China's Lithium Battery Industry Go Global II:Surpassing Tech Barriers, Seizing Leadership

Industrials Author: Notrice Jul 24, 2023 06:27 PM (GMT+8)

Lithium batteries are the core of new energy vehicles. Alongside China's remarkable achievements in the field of new energy vehicles, the Chinese lithium battery industry has become a globally influential business card. The industry has come a long way in the past decade, witnessing the growth and rise of leading companies such as CATL (宁德时代), EVE Energy (亿纬锂能), Farasis Energy (远景动力), and Gotion High-Tech (国轩高科).

lithium battery

Since 2021, Chinese lithium battery manufacturers, led by CATL (宁德时代), have accelerated overseas factory construction to seize the expanding global market for new energy vehicles. The series focuses on the industry's growth and transformation from scratch, analyzing case studies to reveal the shifting dynamics in the lithium battery sector over the past decade. This allows readers to explore the industry background behind China's rise in the lithium battery market.

This industry insight focuses on the booming period of China's lithium battery industry (2014-2019). During this period, the Chinese lithium battery industry, which had been suppressed by competition from Japan and South Korea, received a breather with the help of national policies. After overcoming various technological barriers through immense efforts, it managed to surpass its Japanese and South Korean counterparts in terms of performance and production capacity.

In just a few years, relying on previous industry accumulation and technological breakthroughs, and riding on the surge of new energy vehicles in the domestic market, the domestic lithium battery industry successfully secured the domestic market. However, as lithium battery overcapacity became a concern, Chinese lithium battery manufacturers are now planning to continue expanding their production capacity to the global new energy market.

Development and Policies of New Energy Vehicles Open Market for Domestic Lithium Battery Industry

With the nation recognizing the immense market potential and opportunities in the new energy vehicle industry, a series of industry-promoting policies have been introduced, presenting significant opportunities for the lithium battery industry. In 2007, the National Development and Reform Commission issued the "Management Rules for Access to New Energy Vehicle Production," explicitly supporting the development of China's new energy vehicle industry through subsidies.

In January 2009, the "Ten Cities, One Thousand Vehicles" New Energy Vehicle Demonstration and Promotion Program was launched. The program was a collaborative effort between the Ministry of Science and Technology, the Ministry of Finance, the National Development and Reform Commission, and the Ministry of Industry and Information Technology. Through providing financial subsidies, the program aimed to promote the demonstration and operation of new energy vehicles in ten cities, with each city launching 1000 vehicles annually over a period of approximately three years. This initiative was designed to drive the popularization and adoption of new energy vehicles while providing crucial support for the rapid development of related industries.


Government Support Secured Breathing Space for China's Lithium Battery Industry

In the early stages of China's lithium battery industry development, despite occupying a significant portion worldwide, it faced challenges such as a lack of core technology, intense internal competition, and thin profit margins. With low-price suppression and technological monopolies from Japanese and South Korean competitors, the domestic lithium battery industry was confronted with substantial risks.

However, a turning point eventually emerged as the government provided substantial support. In 2014, China's production of power lithium batteries reached 710 million units, doubling the output from the previous year. By 2015, this growth trend accelerated further, with power lithium battery production reaching an impressive 2.91 billion units. Within a short span of two years, the production of power lithium batteries increased tenfold, surpassing consumer lithium batteries, and capturing 52% of the market share.

The sharp rise in power lithium battery production was driven by the rapid growth in sales of new energy vehicles in the downstream market. According to statistics from the China Association of Automobile Manufacturers, in 2013, China's sales of new energy vehicles were only 17,600 units. By 2014, this number surged to 74,800 units, marking a staggering 324% year-on-year increase. Furthermore, in 2015, production and sales reached 340,400 and 331,000 units, respectively, representing a 3.3-fold and 3.4-fold increase compared to the previous year and over 30 times growth in sales compared to 2013.

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A turning point emerged as the demand for lithium batteries skyrocketed, leading to a genuine period of capacity expansion. Existing power lithium battery companies sought to expand production capacity through methods like private placements, increased investments, and more. For instance, in June 2015, BYD(比亚迪) invested CNY 6.023 billion to expand power lithium battery production. Moreover, some consumer lithium battery companies, such as EVE Energy, also started shifting towards the power lithium battery market. Additionally, certain vehicle manufacturers like Beijing Automotive(北汽)and Geely(吉利)extended their reach upstream into the lithium battery industry.

