[Complete Battery Mastery]⑦ 'Korea-China-Japan Battery WAR', The Outcome Depends on This

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"A moment's wrong judgment can cause you to fall behind in the global battery market." "If we're not careful, we might lose the secondary battery market to China just like the LCD market."

These are remarks made by battery industry experts diagnosing the current situation in 2023. Since Sony commercialized the lithium-ion battery in 1991, the dominant players in the battery market have continuously changed. Companies that failed to properly read technology and industry trends were soon left behind. Conversely, there are cases where startups rapidly rose to become global companies within a few years.

Initially, Japanese companies such as Sony, Sanyo, and Panasonic led the market, followed by Korean companies like Samsung SDI and LG Chem (LG Energy Solution). Now, Chinese companies such as CATL and BYD are emerging prominently. We are currently in the Warring States period of the secondary battery market. The global landscape could change again depending on how companies prepare and respond in this rapidly fluctuating market over the next few years.

The secondary battery market, which had been competing on performance, is shifting towards price competition as the electric vehicle market becomes mainstream. Research and development of next-generation batteries that will lead the mid- to long-term market are also in full swing. Recognizing secondary batteries as a core strategic technology in the electric vehicle era, global economic zones are seen driving protection and nurturing efforts. Understanding and actively responding to these trends is essential to avoid falling behind in global competition.

So, who is number one now?

'CATL is the world's number one in the battery market,' 'LG Energy Solution is number one in the battery market excluding China.' At some point, domestic media began writing two versions of articles about electric vehicle batteries. This started when market research firms released reports analyzing the electric vehicle battery market excluding China, considering the unique characteristics of the Chinese electric vehicle market.

China is the world's largest electric vehicle market (55% in the first half of 2023, Canalys), but under the Chinese government's strong protectionist policies, global battery companies have been unable to enter. Therefore, it is argued that a proper evaluation should be based on markets outside China where fair competition occurs. In fact, comparing the global market and markets outside China shows significant differences in rankings.

According to SNE Research, a domestic energy-specialized market research firm frequently cited overseas, CATL ranked first in the electric vehicle battery market in 2022 with a 37.0% share. LG Energy Solution followed in second place with 13.7%, and BYD was third with 13.5%.

However, excluding China, the order changes dramatically. LG Energy Solution rises to first place with 30.0%, while CATL falls to second with 22.5%. Third is Japan's Panasonic (15.8%), fourth SK On (13.3%), and fifth Samsung SDI (10.9%). BYD, which mainly supplies batteries for its own vehicles, has virtually no presence outside China.

Even outside China, there are differences by continent and market. Korean battery companies show strength in Europe, while Panasonic, which supplies batteries for Tesla electric vehicles, stands out in North America.

According to a survey by Bernstein, a global asset management firm, as of the first half of 2023, LG Energy Solution holds an overwhelming 39.14% market share in Europe, ranking first. Adding Samsung SDI (13.68%) and SK On (10.83%), the combined market share of the three Korean battery companies in Europe reaches an impressive 63.65%. In the North American market, Panasonic holds an absolute lead with 45.32%, followed by LG Energy Solution at 17.78%. Panasonic is a major battery supplier for Tesla electric vehicles, while most GM electric vehicles use batteries from LG Energy Solution.

However, this continental segmentation is showing signs of change. Chinese companies are expanding their market share by targeting global markets beyond their domestic market.

This change is confirmed by actual figures. In the global market excluding China, CATL's market share (according to SNE Research) increased from 22.5% last year to 27.2% in the first half of this year, narrowing the gap with first-place LG Energy Solution to 1.5 percentage points. BYD's share rose from 0.6% to 1.6%.

Conversely, the market share of the three Korean battery companies outside China is gradually declining. It decreased from 55.7% in 2021 to 54.1% in 2022, and fell below half to 48.4% in the first half of this year.

