The battle between China, Japan and South Korea in the lithium battery industry chain

If the only energy device that humans carry with them is a lithium battery, or more precisely, a lithium-ion battery. The smartphones, tablets, and laptops we use every day, as well as the electric taxis and buses on the streets of cities such as Shenzhen, Beijing, Hangzhou, Taiyuan, and Shanghai, all have lithium-ion batteries inside.

The lithium-ion battery industry was born in the early 1990s, and it has been about 30 years since then. The industry has gone from being monopolized by Japan, to competition between Japan and South Korea, to a three-way competition among China, Japan and South Korea, and is now gradually moving towards a monopoly by China.

The lithium batteries we use are actually mainly used in two major industries, one is consumer electronics and the other is automobiles.

The inventor of lithium battery is a western American, Professor John Goodenough, who graduated from Yale University and the University of Chicago. Pay attention to the name, Goodenough. I don't know what his parents were thinking when they named him. Professor Goodenough is still alive and can be seen at various lithium battery summits, forums and other occasions.

The lithium battery industry is very interesting. It was once an industry monopolized by the Japanese. The first company in the world to commercialize lithium batteries was Japan's Sony, which commercialized the production of lithium-ion batteries for consumer electronics in 1991.

But everyone knows that a new technology or a new product is high-end before the Chinese come in. Once the Chinese enter the industry, the industry will quickly become cheap.

Do you remember that in the 1990s, mobile phone batteries could be sold for 700 to 800 yuan or even thousands of yuan a piece? At that time, the monthly salary of Chinese people was only a few dollars, and a mobile phone battery was equivalent to several months of your salary. At that time, a Chinese boss took out a mobile phone worth tens of thousands of yuan and put it on the table. Wow, he was definitely a local tycoon, which showed that this boss was very powerful.

Because of this, the Japanese really made a lot of huge profits. Later, South Korea's Samsung and LG also entered this industry and quickly became world giants. Their prices were also high. After all, South Korea is also a small country, and there are only a few companies that can make lithium batteries. Of course, they can also jointly control the price and sell at a high price.

However, after 2000, China's battery king BYD took the lead in the lithium battery field, marking the first time that China really rushed into the ranks of lithium batteries (mainly lithium-ion batteries). Why this time point? At that time, the dominant mobile phone brands were Nokia and Motorola, unlike today's Apple, Huawei, and Samsung.

The sales volume of Motorola V3 mobile phones reached over 100 million units, and bosses from all over the country went to the Motorola factory in Tianjin with cash to order the products because it was so profitable.

BYD was the first company in China to receive an order for lithium batteries for Motorola mobile phones in 2000, and the first company to receive an order for lithium batteries for Nokia mobile phones in 2002, marking that the quality and technology of Chinese lithium batteries have been recognized by top electronic brands.

With the rise of BYD, a large number of Chinese companies have entered the lithium battery industry. After more than a decade of development, the industry has now become a situation of China, Japan and South Korea. Due to the rise of Chinese companies, the price of lithium batteries has quickly dropped to less than 100 yuan.

Why is it that everyone in an industry is making good money, but as soon as the Chinese come in, the profits become very low?

This has something to do with China's national scale. In countries like Japan and South Korea where the consortium has a high degree of monopoly, there are only a few companies that make lithium batteries, and the customers are also a few. The market is so small that new companies have no room to survive under the suppression of the consortium. Take South Korea as an example. The customers of lithium batteries are mainly Samsung and LG, and they all buy their own batteries. Other battery companies simply cannot survive.

But it’s different in China. The market is so vast. I won’t even talk about becoming a supplier to big companies. I will just specialize in batteries and target the after-sales market, which is enough for me to survive.

If the battery of your Apple, Samsung or Huawei phone is broken and you walk into a mobile phone accessories store on the roadside, the batteries you buy will most likely not be original batteries. Where do they come from? They come from lithium battery manufacturers of all sizes in China.

If I can't get into the high-end brand industry chain, I can get into the copycat phone industry chain and the industry chain of small and medium-sized electronic brand companies, which is enough for me to survive. In China's vast market of 1.4 billion people, even if I make 10 yuan per battery, I can still make a net profit of 10 million yuan if I sell 1 million batteries a year.

So what is the current competitive situation among the three countries? Let’s look at the competition landscape in 2016 below. Among the top ten lithium battery companies in the world, there are two from Japan: Panasonic and Sony, two from South Korea: Samsung and LG, and the rest are all Chinese companies, among which BYD is the leader.

