China's CATL Group is Winning the EV Battery Industry (For Now)
asia is as strong and ev battery technology as they are in semiconductors so instead of lasers and silicon let us talk about cathodes in lithium catal group or contemporary amperex technology is the world's largest battery manufacturer when measured by installed capacity their market share in china is 50 percent accounting for 28 globally they have become a critical supplier to the country's fast rising ev industry and recently signed tesla as a big customer just 10 years old the company is today already one of china's most valuable in this video we will take a closer look at this mysterious low profile titan but first i would like to ask if you would be interested in the patreon if you like what this channel does you can support the work by joining the early access tier early access members get to see videos before they are released to the public so head on over to the patreon page and take a look i deeply appreciate anything you'd be able to sign up for thank you and on with the show the company did not just magically sprout out of the ground founder jungyu chun or robin zheng started cadal in 2011 after many years in the magnetic and battery industries born in the impoverished city of ningda in the chinese coastal province of fujian he had been assigned to work at a state-owned enterprise there after university but he was not interested in making 30 usd a month and left ningda is pretty interesting the name was for sure familiar to me paramount leader xi jinping had served there as party chief from 1988 to 1990. he did not do enough there as he readily acknowledges but wrote a bunch of essays on poverty that was later republished into a book i read this book and did a video about it on this channel a long time ago not a bad book i don't think that she working there had anything to do with kato's success more like a coincidence that i thought was mildly interesting anyway back to robin after earning a phd in condensed matter physics he moved to hong kong there he worked for sae magnetics a company that produced magnetic heads for computer hard drives they were a subsidiary of japanese multinational tdk electronics robin was a real talent becoming the factory's youngest ever technical director at the age of 31. there he met a man named chung tang hua a taiwanese wai shun run wai sun ran meaning that he was born in china but fled to taiwan at the end of the chinese civil war chen saw the younger man's potential as an engineer and sent him abroad to study battery technologies robin would work in the company for 10 years then in 1999 chen and his business partner liang xiao kang saw the advent of the mp3 player and realized that new battery technologies were needed to fully realize their potential thus they left their jobs to start a company to take advantage but they needed a brilliant engineering mind to help them with the product side chen convinced niang to bring zheng on board and together the three would start amperex technology limited or atl now before we move on i feel like we need to talk a little about batteries these things are in our lives every day we can hold them in our hands but do we really know how they work a battery is modern chemistry it is a device that stores chemicals that react to create a direct current flow lithium ion batteries like the one used in cars laptops and smartphones are made up of four things there is a cathode and anode the electrodes in an ev battery current flows from the two electrodes to an outside system there is a separator a porous membrane that keeps the cathode and anode from each other and then there is an electrolyte that facilitates the flow of electrons back and forth between the cathode and the anode differences in capacity and prices between battery types are primarily due to how the cathode is made such materials like cobalt and nickel are what make it the priciest and most controversial part of the battery and because batteries are chemistry their capabilities do not advance as fast as semiconductors can physical limitations prevent us from achieving the same free advancements that moore's law can grant us year after year at the start atl focused on making lithium-ion polymer batteries they started with designs licensed from american companies like bell labs but quickly made their own improvements and enhancements they did well just two years after their founding in 2001 the company had a factory in dongguan and was selling a million battery units a year the company's success came as a result of a technically superior product lithium-ion polymer batteries a subset of lithium-ion batteries are called as such because they use a semi-solid gel polymer as their electrolyte rather than a liquid the components within this type of battery naturally swell or shrink throughout daily usage but in batteries made by other producers at the time the swelling got to a point where it damaged the components after a few recharge cycles this ruptured the battery's internal structure and rendered it useless or even dangerous after many long nights dung and his team were able to create a mix of electrolytes that addressed the issue this one atl many customers in the consumer electronics space like apple and samsung eventually in 2005 the company was fully acquired by the aforementioned japanese giant tdk for 100 million dollars their batteries are still used in consumer electronics today like ipads and ipods but after many years working for a foreign company learning about their methods and philosophies the founders were ready to try something else as early back as 2006 electric vehicle makers like india's riva electric car company began approaching atl to talk about producing batteries for their cars atl management soon came to believe that producing batteries for the electric vehicle industry offered the same type of opportunity as the consumer electronics base once did zheng decided on an impulse to begin investing r d efforts into designing ev batteries again this meant acquiring technologies and patents from other providers abroad at this time the only other chinese battery producer was shenzhen-based byd corporation then starting at around the beijing olympics the chinese government decided to