[Complete Battery Mastery]⑥ Suddenly Appeared 'China's Battery Kings'

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"Enough with the technical explanations."

One day in 2017, three executives from the German automobile company Daimler AG (now Mercedes-Benz) group visited a venture company in Fujian Province, southeastern China. As soon as the person in charge began explaining the company's products, the executives from Germany irritably said, "We came here because we had no other choice. Let's talk about the price." The venture company representative could not help but be taken aback. (Reconstructed from The Wall Street Journal, 2019.9.3)

The place the Daimler group executives visited was none other than CATL (Contemporary Amperex Technology Limited, Ningde Shidai), which has now grown into the world's number one battery company. Why did they behave so rudely toward the CATL staff? The secret behind how a small venture company founded in 2011 could dominate the global battery market lies within this story.

Rapidly Growing Chinese Battery Companies

Until the early to mid-2010s, the global battery market was dominated by South Korea and Japan. China officially entered the battery market in 1995, the year BYD (Build Your Dreams), now competing head-to-head with Tesla in the global electric vehicle market, was established. It took 16 years after that for CATL to emerge. These two companies, which had little presence overshadowed by Japanese and Korean firms, rapidly grew after the mid-2010s and now supply about half of the global electric vehicle battery market.

According to market research firm SNE Research, as of 2022, CATL held a 37.0% share of the global electric vehicle battery market, and BYD held 13.6%. Together, these two companies accounted for 50.6% of the market share. Additionally, six Chinese companies are among the global top 10, including CALB (Zhongchuang Xinhang, 3.9%), Guoxuan High-Tech (2.7%), Sunwoda Electronics (1.8%), and Farasis Energy (1.4%). Among them, CALB was founded in 2015 and has only about seven years of experience.

Local media and outlets emphasize the innovative mindset of the founders as a reason for the rapid growth of Chinese battery companies in such a short period. Some even compare them to Elon Musk, the founder of Tesla. However, it cannot be denied that this remarkable growth would have been impossible without the Chinese government's electric vehicle promotion strategy, domestic company protection policies, and the vast domestic market.

The Birth of the 'Chinese Battery King'

BYD was founded by Chairman Wang Chuanfu, born in 1966. Wang had a very poor childhood but, with the sacrifice and support of his siblings, was able to enter the prestigious Central South University’s Department of Metallurgical Physics. He was highly regarded by his family and lived up to their expectations. Wang was an excellent student who never lost his top rank during his four years. After completing his master's degree at the Beijing Institute of Nonferrous Metals, he was recognized for his skills and appointed president of Bige Battery Co., Ltd., a research institute subsidiary, at the young age of 27.

At that time, the global mobile phone market was just beginning to blossom, and China was no exception. Mobile phones, once considered luxury items, rapidly became widespread. Wang Chuanfu saw the potential of the mobile phone battery market and founded BYD in 1995. From then on, it seems he had a keen sense of the times.

Wang vowed to realize the international relocation of major battery production sites after seeing Japan, the world's leading battery producer, abandon nickel-cadmium batteries. Battery technology also matched his expertise, so he felt confident. Starting BYD with 2.5 million yuan (about 460 million KRW) borrowed from a cousin and about 20 employees, the company produced its own lithium-ion batteries within two years.

Leveraging cost competitiveness to expand its customer base, BYD was selected as a battery supplier for Motorola and Nokia in 2000 and 2002, respectively, laying the foundation for growth. After listing on the Hong Kong Stock Exchange in July 2002, BYD rose to become the world's second-largest mobile phone battery supplier in 2003. Around this time, Chinese people began calling Wang the 'Battery King.'

Wang Chuanfu, Chairman of BYD

With a successful IPO, Chairman Wang raised 1.6 billion Hong Kong dollars (about 278 billion KRW) in surplus funds. Contemplating future investments, he chose the automobile industry. Confident from his battery success, Wang wanted to rewrite the success formula in the electric vehicle market. In January 2003, he announced plans to acquire a 77% stake in the state-owned Xi'an Qinchuan Automobile Co., Ltd. for 270 million yuan (about 50.1 billion KRW).

Although nominally state-owned, Qinchuan Automobile was on the brink of bankruptcy. Investors were shocked and thought he was crazy. On the announcement day, BYD's stock price plummeted by 21%, reflecting the negative reaction.

As expected, BYD's initial automobile business suffered losses. All profits from batteries had to be poured into automobiles. From 2003 to 2008, BYD's profit margin relative to sales dropped from 21.7% to 6.1%.

Nevertheless, Chairman Wang did not waver in his commitment to automobiles. From 2003, he deployed 500 personnel to research and develop batteries for new energy vehicles (the Chinese term for eco-friendly vehicles, including pure electric and hybrid cars), investing 1 billion yuan (about 184.2 billion KRW).