In the European market, CATL's share is 27.47% (according to Bernstein), ranking second behind LG Energy Solution, and in North America, it ranks third with 14.12%. This is causing growing concern among Korean companies.

Performance is now basic; price comes first

The rising market share of Chinese battery companies outside China is due to a shift in the global electric vehicle market. The paradigm is shifting from performance to price. Accordingly, price has become an important factor in batteries, which account for 30-40% of the cost of electric vehicles. Several reasons summarize this background.

First, governments worldwide are reducing or eliminating subsidies for electric vehicles. China, the world's largest automobile market, completely abolished national subsidies for new energy vehicles in January 2023. The exemption from electric vehicle purchase tax, scheduled to end in 2023, has been extended until 2025 for now, but its further extension is uncertain.

Germany also reduced electric vehicle subsidies (from 5,625?9,000 euros to 4,500?6,750 euros) starting in 2023. From 2024, only electric vehicles priced below 40,000 euros will receive a 4,500-euro subsidy, and the subsidy may disappear entirely from 2025. Earlier, the UK stopped electric vehicle subsidies in June 2022. France enacted the Green Industry Act, changing the subsidy system to provide subsidies only to electric vehicles meeting certain carbon emission standards. South Korea plans to reduce its electric vehicle subsidy budget by 6.5% in the 2024 budget, which is expected to reduce subsidies by about 1 million KRW per vehicle model.

Second, global competition is intensifying. With the advent of the electric vehicle era, not only pure electric vehicle companies but also traditional internal combustion engine manufacturers such as GM, Ford, Volkswagen, and BMW are entering the electric vehicle market. GM plans to discontinue internal combustion engine vehicles by 2035 and release only electric vehicles. Volkswagen has set a goal to make 80% of its sales in Europe electric vehicles by 2030. To achieve these aggressive goals, they must release affordable electric vehicles with lower prices. Early entrants must respond to the pursuit of latecomers with price competition.

Third, as electric vehicle performance standards rise, it has become difficult to attract consumers based solely on performance. Upcoming mass-market electric vehicle models require a basic driving range of 500?600 km per charge, which was previously the performance of premium models like Tesla Model S. Premium electric vehicles are expected to have a driving range of over 700 km per charge. The sophistication of electric vehicle specifications means battery prices have decreased accordingly. Battery experts met in the field emphasize that price and safety will be the key factors in the future electric vehicle battery market.

In fact, major electric vehicle makers such as Tesla, Ford, and GM have entered price competition since 2023. This market change demands strategic shifts from domestic battery companies.

LFP or NCM?

The global lithium-ion battery market is currently divided between ternary (NCM, NCA, etc.) batteries and LFP (Lithium Iron Phosphate) batteries by technology. The Korean battery industry has focused on developing ternary batteries with higher nickel content in cathode materials to improve electric vehicle driving performance. Ternary batteries such as NCM (Nickel-Cobalt-Manganese) and NCA (Nickel-Cobalt-Aluminum) have high energy density, allowing longer driving range per charge, but are somewhat expensive.

In contrast, China's BYD and CATL have used LFP batteries, which use phosphate and iron in the cathode material, as their main products from the beginning. LFP batteries are cheaper and more stable than ternary batteries but have lower energy density, so they have been used mainly in low-cost electric vehicles. However, recently, Chinese companies have been introducing improved LFP batteries and expanding their use to mass-market electric vehicles. Tesla equipped the Model Y, released in 2023, with CATL's LFP batteries following the Model 3.

Experts predict that the share of LFP batteries in the electric vehicle battery market will increase further. Global energy consulting firm Rystad Energy forecasts that the LFP battery share, which was only 20% in 2020, will reach 40% by 2025 and 49% by 2030. In contrast, the share of nickel-based batteries, which was 80% in 2020, is expected to fall to 60% in 2025 and 46% in 2030. The remaining 5% is expected to be occupied by next-generation batteries entering the market.

