The competition among China, Japan and South Korea in power batteries is fierce, but it is difficult to break through

In the magical first half of this year, the automotive industry was like a world of ice and fire. The more desolate the traditional fuel vehicle companies were, the more delighted the new energy vehicle companies were. The sales of Chinese new energy vehicle companies that survived the epidemic began to pick up, and they also received certain recognition for listing in the United States. The American leader Tesla has achieved substantial growth in the Chinese and European markets.

These new changes in new energy vehicles have directly led to changes in the core upstream power battery industry. In the first half of this year, the installed capacity ranking of domestic power battery companies, CATL, LG Chem and BYD ranked the top three. The installed capacity of the top three companies accounted for 70.9% of the total installed capacity, and the first place CATL accounted for nearly 50%, still firmly sitting in the top spot.

However, judging from the year-on-year growth in installed capacity, the market share of Korean and Japanese power battery companies in the domestic market has improved rapidly. If we look at the global market, CATL has lost its position as the world's number one power battery for four consecutive years and has been  surpassed by LG Chem .

Since March this year, LG Chem surpassed CATL for the first time, and this pattern has not changed. According to the survey results released by South Korea's SNEResearch, as of the end of July, LG Chem ranked first with a market share of 26.8%, continuing to lead the Chinese power battery supplier CATL's 25.4%, and further widening the gap with Japan's Panasonic, which has a 13% share.

Although the gap between LG Chem and CATL is not big, the growth rate of LG Chem has to attract our attention. What is the reason for the ranking of the power battery industry? What are the variables in the current competition landscape of Chinese, Korean and Japanese companies? What kind of changes are Chinese power battery companies facing? I believe this is a question that many people will be concerned about.

How do Chinese power battery companies take the lead?

According to Gartner's new technology maturity curve, every new technology will first go through a hype period after the emergence of the "innovative concept", then reach the peak of expectations and then quickly decline, reaching the "trough of disillusionment", and then enter a stable development period as the industry reshuffles.

If we look back at the ups and downs that China's power battery industry has experienced in the past few years, it actually "coincides" with this curve. However, the causes of this curve are influenced by both the laws of technological development and the external influence of national industrial policies.

The rise of my country's power battery industry is naturally inseparable from the development of the new energy vehicle industry. After 2012, Tesla electric cars gradually began to emerge in China, and the new energy vehicle industry began to be truly valued by the country and car companies. The official introduction of my country's new energy vehicle subsidy policy in 2013 became the starting gun for the rise of this industry.

From 2013 to 2016, not only did various new car-making forces and local new energy car companies emerge in large numbers, but domestic power battery companies also grew rapidly from the initial 40 to more than 200 at the peak. An industry that thrives because of policies will inevitably have bubbles, and will also quickly burst because of policy changes.

During this period, the power battery industry experienced a shortage of production capacity, because after a large number of enterprises were put into operation, structural overcapacity began to appear. Some power battery companies even began to take a different approach and wanted to step into the field of new energy vehicle production, but most of them ended in failure.

Sure enough, after 2016, the Ministry of Industry and Information Technology issued a new policy requiring companies that provide power batteries for vehicle manufacturers to have an 8GWh production capacity. At that time, the annual production capacity threshold for most lithium-ion power battery companies was only 0.2GWh, which raised the threshold for capacity increase by 40 times. The intention of this policy is to eliminate and filter out most of the mid- and tail-end power battery companies, leaving the market to a few players in this field, such as CATL and BYD.

On the other hand, out of consideration for the safety of power batteries, in 2017, after repeated weighing of the ternary lithium battery route, the Ministry of Industry and Information Technology finally chose the ternary lithium battery technology route with higher energy density. Correspondingly, power battery companies that chose the lithium iron phosphate technology route fell into a passive position. This year, the number of domestic power battery companies rapidly dropped to about 130.

