This story is contributed by Zhiwen Huang, Linda Jing and Eric Y. Zheng

• China will maintain its No. 1 position in the battery industry, as no one can beat China on cost, especially since most of the battery supply chain is in China.
• China’s supply chain is extremely well developed, in large part due to the government’s aggressive policies to propel the growth and development of this industry.
• EV has a trend of being defined as a new class of consumer electronic products.

Background

In the battery industry, China’s contributions are no longer limited to its massive consumer market. China has achieved successes from raw materials supply to battery manufacturing and vehicle production. According to BloombergNEF’s first lithium-ion battery supply chain ranking, China controlled 80% of the raw material refining, 77% of the cell capacity and 60% of the component manufacturing worldwide in 2020. Roskill, a London based commodity research company claims that China controls 80% of the precursor market and the bulk of cathode production. In terms of self-sufficiency for cathode materials, the US and Europe lag significantly behind China, Japan (Panasonic, Tesla’s main supplier) and South Korea (LG Energy Solutions, the no. 1 battery supplier to the passenger car market).

To understand how China has become a superpower in the battery supply chain, BatteryBits interviewed an industry veteran with over 10 years of experience leading battery cell development. The identity of this industry leader will remain anonymous to protect his privacy and allow for a more candid conversation.

China’s EV industry has grown very quickly in the past decade, what do you think is China’s biggest advantage in achieving such success? What are your thoughts on China’s current battery industry and market?

China’s supply chain is extremely well developed in large part due to the government’s aggressive policies to propel the growth and development of this particular industry. China is changing its role from a follower in the internal combustion engine vehicle industry to the leader in the electric vehicle industry, where it is beginning to set its own standards. However, development is unbalanced in the industry. Technological growth in the Chinese market is mostly due to CATL. Currently, none of China’s domestic battery suppliers are as good as or even come close to CATL.

Editor notes: In 2020, China published three national standards for the electric vehicle and battery industries.

What is the biggest difference between CATL and the rest of the Chinese battery manufacturers?

Reliability. Batteries produced by CATL have better quality over their lifetime. CATL’s production capacity and investment in R&D is much greater than those of other battery suppliers. In addition, CATL has a higher gross margin compared to other battery manufacturers in the industry. CATL has been investing aggressively in key players in the battery supply chain to vertically integrate its battery operations.

Editor notes:

CATL is planning on investing 3.3 billion yuan into a new R&D center, which is expected to employ thousands of battery experts over the next five years. The 21C Lab, which will be built on an 18-hectare piece of land, will focus on the development of next-generation electrochemical energy storage systems and new energy conversion systems.

In Feb 2021, ‘CATL announced plans to build battery production base in Guangdong, investing $1.9B/25 GWh in first phase, and 150 GWh by end of 2030.The latest announcements come on top of plans that CATL unveiled last year to invest up to 65 billion yuan ($10 billion) to increase capacity.

According to the 21st Century report, since 2017, CATL has invested in 49 companies focusing on battery and related research, manufacturing, materials, energy storage, marketing and promotion, autonomous driving, servicing, and sales.

CATL’s 2019 annual report states that the revenue from battery systems is 3.86 billion yuan, an increase of 57% from the previous year, 84.27% of the total revenue.

Do you think China will lose its No. 1 place in the battery market due to a lack of product reliability?

No. I don’t expect there to be a huge breakthrough in battery technology in the near future, so cost will be the key to success. And no one can win against China in terms of cost, especially since China owns most of the battery supply chain. China will for sure be No. 1 in the battery industry. Even though big OEMs have been saying safety is the most important feature of their vehicles, in the end, there is no 100% guarantee of safety in any industry. The accident rate is all about probabilities. The prolonged development time of European and US OEMs, which typically takes 3 to 4 years compared to 1 to 2 years in China, will definitely impact their market share.

Why would OEMs select a shorter development period at the risk of potential product reliability issues?

As I mentioned before, state-of-the-art LIB technology has reached a plateau where battery suppliers and OEMs do not think a very long development period is necessary. The existing technologies are relatively mature.

Let’s go back to China’s market. You mentioned that the technology itself has reached a plateau. If everyone is able to achieve the energy target, why is CATL still much better than the others?

It is all about reliability and processes in battery manufacturing. CATL has a ton of know-how from its past experiences that is not easily replicated by other competitors. Even if other competitors are provided with the formulation, they will not be able to produce cells with the same quality. Most of the equipment that CATL has been using is developed jointly by CATL and its suppliers. Parameters used in the processes need to be developed by process, cell R&D, and quality teams together. Overall CATL has much more money, resources, labor, production capacity, laboratory space and equipment compared to other companies in China. The more you are willing to spend, the quicker you can grow and the better you become.