Foreign power lithium battery giants also joined the expansion trend and made investments in China. At that time, Panasonic, ranking first globally in power lithium battery supply, along with companies like Samsung SDI and LG Chem, invested in building factories in China.

In March 2015, the Chinese Ministry of Industry and Information Technology (MIIT) issued the "Specifications for the Automotive Power Battery Industry," and in conjunction with the "Regulations on Access Management of New Energy Vehicle Manufacturers and Products" released in 2016, it provided development opportunities for domestic companies in the power lithium battery sector.

Between 2015 and 2017, there was an intensive period of new power lithium battery production lines being launched due to the high demand. Companies urgently needed to establish capacity, which placed higher demands on the delivery cycles of lithium battery equipment. During this phase, domestic lithium battery equipment manufacturers quickly responded and demonstrated their advantage in personalized development. Furthermore, after several years of development, domestic equipment performance had become comparable to foreign equipment but at relatively lower prices.

As a result, domestic lithium battery equipment manufacturers accelerated their entry into the supply system for lithium battery companies, playing a crucial role in this phase of capacity expansion. The localization rate of lithium battery production equipment also rapidly increased, rising from approximately 30% in 2013 to about 50% in 2016. In 2016, lithium battery equipment companies experienced a surge in orders, and this situation continued throughout 2017.

Government policies supported the development of the domestic lithium battery industry, providing precious time. According to the requirements of the "Regulations on Access Management of New Energy Vehicle Manufacturers and Products," starting from July 1, 2017, new energy vehicles must use batteries listed in the "Specifications for the Automotive Power Battery Industry" to be eligible for inclusion in the promotion catalog and enjoy subsidy policies.

Starting from November 2015, the MIIT successively announced four batches of companies included in the "white list." A total of 57 battery companies were selected, primarily including domestic enterprises such as CATL, BYD, Gotion High-tech(国轩高科)and Lishen New Energy(天津力神). Korean and Japanese power lithium battery companies, including Samsung SDI, Panasonic, LG Chem, and SK Innovation, failed to enter the catalog and had to put their development plans in China on hold.

CATL and BYD are typical examples of companies seizing opportunities. In the new energy vehicle catalog published by the MIIT in 2015, 500 out of 3,200 models were equipped with CATL's batteries. Meanwhile, BYD, with its electric vehicle sales, firmly held a leading position in the global lithium battery market.

Other lithium battery manufacturers, such as Lead Intelligent Equipment(先导智能), also witnessed substantial revenue growth during 2013, 2014, and 2015. During these years, Lead Intelligent Equipment's revenue increased by 643%, 561%, and 137%, respectively, while YINGHE TECHNOLOGY(赢合科技)'s revenue rose by 26.64%, 5.16%, and 62%. These two companies subsequently went public on the Shenzhen Stock Exchange.

As of 2016, China had approximately 150 lithium battery equipment companies, with nearly 40 enterprises having an annual output value exceeding CNY 100 million. By 2017, the output value of lithium battery equipment in China exceeded CNY 15 billion, and the localization rate reached 85%. From 2015 to 2017, the average compound annual growth rate of China's lithium battery equipment output value reached an impressive 58.04%. This data indicated robust growth and significant progress in localization in the domestic lithium battery equipment industry.

CATL Shines Amid Challenges, Seizes the Domestic Market with Unstoppable Momentum

In the global top ten power battery companies of 2015, Japan had 4 companies, South Korea had 3 companies, and China also had 3 companies, with BYD leading the way among them.

By 2016, Japan's power battery industry faced significant setbacks. Nissan Corporation drastically reduced its holdings in AESC, and Sony sold its battery business. As a result, the number of Japanese companies in the global top ten power battery companies reduced to 3, and the market share of Panasonic, AESC, and PEVE also significantly declined. At the same time, South Korea's LG and Samsung also experienced noticeable declines in market share. Filling this void, the number and proportion of Chinese companies in the global market increased significantly. CATL stood out during this phase, becoming a prominent player among domestic power battery companies with lightning speed.

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Starting from 2017, CATL showcased remarkable development momentum, first surpassing BYD and then overtaking Panasonic to claim the global number one position.

