China's power battery market officially opens to foreign investment. Reducing costs is the key to future development

"The wolf of the power battery industry is coming." Recently, a regular catalog released by the Ministry of Industry and Information Technology caused such a sigh in the industry.

According to the "Recommended Model Catalog for the Promotion and Application of New Energy Vehicles (11th Batch in 2019)", new energy vehicles equipped with foreign-funded batteries will receive subsidies in China for the first time. This means that after the abolition of the battery "white list" in June this year, China's power battery market has officially opened to foreign investment.

There are 26 passenger cars in the recommended models announced this time, including 22 pure electric cars, including the Tesla pure electric sedan that will be produced in China. At present, it is not clear who will be the battery supplier for Tesla after it is produced in China, but after entering the subsidy catalog, the relevant models will most likely receive subsidies. In addition to Tesla, foreign brands Mercedes-Benz and Toyota have also entered the recommended catalog.

In the past few years, China's subsidies for new energy vehicles have been strongly related to the power battery manufacturers selected. Equipping batteries produced by battery "white list" companies and entering the above recommended catalog is the first step to obtain subsidies. Therefore, in recent years, imported new energy vehicles, mainly Tesla, have not received subsidies, and domestic new energy vehicle companies and power battery companies have also enjoyed a few years of rapid development "window period".

However, the true maturity of the industry cannot be separated from the test of the market . With the gradual increase in the sales and ownership of new energy vehicles, relevant departments are also guiding the industry from policy-driven to market-driven. On the one hand, subsidies for new energy vehicles are decreasing year by year and will be completely withdrawn from the market by the end of 2020. On the other hand, the "white list" of power batteries was also announced to be abolished in late June this year.

Obviously, before the subsidies are completely withdrawn, China's new energy vehicle industry will first face competition from foreign counterparts, with the power battery industry being the first to be hit.

Foreign-funded batteries are completely liberalized

From the latest published catalog, new energy vehicle models of foreign brands such as Tesla, Mercedes-Benz, and Toyota have all entered the subsidy sequence. Among them, Tesla's models in the catalog have applied for two versions, corresponding to different battery system energy density and range.

Why is there such a difference in the same Tesla model? This may be related to the fact that Tesla has selected more than one supplier. Since the beginning of this year, Tesla has been exposed to have reached "non-exclusive" agreements with a number of power battery companies, including CATL, LG Chem, etc.

Tesla's battery supplier has always been a mystery. A report from the Power Battery Application Branch of Battery China Network pointed out that the Tesla models selected in the recommended catalog are equipped with "Tesla (Shanghai)'s self-produced ternary batteries."

Tesla has indeed been producing its own battery modules, but who will provide the battery cells? A person who has been observing Tesla for a long time analyzed to Zhiku Jun that the reason why this model has two energy densities is because it is equipped with battery cells (i.e. battery cells) from Panasonic and LG Chem.

"This is the first time that a car model equipped with foreign battery cells has entered the subsidy catalogue." The person pointed out that in addition to Tesla, two cars from Beijing Benz and GAC Toyota have also entered the subsidy catalogue, and they are not equipped with domestic batteries.

Tesla did not respond to which company's battery cells it used, but since the abolition of the "white list" of power batteries, it is only a matter of time before batteries produced by foreign companies and the cars equipped with these batteries are included in the subsidy catalogue.

In March 2015, the Ministry of Industry and Information Technology issued the "Automotive Power Battery Industry Standards", which made the use of batteries produced by approved companies a basic condition for obtaining subsidies for new energy vehicles. Since then, the Ministry of Industry and Information Technology has successively released four batches of power battery production enterprise directories (the "white list"), building a "wall" for China's power battery industry.

Information shows that all 57 selected battery manufacturers are local companies, while Japanese and Korean battery manufacturers such as Panasonic, Samsung , and LG Chem, which were previously used by many automakers such as SAIC, Changan, and Chery, are not on the list. Due to the subsidy linkage, these foreign battery companies can only temporarily withdraw from the Chinese market.

However, the "white list" has long been out of touch with the development of the industry. Zhiku Jun previously learned that in actual operation, the "white list" is not so strictly enforced, and some models that do not use "specified" batteries have also entered the product catalog of the Ministry of Industry and Information Technology. At the same time, as market concentration increases, some companies on the "white list" have reduced their business or even gone bankrupt.

Industry analysts believe that canceling the battery "white list" and opening up the power battery market to foreign investment is a key step for China's new energy vehicles to move from policy-driven to market-driven. Only when more capable companies enter the market can production capacity be increased faster and costs be reduced to achieve the true development of new energy vehicles.

Marketization is the general trend. In addition to the release of the "white list", the gradual decline of subsidies is a direct measure to promote the marketization of the industry. The recently released "New Energy Vehicle Industry Development Plan (2021-2035)" (Draft for Comments) also clearly proposed to promote the optimization and reorganization of power battery companies and increase industrial concentration.

Cost reduction is key

With the support and encouragement of industry policies, a number of domestic power battery companies have grown rapidly in recent years, including CATL, BYD, Guoxuan High-tech, and Farasis Energy, which recently landed on the Science and Technology Innovation Board. Among them, CATL has become the "dominant player" in the industry. The latest data shows that CATL's share of the domestic market has increased to 51% in the first three quarters of this year.

As the market gradually opens up, foreign-funded power battery companies have also made layouts in China. In 2018, LG Chem landed a power battery investment project in Nanjing, and Panasonic also plans to manufacture batteries for electric vehicles in its Dalian factory.

It is worth mentioning that Panasonic and LG Chem are both hot rumored battery suppliers for Tesla after it is produced in China. Among them, Panasonic is a "familiar" partner of Tesla, and the US-made Tesla is supplied by Panasonic.

Tesla's "indecision" and "two-handed preparation" to some extent reflect the fierce competition in the power battery industry. Can the local brands that have developed rapidly in the Chinese market for several years face the competition from foreign brands this time?

A person close to the power battery industry told Zhikujun that the competitive advantages of foreign-funded power batteries are mainly technology and cost control, which have formed certain "barriers" in the market. Taking Panasonic as an example, an industry analysis pointed out that although Panasonic also produces ternary lithium batteries, it uses a different ratio of raw materials, which can increase energy density while reducing costs.

However, in recent years, with the expansion of scale, the cost of domestic power batteries has also been decreasing year by year. Taking CATL as an example, the price of its power battery system was 2.27 yuan/Wh in 2015, and dropped to 1.16 yuan/Wh in 2018, with an average annual compound decline of about 20%.

Domestic power battery companies have also made many attempts to reduce costs. For example, BYD and CATL are both developing CTP (Cell to Pack, module-free power battery pack) technology, trying to improve battery performance with a more streamlined internal design of the battery pack. Companies such as EVE Energy also stated in their annual reports that they would improve the automation level of production lines to improve yield and reduce costs.

CTP technology still has many challenges to overcome, but recent news shows that CATL's CTP battery packs have entered the stage of mass commercial production. At the signing ceremony of the strategic cooperation between CATL and BAIC New Energy on December 6, Zeng Yuqun, chairman of CATL, said: "CTP technology will cover all the current and upcoming mainstream models of BAIC New Energy."

Improving technology and reducing costs are the key methods. Chinese power battery companies represented by CATL are about to face a real "review" in the market.