By country, Chinese manufacturers account for 60% of global sales, Japan accounts for 17%, and South Korea accounts for about 23%. More importantly, the growth rate of Chinese manufacturers is faster than that of Japan and South Korea, which means that China's share of the world is still increasing.

Let's turn our attention to the top 20 global lithium battery manufacturers in 2016. There are 15 from China, 3 from Japan, namely Panasonic, Sony, and AESC, and 2 from South Korea, namely LG and Samsung.

From the sales in 2016 above, we can see that the top three lithium battery companies in the world are all Japanese and Korean companies: Panasonic ranked first with RMB 23 billion, LG ranked second with RMB 21 billion, and Samsung SDI ranked third with RMB 20.5 billion. All of them are above RMB 20 billion.

The second tier is closely followed by China's three giants: BYD with RMB 16 billion, CATL (Contemporary Artemis Technologies) with RMB 14 billion, and ATL with RMB 13.5 billion, all with revenues of RMB 10 billion.

Among them, CATL and ATL can actually be considered as one company. If you look at the names, CATL (Ningde Times) and ATL are very similar to the relationship between OPPO and VIVO. CATL was founded in 2011 and focuses on power batteries for automobiles. Its founder Zeng Yuqun came from ATL.

ATL is also a company founded by Chinese. Unfortunately, although the technical and management teams are basically Chinese, from a capital perspective, it is a company controlled by Japan's TDK.

Next is the third tier of 5-10 billion yuan, with Sony World ranking seventh with 8 billion yuan, domestic manufacturer Watma ranking eighth with 6.5 billion yuan, and Tianjin Lishen ranking ninth with 6 billion yuan.

But in terms of growth rate, the four major families in Japan and South Korea are completely incomparable to the Chinese wolf packs.

In 2016, Panasonic, the first place, grew by 15%, LG, the second place, grew by 18%, and Samsung SDI, the third place, grew by 11.4%.

BYD ranked fourth with a growth of 28%, CATL ranked fifth with a surge of 145.6%, and ATL ranked sixth with a growth of 13.4%.

If we look further down, Sony, ranked seventh, dropped 20%.

The eighth-ranked China Waterma grew by 199.5%, and the ninth-ranked Lishen grew by 71.4%.

In fact, this TOP20 list missed two mainstream mobile phone lithium battery suppliers in China, Shenzhen Xinwanda and Huizhou Desay Electronics, which are the exclusive battery suppliers for Apple iPhone.

Xinwangda had a bumper harvest in 2016, with revenue of 8.09 billion yuan, up 25.01% year-on-year, and net profit attributable to shareholders of listed companies of 450 million yuan, up 38.59% year-on-year.

In addition to Apple, Sunwoda has become a major supplier to domestic first-tier mobile phone brands such as Huawei, OPPO, vivo, Xiaomi, Lenovo, Meizu, LeTV, and Gionee. Since Sunwoda realized the rise of domestic mobile phone brands and began to "stay away from Apple and get close to domestic brands", it has maintained rapid growth in the past two years.

Let’s take a look at Desay Battery Company, which achieved revenue of RMB 8.724 billion in 2016, up 3.44% year-on-year; and net profit of RMB 255 million, up 10.89% year-on-year.

Overall, Apple is the largest customer of Desay Battery, accounting for more than 60% of its revenue, so Desay Battery is greatly affected by Apple's revenue. Now Desay is also taking the strategy of reducing its dependence on Apple and expanding the market of electric vehicles, power tools, and domestic smartphone brands.

Do you see the pattern? Domestic supply chains are trying to reduce their dependence on Apple, which fully demonstrates the rise of domestic brands.

In the next few years, the era will come when Chinese lithium battery manufacturers will completely overwhelm Japan and South Korea in terms of market share, operating income and profits. Among them, CATL is likely to replace BYD as China's largest lithium battery manufacturer in 2017.

In May 2017, CATL announced that it would set up a joint venture with Shanghai Automotive, the largest automobile company in China, to produce lithium batteries for electric vehicles. This has brought great stimulus to BYD, which mainly supplies lithium batteries for its own electric vehicles. BYD is currently considering starting to export lithium batteries for electric vehicles to expand sales. Otherwise, it is only a matter of time before its lithium battery business is overtaken by CATL.