In 2018, CATL seized crucial opportunities and swiftly initiated an expansion plan. After a successful IPO, the company entered the European market by establishing a factory in Germany. Furthermore, CATL secured a EUR 1 billion order from BMW, won a massive 56GWh order from Honda, and entered the supply chains of foreign automakers such as Daimler, Jaguar Land Rover, Volkswagen, Honda, and Nissan. Simultaneously, CATL established deep collaborations with domestic automakers, including Shanghai Automobile(上汽), Changan(长安), Baic Bjev(北汽新能源), Jiangling Motors(长安), Dongfeng Motor(东风汽车), Guangzhou Automobile(广汽), and Geely. In the domestic market, CATL dominated the power battery sector, standing out as the unrivaled leader.

The power battery industry is undergoing a revolutionary transformation. Companies like CATL, representing the industry, have not only achieved product exports and overseas manufacturing but have also started to export technology to foreign companies. China has evolved from a power battery powerhouse to a strong nation, with the power battery sector becoming a rare area of strength within the Chinese automotive industry. According to data from 2022, China's lithium battery exports grew by 86.7% year-on-year, with a significant portion of this growth coming from the power battery sector. In that year, China's cumulative power battery exports reached 68.1GWh.

Capacity Upgraded and Optimized, National Policies Further Support High-Quality Development of Lithium Battery Industry

On November 22, 2016, the Ministry of Industry and Information Technology (MIIT) issued the draft of the "Specifications for the Automotive Power Battery Industry" (2017 version), which set higher requirements for the annual production capacity threshold of power battery companies (≥8GWh). This requirement was 40 times higher than the previous one and clearly defined the strategic goal of enhancing the quality and optimizing the industry through industrial policies.

In 2016, with the central government implementing subsidy policies for new energy vehicles and designating battery energy density as an important indicator, many new energy vehicle companies gradually abandoned low-energy-density phosphate iron batteries to qualify for lucrative subsidies, turning to ternary lithium batteries. This shift had a profound impact on the domestic power battery industry. According to statistics, starting from 2016, the number of domestic power battery companies rapidly decreased from 217 to only 69 by 2019.

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Driven by both market mechanisms and industrial policies, the concentration in the power lithium battery industry has further increased. Outstanding companies have gained larger market shares, while equipment manufacturers cooperating with leading lithium battery enterprises have reaped more benefits in this round of capacity expansion.

During this period, CATL leveraged its expertise in ternary and phosphate iron lithium technologies and its advantage in the bus market and foreign supply to surpass BYD in 2017, becoming the leading company in power lithium battery shipments that year. Through close cooperation with CATL, Lead Intelligent Equipment achieved a revenue of CNY 2.177 billion in 2017, a year-on-year growth of 101.75%, further widening the gap with Yinghe Technology(赢合科技).

Leading lithium battery companies have invested significantly in automation technology, business expansion, and information technology digitalization, enjoying the dividends of growth. These companies have placed higher demands on lithium battery equipment to pursue economies of scale and higher quality. In the large-capacity battery field, automotive lithium batteries are typically composed of thousands of battery cells connected in series to achieve higher energy density. Uniform specifications and stable performance of each cell are crucial to the overall battery pack's performance and quality, necessitating strict requirements for cell consistency. As a result, lithium battery equipment is evolving towards higher precision, full automation, and integration.

In addition to continuous improvement and expansion in technology and business, lithium battery equipment companies have also focused on enhancing their internal capabilities. As lithium battery equipment is a typical non-standard automation industry, downstream capacity expansion places high demands on equipment manufacturers' delivery and flexible production capabilities, as well as increased requirements for product quality and cost. To enhance their production management and manufacturing levels, leading lithium battery equipment manufacturers have accelerated their information and digitalization initiatives.

Since 2015, Lead Intelligent Equipment has collaborated with IBM to establish the "Xiandao Cloud"(先导云) and big data centers, advance ERP system construction, integrate application digital collaboration platforms, and independently develop MES. Through comprehensive integration with PDM, ERP systems, and leveraging the "Xiandao Cloud" platform, Lead Intelligent Equipment has achieved efficient design collaboration, precise production process feedback, and intelligent factory production, enhancing its competitiveness. Lead Intelligent Equipment has also utilized digital simulation technology to establish a database and complete line model of power battery production equipment to shorten product development cycles.

In November 2019, after the official operation of Tesla's Shanghai Gigafactory, news of Tesla's procurement of CATL's power lithium batteries spread rapidly. CATL, as a leading Chinese power lithium battery manufacturer, gained global recognition due to its partnership with Tesla. In 2020, CATL officially became Tesla's power lithium battery supplier, leading to a soaring increase in its stock price.

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