How will other battery companies survive in this competition with CATL?

We know CATL has the best products in the industry and everyone wants to use their batteries; however, its supply is also limited, so companies have to purchase batteries produced by other suppliers as well. In some cases, they may even have to partner with or invest in those other suppliers to help them grow and become competitive with CATL. Also CATL’s products cannot cover all markets, especially on the lower end.

You spoke highly of CATL. How did CATL get to where it is today？

BMW played a pivotal role in the rise of CATL. When BMW brought CATL into the automotive manufacturing industry and trained CATL on improving its engineering mindset, it helped standardize the development of batteries for the auto industry. Comparatively, the other battery makers lack the industrialization and engineering mindset, especially those in their early stages. On the other hand, the marriage between CATL and BMW occurred largely due to the people that made up the DNA of the company. In the early stages of the company, the team was largely composed of PHDs who had a US/Japan educational background and had worked in big US/Japan companies. Their exposure to industrialization and experience in engineering helped build the foundation for CATL.

Editor notes: The Rise of CATL

Let’s talk about the future of China’s battery market. Besides maintaining the No. 1 position, what are you expecting in the next 5 years?

People have been talking about whether the time has come for a shake-up in the LIB industry. It has actually started already in the past 1 to 2 years, as people realize how big this market is and how low the current penetration rates are.

Do you think the Chinese government’s subsidies will continue to be accessible for all companies including the small ones?

Absolutely. Government subsidies will not be suspended and will keep functioning as the fuel for accelerating China’s EV industry. Subsidies are critical for new battery technology breakthroughs. The requirement for receiving funding is energy density, and even small battery firms are able to satisfy this requirement.

Editor notes: China’s 2021 EV subsidies are down 20% and seek to eliminate duplicative construction and development.

During this shake-up, do you think improving battery reliability will be one of the trends in the foreseeable future? Which other trends are you anticipating?

Maybe. We cannot neglect reliability at any time. I personally think another trend might be consumers’ views on EVs. People might have a different perception of what it means to buy a car. I suspect that in the new generation, an EV will be seen just as another electronic consumer product that should be replaced in 5–6 years, so they will have a relatively short product lifespan. Batteries do not need to be replaced after 5–6 years, so most people might never experience the battery’s end of life.

We know that Tesla has been very successful in China. Policy-wise, will China limit its market to foreign players to protect the interests of domestic companies?

I don’t think so. China will not prohibit international EV brands from entering the local market. To be very honest, on the contrary, the Chinese government is welcoming these foreign players the same way it did for Apple. The Chinese government prefers to use market share as a bargaining chip in exchange for the latest technologies.

What will future batteries look like in terms of form factor?

It will be difficult to standardize cell form factors but the module platform may be standardized by OEMs, such as MEB for VW and EVA/MMA for Daimler.

Editor notes:

Daimler announced in 2020 that they will have two EV platforms: Electric Vehicle Architecture (EVA) will be introduced to the market in 2021 for large vehicles, such as EQE and EQS, and Mercedes-Benz Modular Architecture (MMA) will be introduced to the market in 2025 for compact and medium sized vehicles.

VW just announced in their Power day on March 15th 2021 that it plans to switch to a unified cell design by 2023 and the cells will be produced in-house.

In recent years, we noticed a number of U.S. companies focusing on novel battery technologies such as solid-state batteries and silicon anode materials. How is China’s battery industry reacting to these technologies?

Personally I am not an expert in solid-state technology, since it is not as mature and popular as silicon technology in China. Out of these novel battery technologies, silicon anode technology is more promising and achievable. When silicon content in anode is high, pre-lithiation of the anode material might be required. However, this requires additional processing steps and demands strict controls on the production environment, which will further increase cost. Simplification of manufacturing is the key to a high yield rate.

Conclusion

The Chinese government foresees the trend of electrification continuing and is maintaining significant investment in both upstream and downstream of the supply chain, enabling China to gain the lead in his first round of competition. Given the rapid increase in capital and players in this arena, who will come out ahead in the next round remains to be seen. Regardless, all are seeking to understand the lessons from China’s rise in the industry.

Zhiwen Huang graduated from Cornell University, with a B.S. and M.Eng. in Chemical Engineering and a M.Eng. in Engineering Management. He is now the Technical Program Manager for Cell Development at Farasis Energy, one of the world’s leading manufacturers of lithium-ion pouch batteries.

The views and opinions expressed in this article are those of the interviewee and do not constitute an endorsement or recommendation by the BatteryBits publication of the products described therein.

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