The Big Read Batteries
Electric cars: China’s battle for the battery market
Beijing invests billions to try to squeeze out Japanese and South Korean rivals
Henry Sanderson, Tom Hancock and Leo Lewis MARCH 5, 2017
The headquarters of CATL, China’s fastest growing battery maker, lie on the edge of the city
of Ningde, a stone’s throw from ponds where farmers raise carp and a street of cheap noodle
restaurants and vehicle repair shops frequented by migrant workers. Inside the vast factory,
battery parts move silently on automated conveyor belts. Signs on the walls encourage
workers not to waste materials or time, or indulge in “unnecessary bending” for their own
safety.
The plant looks like lots of others dotted across the country. But with a valuation of $11.5bn,
Contemporary Amperex Technology Ltd, to give it its full name, is anything but mundane. It
is set to become China’s Panasonic — a national champion — and a key part of Beijing’s
ambitious plan to remake the global battery market and exploit rising demand for electric
cars.
“We want to become a leading enterprise, like the front carriage of a train, driving an entire
supply chain,” says Neill Yang, CATL’s marketing director. His office overlooks cranes and
cement mixers, which are building a dormitory and offices to house 20,000 workers.
CATL, which had capacity to produce 7.6 gigawatt hours of batteries last year according to
Goldman Sachs, says that by 2020 it plans to produce more than the gigafactory, the Tesla
Motors and Panasonic joint venture that opened in Nevada in January and is expected to be
the largest producer in the US. That would potentially make it the biggest battery factory in
the world.
Tesla's gigafactory in Nevada, US © Bloomberg
Backed by aggressive government policies —ranging from subsidies for electric vehicles to
restrictions on foreign rivals — China’s battery companies are beginning to dominate an
industry which has been led for three decades by South Korean and Japanese manufacturers
such as Panasonic, which makes the battery cells for Tesla cars.
Beijing last week called for companies to double electric vehicle battery capacity by 2020 and
encouraged them to invest in factories overseas. As carmakers invest more heavily in electric
vehicles the lithium-ion battery will be a key technology for at least the next decade, creating
a market Goldman Sachs estimates will be worth $40bn by 2025 and dominated by China.
“It will not be easy to surpass Japanese and South Korean companies,” says Mr Yang. “But we
think over the next 10 years, there may only be 10 lithium battery producers left, with the top
three taking 60 per cent of the market.”
Since 2012 China has spent billions of renminbi subsiding its electric carmakers, turning
Shenzhen-based BYD, in which Warren Buffett’s Berkshire Hathaway has a stake of about 10
per cent*, into the world’s largest electric car and bus maker with a market capitalisation of
$18.7bn. As well as boosting supply China is also creating demand: by 2020 it predicts 5m
electric vehicles will be on its roads, from 1m today.
Analysis
China’s approach has echoes of the one it took on solar power a decade ago. It dominated the
industry by lowering costs and driving prices down by 70 per cent and could do the same for
batteries, says Gordon Orr, former Asia chairman of McKinsey. That would make electric cars
more competitive — batteries account for up to half the total vehicle cost — but it could also
mean a drastic loss of market share for manufacturers in the rest of Asia, the US and Europe.
“We know how [solar] panned out. China got the net result it wanted but in the process [there
was] billions of dollars of value destruction,” Mr Orr says. “I do see the characteristics of
heading down that same path, and whether it’s CATL or others who win at the end is
impossible to predict.”
In every device
Lithium-ion batteries revolutionised the consumer electronics market after Sony
commercialised them in 1981. From the Walkman to the iPhone they form a central part of
the gadgets in everyday life. Now they are set to play an equally big role in transportation,
helping to reduce the dependence on oil.
Since the 1980s battery production for the electronics industry has been dominated by
companies in South Korea and Japan. But China has caught up. In 2013 it outpaced Korea as
the world’s largest supplier of lithium batteries for all electronic devices, according to
Goldman. A year later that lead increased as China’s electric vehicle market took off. In 2016
507,000 battery electric and plug-in hybrid vehicles were sold in China, an increase of 50 per
cent over the previous 12 months.