In 2005, sales of the mid-sized sedan F3 (fuel vehicle) performed well, stabilizing the automobile business. Five years later, in 2008, BYD launched the F3DM, China's first plug-in hybrid electric vehicle, marking its full-fledged entry into the electric vehicle market. It was also at this time that Warren Buffett, chairman of Berkshire Hathaway and known as the 'Oracle of Omaha,' invested $230 million to acquire a 9.9% stake in BYD.

Buffett's decision puzzled the world, but he ultimately proved to be the 'Oracle.' BYD introduced a series of electric vehicles starting with the pure electric SUV E6 in 2011. By 2015, it held a 17.5% share of the Chinese electric vehicle market and has since grown rapidly, now standing shoulder to shoulder with Tesla in the global electric vehicle market.

Warren Buffett, Chairman of Berkshire Hathaway (right in the photo), exchanging souvenirs with Wang Chuanfu, Chairman of BYD.

The proportion of IT components, including batteries, in BYD's total sales decreased from 90% in 2005 to 47% in 2009. Conversely, electric vehicle sales surpassed IT sales in 2009, accounting for 53%. BYD successfully transformed from a battery company to an electric vehicle manufacturer.

Several factors explain this background. Wang's management skills cannot be overlooked. He accurately captured the era's trend from the IT revolution through mobile to electric vehicles. He diversified the business around the company's core competency in batteries and vertically integrated to achieve economies of scale. The rapid growth of China and its abundant domestic market also laid the foundation for success.

However, such success would have been impossible without the Chinese government's full support. In June 2012, the government announced the 'Energy Conservation and New Energy Vehicle Industry Development Plan (2012?2020),' focusing on fostering the electric vehicle business. The biggest beneficiary was BYD, the leading electric vehicle company. BYD was selected as a key recipient of government support, receiving government purchases, financial aid, subsidies, and various benefits. In September of that year, BYD's E6 model was chosen as the 'Chinese government official electric vehicle pilot model,' accounting for 50% of total government purchases.

The Chinese government also blocked foreign companies' market entry. In 2015, China introduced the so-called 'White List' system, prioritizing subsidies for electric vehicles using products from government-selected local battery manufacturers. Global companies like LG Chem, Samsung SDI, and Panasonic were excluded from the whitelist.

Electric vehicles with subsidies from China could not compete with foreign cars without them. For example, after subsidies, BYD's EV 600 model released in 2017 was priced between 260,000 and 360,000 yuan, while the similar Tesla Model X was priced over 1 million yuan.

The Man Called 'King of Ningde'

At this time, a company that appeared like a comet was CATL. The Chinese name of CATL, 'Ningde Shidai (?德?代),' means 'Ningde Era.' Ningde is a small city in Fujian Province, southeastern China, where CATL's founder Zeng Yuqun was born. The current CATL headquarters is also located there. Zeng is known locally as the 'King of Ningde.'

Zeng Yuqun was born as a farmer's son in a small rural village called Lankou. Bright from a young age, he graduated from the prestigious Shanghai Jiao Tong University with a degree in Naval Engineering. Judging by his undergraduate major, he seemed unrelated to batteries. His first job was at a state-owned enterprise in Fuzhou, the capital of Fujian Province. Later, he joined SAE, a Hong Kong subsidiary of the Japanese electronic components company TDK, well-known for cassette tapes. There, Zeng discovered the battery business and, with fellow engineers, founded ATL (Amperex Technology Limited) in 1999. The company name 'Amperex' combines 'Ampere' and 'Excellent.'

ATL succeeded in commercializing lithium polymer battery technology by acquiring patent rights from Bell Labs in the United States. The 2000s were a time when mobile phones were selling like hotcakes in China, helping ATL grow rapidly. ATL gained attention starting in 2004 when it began supplying batteries to Apple. Despite its growth, ATL lacked the capital and manpower to catch up with Korea and Japan. The founders, including Zeng, eventually decided to sell ATL's shares to their former employer TDK in 2005. Even after the sale, Zeng remained as ATL's management.

After hearing of Zeng's success, Ningde city officials actively persuaded him to build a factory in his hometown. Perhaps for this reason, ATL built a large lithium polymer battery factory in Ningde in 2008. Hong Kong, where ATL's headquarters is located, and Ningde are geographically close, facilitating easy exchange.

Wanting to have his own company, Zeng left TDK and founded CATL with colleagues in 2011, marking his second entrepreneurial venture. As the name suggests, ATL and CATL were initially like sister companies. Many technical personnel from ATL moved to CATL. Although the shareholding relationship was later resolved, ATL initially held a 15% stake in CATL. The two companies agreed that ATL would handle consumer batteries, while CATL would focus on electric vehicle batteries, resolving business overlap issues.