encourage the growth of electric vehicle development to move away from dirty combustion engines the production of lithium-ion batteries was flagged as a strategically crucial sector for china in doing so however they effectively closed off the space to foreign-owned companies atl 100 owned by japan based tdk could not participate thus in 2011 the company began a spin-off to cater to the ev battery industry cadil deng would run this company from his hometown of ningda his chinese name would literally mean ningda times new energy company atl had started with a 15 stake but for whatever reason sold its shares in 2015. it was a huge risk at the time there are only 1014 such evs on chinese roads but it would turn out to be a massive win the chinese government encouraged the ev industry's growth by offering lots of cheap land tax breaks and subsidies for ev buyers they also effectively shut out foreign competitors from the domestic market starting in 2015 the government told automakers that they would only qualify for subsidies if they used a domestic battery supplier it was not an explicit ban automakers can still use foreign batteries but the market status and the nature of china basically made it a given byd china's other leading battery company was not interested in partnering with other companies at the time they wanted to make their own cars so that temporarily opened up a short window of opportunity for an all-chinese battery maker to service this market and grow in 2011 shortly after kegel's founding the company received a contract from bmw brilliance a chinese german joint venture between bmw and shenyang-based brilliance auto bmw brilliance was looking for a supplier for their new all-electric car the zenoro 1e their battery tender spec was 700 pages long just because the chinese government closed off foreign suppliers did not mean that domestic suppliers had it handed to them on a plate cato spun up a team of 100 plus people working in mechanical design test verification quality management and system structure the zenora would launch in 2013 with preferential subsidies and benefits as lithium-ion phosphate battery pack offered a range of up to 93 miles or 150 kilometers it took 7.5 hours to charge and its top
speed was electrically limited to 81 miles an hour or 130 kilometers an hour with the success of the partnership with bmw brilliance kaedle attracted attention from various other large players in the automaker industry including zengzo yu-tong group company the world's biggest bus maker striking a partnership to supply batteries for utong's electric buses would serve as a launching point for the company to seize opportunities with many of china's tier one automobile makers and experiencing massive revenue growth as a result in june 2018 the company ipo'd in the shenzhen stock market on the day of the ipo the shares soared 44 valuing cable at 12.3 billion usd today the company is worth a trillion rmb or 156 billion usd in 2020 the company generated revenues of 50.3 billion rmb or 7.8 billion usd with profits of 860 million dollars net profit margins are about 10 percent cato's goals are extremely ambitious as dung once said our mission is to build a world-class innovative technology company and make outstanding contributions to the new energy cause of mankind later he would add the japanese invented the lithium battery the koreans made it bigger and the chinese made it the number one in the world if we are not the number one in the world we have no value for existence kedal is modeled after many chinese multinational champions like hick vision and huawei when you look at kedal alongside those other chinese national champions and i profiled a few of these companies before make sure to check them out you notice a few common elements one element is an intense investment in r d research and development is a critical aspect of the hickvision huawei model kedal has a very large r d division they employed 5 400 people there 143 of them are phd's cadil also spends a lot on r d their span as a percentage of revenue is on par with or higher than that of their global competitors like lg in 2019 their spend would rise yet another 50 percent year over year likewise that same year hikvision invested 9.51 percent of
its operating income into r d huawei invested 19 billion usd in r d in 2019 representing nearly 14 percent of their income two is 996 huawei popularized the 996 work schedule meaning 9 am to 9 pm 6 days a week but the company has copied more than just the long working hours but also its structures employees are expected to wear multiple hats they might be hired as a supply chain manager but soon quickly take on program and product design manager duties third has to do with partnerships like huawei and its relationships with telecoms catal is very collaborative with the recent tesla announcement the company now works closely with each one of the major electric vehicle makers except byd the company is known for working very closely with its partners looking to integrate with them as deeply as possible they are even open to forming joint ventures alongside oems to build battery factories together this is good strategic sense in general but even more so when it comes to batteries and the ev industry because switching between them is not easy there is no well-defined battery pack standard thus they each have different dimensions and tolerances and though batteries from different suppliers might have similar specs on paper in practice the different ways that manufacturers make their packs mean that the only real way to find out how their battery pack is going to perform in your ev is to test it and to test it for a while so once an eevee manufacturer chooses to work with cadil getting them to switch away can be exceptionally difficult either they need to redesign their ev system or the new supplier would have to make something totally custom to fit their needs it can't happen lg made one such for tesla but it is rare so most of the time they don't bother and fourth is the rapid advancement and release of products picvision is known for bringing out all sorts of new lines and items over the years so is huawei which has moved from telecom equipment to phones to i guess now cars cato has done a lot