By offering attractive subsidies for purchasing electric vehicles, the Chinese government has provided appealing incentives to the country’s car buyers to trade their internal combustion engines for plug-in cars. This has led to the formulation of new supply chains, one of the most important of which leads to batteries that power EVs.
One company is frequently named as the frontrunner in EV battery design and production. Founded in 2011, CATL is now the biggest lithium battery manufacturer in the world. It controls nearly 50% of the market share in this sector. Nearly all major EV makers source power cells from CATL, including Nio, Xpeng, Li Auto, Geely, GAC Group, and conventional automakers that are transitioning to develop electric cars.
However, as demand for EV batteries spikes, other battery makers are attempting to fulfill the demand alongside CATL. If their power cells match the expectations of automakers, this may whittle down CATL’s chokehold over significant parts of EV companies’ supply chains.
An obstinate monopoly
As the dominant battery supplier in the world, CATL offered harsh business terms to many of its clients, transferring the financial risks of battery production to automakers, according to reports by 36Kr.
One action involved demanding EV enterprises to estimate their demand for the next five to ten years, and pay deposits to CATL so it can construct production lines, expand its teams, and source raw materials. Then, deposits are only returned on an annual basis if clients’ purchases match or surpass their indicated levels for the year.
This is a huge difference compared to small and medium-sized battery suppliers, which maintain a profit margin of 10% so that they can undercut CATL’s strict 20% margin.
More broadly, CATL prioritizes cost and operational efficiency over innovations for new products and production techniques. While standardization has many advantages, like reduced waste, cheaper replacements for end users, and stabilized quality, this also means that the company generally will not develop products for clients to match their designs.
EV makers diversify supplies
Because of CATL’s intractable outlook, since 2021, EV makers in China have been decreasing their order sizes with the company. Meanwhile, other battery makers have been able to cultivate new clients by serving their needs.
In 2021, Nio sought additional battery suppliers after a four-year exclusive partnership with CATL. GAC Group also began to place orders with China Aviation Lithium Battery, more commonly called CALB, to source batteries made specifically for its cars.
Founded in 2007, CALB is one of the earliest enterprises that committed to developing batteries for new energy vehicles in China. But its main product, lithium iron phosphate batteries, was sidelined because CATL’s ternary lithium batteries generally last longer.
Things changed in 2019, when multiple GAC Aion S vehicles, which had the longest range of any EV at the time, caught fire. The cause of the blazes was CATL’s power cells. This led to the general awareness that CATL’s ternary lithium batteries have poor thermal stability and may have safety issues. Meanwhile, lithium iron phosphate materials used by CALB do not release oxygen when they generate electric power, making them less likely to catch fire.
CATL was able to overshadow CALB because of consumers’ range anxiety. But with newfound attention because of its safer cells, CALB released a new product, the One-Stop Bettery—as in “better battery”—in September 2021. Its casing was ultra-thin, and it had 25% fewer components, cutting each unit’s weight by 40%. CALB’s production efficiency doubled as the product required fewer components and could be assembled much faster.
Between 2018 and 2021, the total usage of CALB’s batteries increased by nearly 900%, making it the third largest battery supplier in China. It held a 6% market share during those years, per a 36Kr report.
CALB is just one of CATL’s competitors. The best-selling EV company in China, BYD, began using its Blade Battery in March 2020. BYD’s alternative had the same power capacity as a ternary lithium battery, but managed to pass the nail penetration test, a safety evaluation that places batteries under extreme physical conditions to determine whether they will catch fire or burst.
The Outlook for CATL
Even with competition from upstarts, CATL remains the largest battery supplier in terms of total power usage due to its unmatched scale of production. As a result, CATL is able to produce battery packs at a lower cost and provide a steady output, making it a reliable supplier for many carmakers.
But smaller battery producers are eating into CATL’s market share. In September 2021, CALB raised RMB 12 billion (USD 1.9 billion) from investors. The company is working on a listing on the Hong Kong Stock Exchange to raise more funds through a stock offering. And, it plans to reach 500 GWh in annual battery production by 2025. BYD’s target for that year is 670 GWh.
In August 2021, CATL raised RMB 58.2 billion (USD 9.2 billion) by selling stock, and has presented a plan to increase its annual battery production capacity by 137 GWh to reach 670 GWh by 2025.
That means CATL may lose its lead in the sector in four years. In anticipation of tough competition, CATL’s first move was to ensure its supply of raw materials remains stable. To do so, the company is not only sourcing crucial materials but also acquiring subsidiaries that mine or process them. In September 2021, CATL bought Millennium Lithium, a Canadian lithium extractor, for CAD 377 million (USD 301 million).
CATL is also departing from its set ways to introduce some innovations to its offerings. In January, the company said it had developed EVOGO, a battery swap service that provides fresh power cells to an EV in just minutes.
EVOGO still isn’t available to the public yet. For it to take off, CATL must first convince multiple auto brands to equip a uniform battery pack design in all their vehicle models.
While competition in the EV battery space remains one that is won by scaling up while keeping prices low, all producers may soon face a common enemy. Earlier this year, Dongfeng Motors delivered its first batch of EVs with solid-state batteries, which are an alternative to the power cells made by CATL, CALB, and others. As EVs become increasingly common on the road, many variations of batteries will become part of new supply chains.
This article was originally written by 36Kr Global’s research team in Chinese. It was adapted by Julianna Wu.