Geely will get rid of the situation of having only CATL as its power battery supplier

For a long time, CATL has been the main power battery supplier for Geely Auto worldwide. Geely's existing new energy models, Emgrand EV, Emgrand PHEV, and Emgrand GSe, all use batteries from CATL. Now, as one of the largest domestic independent brand car manufacturers, Geely seems to be somewhat "dissatisfied" with the current situation and wants to change it.

An Conghui, president and CEO of Geely Auto Group, revealed to the media that Geely will select a second battery supplier as a reserve supplier. The supplier is a Japanese and Korean company, and the two parties will adopt a joint venture. This can't help but remind people of Tesla CEO Musk's statement that "it will no longer be limited to Panasonic, but will purchase batteries from multiple companies."

Not long ago, Tesla was reported to have been in contact with Lishen Battery, CATL, and Smart Energy. It is reported that with the global popularity of Tesla's new energy vehicles, a single supplier system can no longer meet Tesla's huge demand for power batteries, and this situation is very similar to the situation currently faced by Geely.

Geely's "ambition"

According to Battery China, Geely will introduce more new energy models in 2019 and significantly increase the sales volume of corresponding models. It will also set up a special Geely new energy vehicle sales company and plans to launch more than 30 pure electric and new energy models in the next two years. Geely is going to "do something big".

In fact, Geely announced its ambitious "Blue Geely Action" as early as 2015, planning that its new energy vehicle sales will account for more than 90% of Geely's overall sales by 2020. Among them, plug-in hybrid and oil-electric hybrid vehicle sales will account for 65%, and pure electric vehicle sales will account for 35%. Geely's sales target for all vehicles in 2020 is 2 million units, which also means that Geely will achieve annual sales of 1.8 million new energy vehicles in two years, including more than 600,000 pure electric vehicles.

This will be a very large plan, and the demand for power batteries will also be huge. Data shows that the total sales of new energy vehicles in China in 2018 was 1.256 million, of which 984,000 were pure electric vehicles (accounting for about 78%) and 271,000 were plug-in hybrid vehicles (accounting for about 22%). According to statistics from the Research Department of the Power Battery Application Branch, the total installed capacity of power batteries for new energy vehicles in my country in 2018 was 56.89GWh. Based on this rough calculation, Geely's demand for power batteries for pure electric vehicles alone will be no less than 30GWh by 2020.

CATL’s “lack of power”

It is understood that CATL's production capacity has been insufficient. CATL once wrote in its prospectus that "inadequate production capacity is one of the company's competitive disadvantages." Although CATL's battery production capacity has been catching up, in recent years CATL's "circle of friends" among automakers has become larger and larger, and battery orders are overwhelmed. Its customers include not only traditional automakers such as SAIC, Dongfeng, BAIC, and Geely, but also new car-making forces such as Weilai, Diancha, Yundu, and WM Motor, and even foreign auto giants such as BMW, Volkswagen, and GM. This makes CATL, whose actual production capacity is nearly 30GWh, still insufficient.

In order to obtain a stable battery supply, Geely has strengthened its "binding" with CATL. At the end of 2018, Geely and CATL announced the establishment of a joint venture. According to Geely's official statement, the joint venture will achieve a stable supply of core components such as power batteries for Geely's electric models.

Having said that, it is far from enough for Geely's "appetite". It cannot change the situation of "too many monks and too little porridge" no matter what. If it wants to avoid going hungry, it has to "beg for some food".

The "Wild Flower Fragrance" of Japanese and Korean Companies

So why did Geely target Japanese and Korean companies instead of Chinese companies this time? Is it because "wild flowers are worse than domestic flowers"?

In fact, Geely has cooperated with Japanese and Korean battery companies for a long time. According to media reports, in April 2017, Geely and LG Chem reached an agreement, and Geely fully acquired the right to use all production equipment and manufacturing technology intellectual property rights of LG Nanjing Factory. The two parties also established follow-up cooperation, and LG Chem will help Geely's high-end brands (including Volvo) continue to upgrade battery technology. Perhaps it is the cooperation with companies like LG Chem that makes Geely feel the technological advantages of Japanese and Korean companies.

The strength of Japanese and Korean battery companies is indeed impressive. In terms of energy density, the energy density of Panasonic's currently mass-produced 21700 battery cells has exceeded 300Wh/kg, which is unique in the world. LG Chem's soft-pack technology is the world's leading and it is currently the world's largest soft-pack battery supplier. Samsung SDI's original square battery cell technology has many patents in terms of safety and has a core competitive advantage that surpasses its peers.

In addition, in terms of product consistency, domestic battery companies lag far behind Japan and South Korea. It is understood that the CPK value reflects the quality of the battery. Under normal circumstances, products with a CPK of 1.33 or above can be mass-produced, that is, the yield rate can reach 99.9937%. It is understood that the CPK value of my country's power battery companies is usually below 1.5, while the CPK values ​​of Samsung SDI, LG Chem, and Panasonic are based on 1.67 (the yield rate can reach 99.99994%), and can even reach 2.0, which means that there are almost no defective batteries in 1 million batteries, and the battery performance is almost completely consistent.

Compared with domestic enterprises, Japanese and Korean enterprises are also better at cost control. According to a research report released by UBS on global power battery giants Panasonic, LG Chem, Samsung SDI and CATL, the cost of Panasonic's 21700 cylindrical lithium-ion battery is $111/kWh, LG Chem's cost is $148/kWh, and the costs of Samsung SDI and CATL are both over $150/kWh, among which CATL is behind Samsung SDI and ranks fourth.

According to industry insiders, it is precisely because Japanese and Korean battery companies have worked hard on scale and production integration that when developing the same products, their quality controllability and stability indicators are excellent. If Korean battery companies set up joint ventures with Chinese companies, their costs in the Chinese market can be reduced by about 15% to 20%.

Japanese and Korean companies not only have their own advantages, but also have favorable policies. In March this year, the Ministry of Industry and Information Technology announced the 318th batch of new products in the "Announcement on Road Motor Vehicle Production Enterprises and Products". Samsung SDI of South Korea, Samsung (Tianjin) Battery Co., Ltd., a joint venture battery company of LG Chem in China, and Nanjing LG Chemical New Energy Battery Co., Ltd. were listed.

The advantages of Japanese and Korean battery companies in technology and cost are undoubtedly very attractive to domestic car companies, and Geely's choice is very rational. In terms of production capacity, Samsung SDI, LG Chem and SKI, the three industry leaders, have already laid out a production capacity of no less than 50GWh in China by 2020, which is also a "fat piece of meat" for Geely, which has huge demand for power batteries in the future.

In any case, the fact is that as my country's new energy vehicle subsidies gradually decline, domestic new energy vehicle companies are under great cost pressure. Geely's "pro-Japan and South Korea" behavior is likely to be a signal that more domestic car companies may "turn their backs" on Japan and South Korea in the future, seeking battery suppliers with better costs around the world, and the competition in the global power battery industry will become more and more fierce. Obviously, the challenges faced by domestic battery companies will also be more severe. The top priority is to improve quality and reduce costs while ensuring safety. This is the only way out.