Zheng Yuqun, Chairman of CATL

In its early days, CATL appears to have received support from Ningde city. Fujian Province, where Ningde is located, is also the political hometown of Chinese President Xi Jinping, who served as vice mayor of Xiamen City from 1985 and held high-ranking positions there for 17 years. However, there is no official information on President Xi's role in CATL's growth.

It was not easy for CATL to catch up with Japan and South Korea in the advanced technology field of lithium-ion batteries. The Chinese government's Thousand Talents Program played a significant role. Originally aimed at attracting Chinese scientific and technological talents abroad, the program later expanded to recruit global scientists. Through this program, scientists from the US, Japan, and South Korea moved to China.

A notable figure recruited to CATL under the Thousand Talents Program is Bob Galyen. A battery expert and former executive at General Motors (GM) in the US, Bob was scouted as CATL's Chief Technology Officer (CTO) in 2019. Engineers from Germany's Bosch and Continental, as well as France's Valeo, were also recruited by CATL. Engineers from Samsung and LG in South Korea reportedly moved to CATL with high salaries. This process sparked controversy over national core technology.

Like BYD, CATL was a major beneficiary of China's electric vehicle subsidy policy. Since subsidies were only available for electric vehicles equipped with Chinese batteries, leading global automakers turned to CATL. At that time, BYD mainly supplied batteries for its own electric vehicles and had no reason to supply competitors. Thus, CATL was almost the only option. This explains why Daimler group executives visited CATL with irritation, saying they 'had no choice but to come here.'

Initially, CATL supplied batteries to domestic companies like NIO and XPeng, gradually expanding its customer base to global companies. Unlike BYD, which focused on vertical integration of its own electric vehicles, CATL expanded its reach to BMW, Volkswagen, Ford, and others. As a result, CATL surpassed BYD and rapidly grew not only in China but also in the global electric vehicle battery market.

ATL and CATL still maintain a close relationship. ATL, started by Zeng Yuqun, now accounts for about half of TDK's sales. ATL supplies small batteries for Apple products and once supplied batteries for Samsung Electronics smartphones. However, unlike CATL, which thrived in the electric vehicle era, ATL's business is limited to small batteries, restricting its growth. While CATL, rooted in a Chinese company, received Chinese government support, ATL was acquired by a Japanese company and did not benefit similarly.

In 2022, ATL sought to overcome these limitations by establishing a joint venture with CATL. The two companies formed a joint venture called Xiamen Emcore Technology and Xiamen Ampack Technology in Xiamen, Fujian Province, China. They focus on developing batteries for home energy storage systems (ESS) and electric two-wheelers.

The Sudden Rise of CALB

The Chinese battery market had a 1+1+N structure. The 'Big 2' were CATL and BYD, with numerous small and medium-sized companies scattered around. However, this duopoly is changing. CALB, practically a startup, is rapidly rising.

While CALB has little presence in the global market, it has firmly secured third place in China. According to the China Automotive Power Battery Industry Innovation Alliance, as of June 2023, CALB held an 8.26% market share in electric vehicle battery installations, ranking third after CATL (43.4%) and BYD (29.85%).

Ryu Jingyu, CEO of CALB (Photo by Baidu)

Founded in 2015, CALB (China Aviation Lithium Battery) was established by an aviation-related company entering the battery sector, as its name suggests. The Chinese aviation defense company AVIC (Aviation Industry Corporation of China) partnered with the local government of Changzhou City, Jiangsu Province, to establish CALB. AVIC holds a 10% stake, and the Changzhou government holds 30%, making it effectively a state-owned company.

Since 2018, the company has aggressively entered the electric vehicle battery market and grown rapidly. In October last year, it successfully listed on the Hong Kong Stock Exchange. At that time, CALB CEO Liu Jingyu told Bloomberg in an interview that the company aimed to be ranked fifth in the global electric vehicle battery market within a year and third within three to five years. Backed by the Chinese government, this ambition may not be empty talk. Born in 1970, Liu Jingyu is from AVIC and serves as the Secretary of the Party Committee of the Industrial and Commercial Sector.

In its early days, CALB faced challenges from CATL, which filed successive patent infringement lawsuits against CALB to curb its growth.

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Chosun Ilbo, 'Rapidly Growing Chinese Electric Vehicle Batteries... CATL Soon to Surpass Panasonic,' 2018.3.24
Nikkei Asia, 'Battery Wars: Japan and South Korea Battle China for Future of EVs,' 2018.11.14
Magazine Hankyung, 'Global Companies' Life-or-Death Electric Vehicle War,' 2019.5.29
WSJ, 'The Key to Electric Cars is Batteries. One Chinese Firm Dominates the Industry,' 2019.9.3
KDB Future Strategy Research Institute, 'Success Factors and Future Strategy of China's No.1 Electric Vehicle Company BYD,' 2019
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