On the evening of July 13, Tianqi Lithium Industries, a major player in China's lithium market, announced significant developments that could reshape its business trajectoryThe company revealed plans for its wholly-owned subsidiary, Tianqi Lithium Hong Kong, to partake in an equity financing round for Smart Mobility PteLtd(referred to as "SM"). A staggering investment of USD 150 million (approximately 1.073 billion RMB) will see Tianqi subscribe to SM's newly issued shares, totaling 17.6056 million shares.

Following this financing, key shareholders of SM will include Sunrise Mobility Limited, an overseas subsidiary of Geely Holding Group, and ZMD Capital Ltd., an affiliate of Geely

This relationship indicates a strong alliance between Geely and Daimler, suggesting that both parties still maintain equal shares in the company despite the influx of new capital.

Notably, SM serves as the principal holding company of Zhimada Automobile Co., Ltd., which has been actively marketing its electric vehicle brand, SmartThe partnership between Daimler and Geely entails a collaborative approach where Daimler handles design aspects while Geely takes charge of engineering researchCurrently, Smart offers two electric vehicle models, both built on Geely's electric architecture.

Smart in Search of Salvation

The challenging landscape for Smart became evident as the company announced its ambition to raise between $250 and $300 million in Series A funding, of which Tianqi's participation forms a significant portion

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Upon completion of this subscription, Tianqi Lithium will own a 2.83% stake in SM, with the post-financing valuation estimated to be around 40 billion RMB.

Tianqi Lithium expressed that its investment strategy aims to expand its business outreach by penetrating the downstream section of the new energy vehicle supply chainMeanwhile, Smart's global company hinted at a strategic shift, claiming they would be ready to agilely adjust their strategies to meet developmental needs and seize market opportunities.

Interestingly, speculation about the collaboration surfaced back in May 2023, though both Tianqi and Smart then denied any ongoing dealsBy the end of June, however, Smart completed a significant change in shareholding.

According to corporate registration platforms, two Singaporean entities, SMART MOBILITY PTE

LTDand SMART MOBILITY INTERNATIONAL PTELTD., have replaced Daimler and Geely as the new shareholders controlling Smart, with each holding a 50% share.

Although rumors circulated that Daimler and Geely would retreat from their roles as shareholders, Smart’s official statement assured that both companies would continue their shared ownership in the global Smart entity.

The transition has transformed Smart from a Sino-foreign joint venture into a wholly foreign-invested entityAnalysts suggest that being under the efficient Geely Group's wing could pave the way for Smart’s future public offering in Singapore.

Despite these developments, Smart has yet to achieve profitability

Its financial reports illustrate a challenging climate: in 2022, the company reported revenues of 1.856 billion RMB, with net losses of 1.46 billion RMBIn the first half of this year alone, net losses reached 661 million RMBThe current model range comprises two vehicles, with one model, Smart EQ fortwo, ranging between 179,000 - 279,000 RMB and achieving approximately 22,600 units sold during the first half of the year, moving a meager average of less than 4,000 vehicles per month in China.

Slowing Demand for Lithium

Tianqi Lithium, regarded as a leading firm in China's lithium industry, produces and sells lithium concentrate products and lithium compounds

Lithium carbonate, a critical material for manufacturing lithium-ion batteries used in electric vehicles, is notably a central product of the company.

Last year saw a meteoric rise in the cost of battery-grade lithium carbonate, peaking at over 600,000 RMB per ton, sparking a cascading price surge across the automotive sectorAs one of the industry's giants, Tianqi reaped substantial benefits, reporting revenues of 40.45 billion RMB in 2022—a five-fold increase from the previous year's 7.663 billion RMBTheir net profit skyrocketed to 23.06 billion RMB, reflecting a staggering year-on-year growth of 1628.88%, alongside an impressive gross margin of 85.12%.

The substantial increase in revenue was attributed to the booming global demand for new energy vehicles, faster expansion by lithium-ion battery manufacturers, and a rise in orders for downstream materials

However, company predictions for 2023 indicate a potential easing of the previously tight lithium supply-demand situation, signaling a possible slowdown in growth rates for lithium demand.

Since the beginning of 2023, battery-grade lithium prices have experienced a significant fall, readjusting to what is considered the 'normal' industry levelAs of July 14, reports indicate that battery-grade lithium carbonate prices have dropped to an average of 300,500 RMB per ton, substantially lower than the peak by half.

This trend has begun to impact the company's financial standingWhile still registering impressive year-on-year growth for the first quarter, indicators have shown a quarter-on-quarter decline

Specifically, revenue amounted to 11.449 billion RMB, a 117.77% year-on-year rise, yet down by 27.55% from the previous quarterFurthermore, net profit linked to parent company decreased by 40.13% as well.

Despite these fluctuations, the robust earnings from last year have undoubtedly established a healthy cash flow for the company, effectively providing a substantial buffer for its extended operationsReports indicate that cash flow from operating activities stood at 4.936 billion RMB in the first quarter, marking a year-on-year increase of 28.66%.

Considering the broader scope of the new energy vehicle supply chain, Tianqi finds itself in an upstream role, while major battery manufacturers such as CATL and Chinese Innovation Aerospace occupy the middle tier, and automotive giants like Geely and Daimler reside downstream

Traditionally, investments flowed from vehicle manufacturers towards upstream suppliers, but this recent ‘reverse investment’ in downstream companies signifies that Tianqi is deepening its involvement within the automotive manufacturing arena.

Notably, this isn't an isolated incident; rival lithium giant Ganfeng Lithium also engaged in similar investments last year with considerable stakes in GAC Aion and Lantu AutomotiveA growing trend of upstream companies investing in their downstream counterparts reflects a changing landscape, with industry leaders like CATL also making investments across various new energy vehicle manufacturers, including Chery, NETA, Aiways, Avita, Zeekr, and BAIC Blue Valley.

Market analysts suggest that this ongoing trend indicates a significant evolution in the dynamic relationship of supply and demand within the new energy vehicle sector

In recent years, the new energy vehicle industry was markedly characterized by exhilarating growth, where raw materials were in dire shortage—a seller's market propelled by soaring electric vehicle salesThis led to instances where battery-grade lithium carbonate prices surgedHowever, with the ramp-up of production capacities and a marked slowdown in consumer demand for new energy vehicles, the lithium industry may now face a struggle for continued growth.

Morgan Stanley indicated in late 2022 that the Chinese power battery sector exhibited signs of “overcapacity.” Additionally, Bank of America’s Matty Zhao projected that 2023 could see an oversupply of lithium, with an expected significant increase in supply juxtaposed against softening demand for this crucial metal