on the product side as well battery technology is constantly moving and the company has a very compelling offering that does not lag all that far behind the rest of the world so i think it is worth spending some time analyzing this in the next section as i mentioned earlier ev batteries are differentiated by the materials in their cathodes at the time of cadel's founding byd held majority share in the chinese ev market with its lithium-ion phosphate battery lithium-ion phosphate batteries are cheaper to produce and are safer they can also deliver a long cycle life the problem is that they cannot store as much energy i.e lower energy density and their power output is also lower which reduces any ev's possible range cato is quite strong in this area too but they are also focused on developing another type of battery ternary lithium batteries these batteries use lithium-nickel cobalt manganese and graphite as their electrodes they offer a higher energy density with the goal of alleviating range anxiety in the ev market but those batteries also use cobalt and nickel which cost more and run the risk of shortages there is no such thing as a perfect battery that fulfills everyone's needs each battery has its own advantages and disadvantages but there are ways vendors can engineer their products to avoid fundamental chemical issues for instance kadl has created some interesting innovations to directly integrate lithium-ion phosphate batteries into their packs so to increase their energy density and increase an ev battery's range this cell to pack approach might have been what got tesla to sign them as a supplier for their china-made model 3s in 2019 china announced that it would be phasing out ev subsidies and domestic supplier lists in 2020 this would open up the chinese market to foreign battery suppliers and present new challenges to domestic firms like kedal a year later however it delayed that phase-out point out to 2022 due to economic concerns ev sales declined for the first time year over year in 2019 and then the pandemic hit in 2020 feeling additional concern while the phase out has been delayed it has not been cancelled after ev sales rebounded a little the government started rolling back again in early 2021 with more coming the next year this would present the first test of the country's ev industry whether or not they are globally competitive without the government's financial tailwinds cato's 50 domestic market share position is not guaranteed korea's lg energy solutions and lg chemical spin-off focus on batteries and the aforementioned domestic competitor byd are ramping up their offerings in china lg has two plans in nanjing a joint venture with gili auto and is investing a further 500 million dollars into china byd in march 2020 began offering their own byd blade battery pack to third-party car manufacturers competing against cadil on the basis of safety to demonstrate the resilience of their own lithium-ion phosphate battery they punctured it with nails and it did not set on fire they will be a fierce rival cato's strategy to survive this coming challenge is twofold first is to expand abroad and test their products within the global market with a special focus on europe export discipline the same market forces that made hick vision and huawei world leaders in 2018 cadilla announced that it would invest 2 billion dollars to purchase a former solar cell factory in arnstadt germany and convert it into a battery factory its output would likely go to volkswagen and bmw facilities nearby additional expansion is planned in indonesia and perhaps the united states the company is stepping into a crowded space though the market has consolidated around a few korean and japanese players when it comes to battery suppliers outside of china lg energy solutions supplied batteries for the most cars with a 33 share japan's panasonic is second place samsung and sk innovation are third and fourth cato held just 6.5 percent of the global market outside of china that is good for fifth place but the company is growing fast just two years earlier they had a mere 0.4 percent market share the second part of the strategy is to start developing mega battery packs for utilities to store power when the wind isn't blowing or the sun isn't shining this is a largely unexplored industrial level space and probably worth of video someday as i mentioned earlier the market values catal at over 150 billion us dollars it has made robin zhang one of hong kong's richest men with a fortune worth north of 35 billion dollars but can this battery company with less than 10 billion dollars in 2020 revenue really be as valuable as unilever 60 billion qualcomm 23 billion or boeing 58 billion dollars in revenue it can be argued that the valuation has run ahead of the fundamentals considering its low annual profit cato's price to earnings ratio is about 144.7 quite high for any company companies get such multiples because investors are anticipating a lot of growth coming they did deliver a blockbuster 2019 but revenues rapidly decelerated in the first half of 2020 but the second half of 2020 and 2021 are looking good with the first quarter delivering revenues of 19.2 billion rmb
or 3 billion usd representing 112 growth year over year is this domestic growth sustainable can electric vehicles compete with gas-powered vehicles once the subsidies are fully withdrawn in 2020 the country sold 19.3 million passenger vehicles and just 1.3 million or 6.7 percent of those were electric you can argue that that means that there is a whole lot of pie left for ev to take from gas powered cars but i think it can also mean that the ev is still a curiosity in the world's biggest car market the competition and the expectations are fierce but kadal is just as fierce too look to see their name appear more frequently in world and technology conversations in the future alright everyone that's it for tonight uh if you like more content you can like and subscribe to the channel i would appreciate it if you did or check out the patreon if you want to support the work and watch any of the early access videos want to send me an email drop me a line at john agenometry.com i love getting letters from viewers until next time i'll see you guys later
2021-06-22 23:18