Between 2018 and 2019, as subsidies for new energy vehicles began to decline sharply, the subsidy requirements for the energy density of power batteries continued to increase, the sales of new energy vehicles continued to decline, and the installed capacity of power batteries also fell. More companies were eliminated. By the end of last year, there were only 69 domestic power battery companies left, and this trend will continue this year.

The adjustment of stricter policies and changes in technological routes have caused the power battery market to quickly gather towards leading excellent companies, which is the internal driving factor for my country's power battery industry to become bigger and stronger.

Why were there no Japanese and Korean companies during this period? This is still due to the "magic assist" of my country's industrial policy.

In 2015, international power battery companies such as LG Chem, Panasonic, and Samsung SDI had already begun to layout in the Chinese market. However, after the Ministry of Industry and Information Technology announced the "Automotive Power Battery Industry Standard Conditions" document that year, none of the three companies were included in the "power battery white list" in the four lists of power battery companies that met the conditions announced in 2016. This means that if vehicle manufacturers use power battery products from these three companies, they will not be able to obtain new energy vehicle subsidies.

This policy directly led to the collective "silence" of Japanese and Korean companies in China's power battery industry, and also gave Chinese companies a three-year window of rapid growth in China. Last year, with the sharp decline in new energy subsidies and the cancellation of the "white list", Japanese and Korean power battery companies stood on the same starting line as Chinese companies and began to compete on an equal footing.

This is also the main reason for the rapid growth of LG Chem and Panasonic in the domestic market this year. However, the changes in the domestic power battery industry can only be a local battlefield in this China-Korea-Japan qualifying competition. If you want to see the reason why LG Chem is going against the trend, you must look at the new changes in the global market.

How did South Korea's LG Chem catch up?

Affected by the epidemic this year, CATL's installed capacity fell sharply in the first quarter of this year. As a result, LG Chem surpassed CATL for the first time with a global market share of 27.1%, while Panasonic ranked second with 25.7% over CATL's 17.4% during the same period. Although CATL's installed capacity rebounded rapidly as the domestic epidemic disappeared, and it soon surpassed Panasonic, it has not yet surpassed LG Chem. This requires us to put aside temporary factors such as the epidemic and examine the underlying reasons.

It should be noted that LG Chem not only achieved counter-cyclical growth under the influence of the global epidemic, but also achieved a 1.5-fold year-on-year increase in market share. The key to LG Chem's surpassing CATL lies in the changes in the European and American markets.

From the perspective of specific market changes, the biggest variables in the new energy vehicle industry are the mass production and global hot sales of Tesla Model 3, as well as the rise of new energy vehicles in Europe. The reason for LG Chem's rapid growth is precisely due to the good market performance of Tesla Model 3, Renault Zoe EV and Audi e-tron, all of which use LG Chem's power batteries. In addition, the domestic Model 3 is also mainly provided by LG Chem, and Tesla sold 46,000 vehicles in China in the first half of this year, which explains the rapid growth of LG Chem in China.

Although the outbreak restricted people's travel and consumption for a period of time at the beginning, and also restricted the production capacity and shipments of power battery companies, the normalization of the epidemic has promoted the consumption of new energy vehicles. On the one hand, more people are afraid of infection from public transportation and choose to buy private cars. On the other hand, due to the policy support of European and American countries for new energy vehicles and the public's recognition of new energy vehicles, the European and American markets, which are still in the midst of the epidemic, have ushered in a wave of counter-cyclical growth.

According to data, in the first half of this year alone, the sales of electric vehicles in Europe reached 401,000, while the sales of electric vehicles in my country in the first half of the year were less than 400,000. The European market has begun to surpass the Chinese market. LG Chem, which has received orders from major new energy vehicle manufacturers in Europe and the United States, has naturally become a direct beneficiary of this wave of growth.

In contrast, CATL was clearly dragged down by the epidemic in the first quarter, and the second quarter and even the longer period were actually constrained by the slowdown in domestic new energy vehicle sales and the impact of the major variable of not getting the head order of Tesla Model 3.