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China’s CATL innovates to stay ahead of rival battery makers

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The world’s largest maker of electric vehicle batteries unveiled a new technology last month: a cell that runs not on lithium but sodium, a cheap and abundant material that can be extracted from salt.

“Innovation is in the genes of CATL,” said Robin Zeng, the Chinese company’s co-founder and chief executive, “and also the driving force of our rapid development.”

Based in the provincial city of Ningde, better known for its tea plantations, Contemporary Amperex Technology has risen in less than 10 years to become the biggest global battery group by market share, supplying carmakers from Tesla and BMW to domestic start-up Nio.

Shares in the company have gained 160 per cent in the past year, lifting its market value to almost $186bn — eclipsing that of every carmaker bar Tesla and Toyota, and more than its leading rivals Panasonic and LG Chem combined. 

Zeng, born in a poor village in 1968 during the chaos of the Cultural Revolution, is now worth almost as much as Jack Ma, founder of Chinese internet giant Alibaba. His company counts nine people on the Forbes list of global billionaires, equalling the record among the world’s publicly traded companies.

Line chart of Share price (Rmb) showing CATL's rapid rise over the past year

CATL has escaped Beijing’s broader clampdown on China’s tech sector as it rides a wave of soaring domestic demand for electric cars — 271,000 new energy vehicles were delivered in the country in July, up 164 per cent year-on-year, the China Association of Automobile Manufacturers said on Wednesday.

But the speed of its rise, helped by Beijing’s favourable policies for businesses in its vast home market, will be tough to maintain. Local challengers are intensifying their efforts to challenge its dominance. Meanwhile its position in the US and Europe, where it faces greater competition from international rivals, is even less secure.

Wu Hui, director of research at the China Yiwei Institute of Economics, a think-tank focused on electric vehicles, said a decline in CATL’s market share was “inevitable”.

“CATL’s rapid growth cannot be separated from the massive space in the Chinese market and the government’s support for domestic companies,” he said. “As policy loosens, competition is now being introduced to the whole [of China’s] mobility battery market.”

© Imaginechina Limited/Alamy

Gotian High-Tech, which secured a €1.1bn investment from Volkswagen last year, is building a cathode material plant in Hefei city as part of plans to expand its output of lithium-ion batteries. 

BYD, China’s second-largest electric vehicle battery maker by market share, secured a supply deal last year with Ford’s Chinese joint venture, its first with a global carmaker.

CATL dominates global production of lithium iron phosphate batteries, which use iron and phosphate rather than expensive metals such as nickel and cobalt. These batteries are used by Tesla in its short and medium-range electric cars made in Shanghai, some of which are exported to Europe.

Bar chart of Amount of GWh battery capacity in newly sold passenger EVs (Q1,2021) showing CATL charges ahead

The company has managed to reduce the costs of these batteries well below the $100-per-kilowatt-hour level that makes EVs cost competitive with petrol cars, according to analysts, through innovations such as minimising cell casings to reduce expenditure on materials.

Analysts at Chinese investment bank CICC expect CATL’s battery production to increase from 200 gigawatt hours this year to more than 600 GWh by 2025 — 30 per cent of the global market.

“The automotive industry never likes to be beholden to one supplier but battery cell manufacturing is about scale, and CATL have scale and low cost,” said Jon Regnart, an analyst at the Advanced Propulsion Centre in the UK. “You’d be foolish to say that any one company will maintain its dominance — look at Blockbuster and Nokia — but in the next five to 10 years they have a pretty good handle on the battery market.”

© Martin Schutt/dpa-Zentralbild via Alamy

Yet CATL faces tougher competition in the global market from established players LG Chem and Samsung SDI, according to Mark Newman, a battery executive. In May, LG Chem briefly overtook CATL as the world’s largest battery maker, in terms of batteries installed in passenger cars, according to SNE Research.

“Outside China it’s totally different — CATL is the challenger,” Newman said. “It will be harder for them as they don’t have the scale advantage in Europe. A lot of their manufacturing scale advantage is very local. The jury is out on how successful they can be.”

CATL said its first European battery plant in the German town of Arnstadt, which will supply the region’s carmakers from Volkswagen to BMW, was set to be in operation by the end of next year.

Line chart of $’000 per tonne showing Rising lithium prices have accelerated CATL's efforts to develop alternative technology

Navigating diplomatic friction with the EU and US, as well as trying to keep cost advantages compared with Japanese and South Korean rivals, are all new challenges for the company as it enters Europe, according to Wu.

Innovation could be a key differentiator. Last year CATL set up a lab called 21C to work on battery innovations, including solid-state batteries and sodium-ion batteries. It says it has more than 5,000 staff working in research and development.

The company said its young scientists had pioneered the work on sodium-ion batteries, which could help lower costs. Prices of lithium, which is in limited supply, have almost doubled in the past year.

While sodium has a lower energy density than lithium, it is far easier and cheaper to source. The company said it would start off by combining sodium-ion with lithium-ion cells.

Billy Wu, an electrochemical manufacturing expert at Imperial College London, believes the sodium-ion batteries are likely to feature in stationary energy storage first. While vehicle use was “not beyond the abilities of sodium-ion”, he said, “it’s still a bit far away.”

And he believes the Chinese industry will maintain its edge.

“A few years ago a lot of the Chinese battery manufacturers were quite behind a lot of Korean and Japanese ones in terms of innovation,” he said. “But they have an army of PhDs and if you throw enough money at it they eventually catch up.”

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