While Panasonic is the world’s largest supplier of electric vehicle batteries globally, China’s
BYD and CATL were just behind, according to figures collated by Bernstein, the research
group.
“The Japanese invent it, the Koreans look to expand and build it out and the Chinese end up
dominating it as that’s where the market ultimately is,” says Duncan Goodwin, head of global
resources equities for fund manager Barings. “We are going to see a significant step up in
manufacturing capacity driven by China and Chinese demand.”
If Chinese battery companies deliver on their targets they will have capacity to produce 121
GWh of batteries by 2020, according to Bloomberg New Energy Finance. That compares with
a target of 35 GWh for Tesla’s gigafactory when it reaches full capacity next year. A single
GWh would power 40,000 electric cars to each travel 100km.
“The Chinese are massively building up their capacity to get a stranglehold on this market,”
says Simon Moores, head of Benchmark Mineral Intelligence in London.
Foreign companies at bay
In 2015 in the eastern Chinese city of Nanjing, South Korea’s LG Chem opened a battery
factory. The same year Samsung SDI followed suit, opening a plant in Xian in central China
and declaring that it would “forge its foothold in the world’s biggest new energy vehicle
market”. A year later Beijing released a list of companies allowed to supply batteries in the
country. Not a single foreign company was included. Separately Beijing released draft
guidelines at the end of last year that said car battery manufacturers would need to have at
least 8 GWh of production capacity in China to qualify for subsidies — a target that only BYD
and CATL can meet.
“China seeks to acquire world-class foreign battery technology while keeping overall Chinese
ownership and control,” says Michael Dunne, head of Dunne Automotive in Hong Kong. “It
has been very careful to cultivate local battery champions while using licensing procedures to
hold foreign companies at bay.”
Related article
BYD has particularly benefited from government support. Beijing has provided subsidies for
electric buses using lithium-iron phosphate (LFP) batteries, a type used by BYD but not by
many foreign manufacturers due to its lower power capacity. As a result BYD sold 11,000 of
its e-buses last year, up from virtually zero in 2013, according to Macquarie. “The [Chinese]
tailor-made the subsidy programme to make sure neither Samsung or LG Chem would get
any part of it,” says one international commodity trader.
To allow electric cars to go farther on a single charge, a critical factor for batteries is their
energy density. For now China lags behind Korean makers in terms of the technology to
provide greater energy density, according to Bernstein analysts. The frontrunners in the
market are LG Chem, Samsung SDI, SK Innovation and Panasonic “with Chinese suppliers
playing catch-up,” it says.
“Because the Chinese have artificial government protection they are able to grow scale that’s
bigger than the Koreans,” says Mark Newman, an analyst at Bernstein. “They are still a
couple of years behind but they’re narrowing the gap due to their scale.”
Increasing the amount of power the battery can store on one charge will be crucial. But that
will require continued innovation, says Varun Sivaram, a specialist in energy security at the
Council on Foreign Relations.
“In electric vehicles if you keep decreasing the cost but don’t increase the performance you
reach a limit — the car’s too expensive because the energy density is not high enough,” Mr
Sivaram says. “My belief is that the [Chinese companies] will not ultimately win out. You will
need higher energy density batteries and manufacturers who have the next generation
technology will win.”
Access to raw materials
Even more than the subsidies or barriers to foreign operators, the greatest advantage for
Chinese battery manufacturers over rivals such as Tesla is access to raw materials. Chinese
companies have been making inroads over the past year into the lithium-ion supply chain,
buying up mining assets from cobalt to lithium to help cut costs.
A BYD e5 electric vehicle on display at the Beijing International Automotive Exhibition in April 2016 © Bloomberg
This year Ganfeng Lithium, one of the country’s largest producers of the battery chemical,
bought a 19.9 per cent stake in an Argentine lithium project. The deal followed on the heels of
a purchase last year of a 2.1 per cent stake in Chile’s SQM, the world’s largest lithium
producer, by Tianqi Lithium.
