Tesla received over 400,000 reservations for the Model 3, an electric car that no customer has seen; and the Model 3 will rely on lower battery costs from its Gigafactory. The mass production of Tesla’s lower cost Model 3 has awakened traditional carmakers to the necessity of electrifying their powertrains, and they quickly marshaled their resources and unveiled competitive products. However, Stefan Bratzel of the Center of Automotive Management (CAM) in Bergisch Gladbach, Germany noted that a possible shortfall in battery availability could stymie the fight back from the likes of BMW, Volkswagen and EV startups in China.
Will Tesla Motors’ decision to make its own batteries keep it in the leading position in the market for electric cars? That’s unlikely to happen. With a valuation of $11.5 billion, China’s Panasonic, Contemporary Amperex Technology Co., Ltd. (CATL), answers it with its ambitious plan that by 2020 its battery capacity will grow six-fold by 2020 to 50 gigawatt hours, which could put it ahead of Gigafactory. That would potentially make CATL the biggest battery factory in the world.
Global competitions on the lithium cell
According to IHS Markit, five major companies compete today to supply the lithium-ion cells that make up the bulk of today’s electric car battery market. The research firm believes Panasonic is the current leader, with a 19.63 percent market share, followed by Automotive Energy Supply (AESC) with a 15.06 percent. LG Chem ranks third with a 13.05 percent share and No. 4 is Samsung SDI with a market share of 11.49 percent. CATL also climbed in the rankings with a 7.25 percent share.
Panasonic sells primarily to Tesla Motors and Tesla’s new Gigafactory, a joint venture between the two that is expected to become the largest battery producer in the U.S. Only 14 percent of the massive structure has been built, with the rest of the $5 billion project to be concluded by 2020. According to Tesla, battery cell production will start in 2017. By 2018, Gigafactory should be capable of producing enough batteries to meet Tesla’s production needs, which it claims to be 500,000 Model 3s per year.
AESC is a joint venture half owned by Nissan and uses battery technology from Japanese firm NEC and has been supplying cells to the world’s bestselling electric car, the Nissan Leaf. However, according to reports by Reuters and Nikkei last year, Nissan is in talks with Panasonic to sell its majority stake in AESC.
LG Chem sells lithium-ion batteries to quite a number of different car manufacturers including Audi, Chevrolet, Ford, Hyundai, Renault, smart, Volkswagen, Volvo and others.
In addition to LG Chem, Samsung SDI has also been on the way to increase its presence in the electric car market. In February, it announced a partnership with Lucid Motors, the California-based EV startup backed by Chinese billionaire YT Jia. Lucid stated in a press release that Samsung SDI has been developing cell chemistry satisfactory to Lucid’s standard and it will be a major supplier of lithium-ion cells for Lucid’s first model. The two companies have reportedly been collaborating on cylindrical cells that exceed performance standards in energy density, power and safety.
Dedicated to providing effective energy storage solutions for global green energy applications through advanced battery technology, CATL sets sights on keeping up with surge in EV sales. Though founded just six years ago in 2011, it has already surpassed LG in terms of lithium-ion car battery production in 2016.
While CATL has caught up and with a high total output of electric car batteries so far, both big Korean and Japanese companies still retain the largest share. A recent report from FT suggests that Panasonic may expand its share to 51 percent between now and 2020. Japan’s determination has prompted an acceleration of asset sales, purchases and JV formations. 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 scrap of the TPP 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 U.S. and Canada.
CATL on the right track
Headquartered in a small village on the outskirts of Ningde, a third-tier city in Fujian Province, CATL was established by Robin Zeng, a Ningde native with a doctorate in chemistry. Before founding CATL, he was one of the founders of Amperex Technology Ltd. (ATL), a company focused on batteries for mobile consumer electronics and now majority-owned by Japan’s TDK. ATL initially had a 15 percent stake in CATL, but liquidated that holding in 2014 to be eligible for subsidies according to government policy when EV sales first started to take off. After a second major funding round was completed in October 2016, the company’s value quadrupled to ¥80 billion ($11.63 billion). CATL hopes to list on Beijing’s over-the-counter exchange as part of plans to raise at least another ¥30 billion by 2020.
“We hope by 2020 we can achieve performance and price that lead the world,” said Neill Yang, CATL’s marketing director.
To get there, it has been ramping up spending on R&D to achieve breakthrough in battery technology, where it employs more than 1,000 people with advanced science degrees all over the world. And at the same time, heavy investment has also been placed to ramp out growth in production: the company is planning to build a factory in Europe. So far, CATL has been cooperating with Volkswagen and BMW in advanced technologies, and it is also in contact with GM to ensure that they become more internally competitive.
CATL batteries are currently used in vehicles from Geely, BAIC, King Long, Yutong, BMW and others. And according to Johann Wieland, president and CEO of BMW Brilliance Automotive (BBA), the automaker has shared its know-how and helped CATL become its only qualified battery supplier. At present, the company is working with BBA on localized new energy vehicles for China. Last year, Dr. Jochem Heizmann, president and CEO of Volkswagen Group China, visited CATL and both companies are working on an agreement for Volkswagen’s future NEVs manufactured in China. According to Heizmann, Volkswagen AG plans to sell more than 400,000 electric cars and plug-in hybrids annually in China by 2020, and further increase annual EV sales in China to 1.5 million units by 2025.
China overtook the U.S. in 2015 to become the world’s largest EV market, and its sales in 2016 contributed to more than 40 percent of the global total. While the government has spent billions subsiding NEV manufacturers, it is also rolling out programs to support battery makers.
CATL has been nominated as one of three battery makers – with Guoxuan and Lishen – for incentives under China’s 13th Five-Year Plan (2016-2020), which is promising around $15 million if it can meet targets.
On March 2, the Vehicle Traction Battery Industrial Development Action Plan was released, which sets out an industry-wide target of 100 GWh capacity by 2020, with the emphasis on higher quality and lower cost. A single GWh would power 40,000 electric cars each with a range of 100 km. The Plan also calls for more fundamental research efforts and technological developments in order for the industry to achieve more breakthroughs in the next eight years, and turn it into a world leader by 2025. The Plan also calls for domestic EV battery manufacturers to expand their production scale and encourage them to invest in factories overseas.
In addition, there are also the national 2020 targets: to halve battery costs to below ¥1/kWh, and improve energy density by two-third. CATL understands one of the main issues concerning EVs is their higher initial purchase price as compared to traditional cars. That’s why the company has worked on cost reduction via large scale production, coupled with reduction of waste and a vastly reduced supply chain to improve cost. Usually, the battery pack capacity starts deteriorating latest at 4-5 years of use, and by the 8th year, capacity is expected to have decreased by 30 percent. At the EV100 Forum held in Beijing in January, Zeng emphasized that great efforts have been placed by CATL to resolve this issue to remove top concerns for most buyers of a battery pack replacement.
As global carmakers invest more heavily in EVs the lithium-ion battery will be a key technology for at least the next decade, and there will be an all-out war over that segment engaged by world leading battery makers. Meanwhile, numerous smaller firms hope to carve out a niche as well, fighting for a market Goldman Sachs estimates will be worth $40 billion by 2025.
It is impossible to predict the eventual winners but CATL is at least heading down the right path.