Materials Co Ltd, another Yichun-based processor of lithium mineral products, expects the price of lithium carbonate will stabilize at about 450,000 yuan per ton in the second quarter, based on the current supply and demand.

"Because both domestic and foreign clients placed a large number of orders this year, the price will continue to run high in the short term," he said, noting many battery companies have already entered the upstream raw material business through investment, equity, acquisition and other means to remain competitive.

The continuous and stable supply of lithium resources is key to supporting the growth of China's high-end manufacturing business, especially automakers, telecom operators and tech firms, said Liu Xingguo, a researcher at the China Enterprise Confederation in Beijing.

He said it will be effective for capable players in this industry to invest in the entire industry chain, including mining, beneficiating and extraction of lithium carbonate, as it will effectively reduce the cost of raw materials and reassure the stability of the whole industry chain.

Cui Dongshu, secretary-general of the China Passenger Car Association, said the accelerated exploitation of lithium resources will gradually alleviate the lithium shortage.

"The price of lithium will witness a slight increase this year, and the price is expected to gradually drop to a reasonable range in 2023," he said.

The Ministry of Industry and Information Technology, China's top industry regulator, said in late April that it will help ease price hikes in raw materials used in NEVs because it has prompted automakers from Tesla to BYD to raise the price tags of their models.

The ministry will help speed up the development of local resources in China and work with other government departments to crack down on unfair competition activities such as hoarding and speculation this year.