Similarly in cobalt, China Molybdenum, a mining company partially owned by a Chinese local
government, paid $2.65bn last year for the Tenke mine in the Democratic Republic of Congo.
The mine contains one of the world’s largest concentrations of cobalt and offers “security of
supply of a critical battery material for decades to come,” according to Investec. Cobalt
traders say most of Tenke’s supply is likely to go back to China, where prices have doubled
since October.
Chinese companies are also likely to disrupt the battery material supply chain and drive down
prices, according to analysts at HSBC. “China’s aggressive push to promote the domestic
electric vehicle market will accelerate an expansion in the local ecosystem,” they said.
In Ningde CATL says it has a staff of 1,000 people working in its research and development
department. The company has more than 2,000 battery-related patents and analysts at
Goldman Sachs said in January they expect it to “catch up with global peers in product
quality”.
From left, Elon Musk, chief executive officer of Tesla Motors, Jeffrey Straubel, chief technical officer and co-founder of Tesla, and Yoshihiko
Yamada, consultant at Panasonic © Bloomberg
National Electric Vehicle Sweden, which bought the bankrupt Saab carmaker in 2012, signed
a battery supply agreement with CATL earlier this year.
“The Chinese government has a list of approved battery makers and if you don’t choose one of
those you will not be allowed to apply for subsidies in the Chinese market,” Anders
Bjornberg, director of R&D at NEVS, says. “CATL are also competitive with the Japanese and
Koreans, it’s not that we have taken the second-best choice. It’s the best choice in China.”
Mr Yang says the company’s first aim is to serve domestic Chinese customers rather than
export to the global market.
Yet CATL cannot hide its global ambitions. Mr Yang concedes the company hopes to work
with Tesla, has been in contact with General Motors and its current clients include
Volkswagen and BMW. In January it bought a 22 per cent stake in Finnish auto supplier
Valmet Automotive. It also has an eye on building a factory in Europe. That’s “not a distant
prospect,” Mr Yang says.
The article was updated on March 6 to reflect Berkshire Hathaway’s correct stake in BYD
The rivals: Japan prepares for a fight it cannot afford to
lose
When Japan looks at the global battery market in 2017 — the shifting
technologies, the emerging players and the intensifying competition — it
recalls the past two decades of industrial history and winces.
It has watched as its dominant position in semiconductors, TVs, white
goods, mobile phones and even high speed rail has been first dented then
battered by competition from South Korea, China and elsewhere. But
batteries, runs the mantra from everyone in the supply chain, is a battle
Japan has told itself it “cannot lose”.
As well as Beijing’s high-profile backing of its domestic battery industry,
much of Japan’s urgency, say lithium experts, is driven by the assumption
that the fundamental dynamics of the lithium market are poised to
change: batteries are about to overtake all other industrial users of the
metal as the prime source of demand. At the corporate level, say lawyers
involved in recent battery supply chain deals, Japan’s determination has
prompted an acceleration of asset sales, purchases and joint-venture
formations.
High-performance materials companies like Ube Industries, Sumitomo
and Central Glass are investing heavily in new battery production capacity
around Asia. Others like Murata Manufacturing are pushing ahead with
acquisitions. In July, the company is expected to complete the purchase of
Sony’s battery business, before working on a supply deal with Samsung
Electronics.
Japan’s sense of panic has been intensified by the Trump administration’s
scuppering of the Trans-Pacific Partnership trade deal. That pact, say
producers, was to have been beneficial to Japan’s battery industry, which
had already begun to invest in capacity in Vietnam on the assumption it
could then export to the US and Canada. Leo Lewis
*This article has been amended since first publication to reflect the fact that Berkshire
Hathaway’s total shareholding in Shenzhen-based BYD is about 10 per cent, not about 25
per cent
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