Korean battery companies, which had concentrated R&D on high-performance ternary batteries, have hurriedly started developing LFP batteries. LG Energy Solution decided in March 2023 to build a battery plant in Arizona, USA, worth 5.5 million dollars, of which 230,000 dollars will be invested in LFP. Other domestic companies are developing products such as 'NMx (Nickel Manganese, etc.)' or 'Cobalt Free' and 'Manganese Rich' batteries that reduce cobalt content to lower costs.

Korea, China, and Japan are pursuing different strategies in next-generation battery development. China is developing low-cost sodium-ion batteries while driving semi-solid state batteries targeting the premium market. CATL, which unveiled the first-generation sodium-ion battery in 2021, is accelerating by equipping electric vehicle models with sodium-ion batteries in 2023.

Korean and Japanese companies plan to skip the semi-solid stage and go directly to all-solid-state batteries. Samsung SDI and Japan's Toyota expect to launch electric vehicles with all-solid-state batteries by 2027. Among Chinese companies, BYD held the most patents for all-solid-state batteries as of 2021. Detailed information on next-generation batteries will be covered in the future.

How long will the IRA shield be effective?

The energy sector, especially the electric vehicle market, is greatly influenced by government policies. While consumers lead demand, markets are also created or disappear based on government policy directions. China is a representative example. In this regard, the U.S. Inflation Reduction Act (IRA) is the biggest variable that could change the global electric vehicle and battery market landscape in the coming years from a policy perspective.

A significant portion of the IRA relates to electric vehicles and batteries. The U.S. government's policy stance to counter China in advanced technology is embedded in this law, which is expected to work favorably for Korean companies in the short term. However, it also contains long-term threats and uncertainties, requiring continuous monitoring and response.

The IRA was introduced in 2022 by the Biden administration to ease the burden on American citizens amid soaring crude oil prices and inflation. The Russia-Ukraine war, which erupted shortly after COVID-19, caused international oil prices to skyrocket, leading to public dissatisfaction with politics in the U.S.

Under the support of the green and progressive camp, the Biden administration sought to alleviate public discontent by providing subsidies for eco-friendly electric vehicles instead of fossil fuel cars. The IRA is the result, aiming to reduce citizens' inflation burden, boost the green industry, and foster advanced technology simultaneously.

When drafting the IRA, U.S. policymakers included provisions to reduce dependence on China. They were concerned that indiscriminate subsidies for electric vehicles could only strengthen Chinese companies, which threaten the U.S.

The problem was that no U.S. company could properly produce electric vehicle batteries. The solution was to prioritize sourcing batteries from countries with which the U.S. has free trade agreements (FTA). Naturally, South Korea was included. This is why the IRA is a boon for Korean companies competing with China in the global market.

A large portion of the IRA budget is related to electric vehicles and batteries. Of the total $437 billion budget, $369 billion (84%) is allocated to energy security and climate crisis sectors.

Specifically, when purchasing eco-friendly vehicles such as electric vehicles, a tax credit of $3,750 to $7,500 is provided if ▲ at least 50% of battery components are produced in North America (U.S., Canada, Mexico), and ▲ at least 40% (as of 2023) of critical minerals are mined, processed, or recycled in the U.S. or countries with FTAs with the U.S., or in North America. The prerequisite is that the electric vehicle must be finally assembled in North America.

Whether or not a vehicle qualifies for this subsidy greatly affects its sales volume. Automakers naturally want to equip only batteries that qualify for subsidies. Therefore, the fate of battery companies is at stake. Korean companies, which must compete in 'markets outside China,' are especially affected.

LG Energy Solution, Samsung SDI, and SK On have announced plans to build factories in the U.S., Canada, and other locations to meet IRA requirements. According to detailed IRA guidelines implemented since April 2023, battery components such as cathode plates, anode plates, separators, electrolytes, cells, and modules must be manufactured or assembled in North America to qualify for subsidies. However, cathode active materials are classified as 'constituent materials' and can be produced in Korea without issue.

Chinese companies hit by this sudden blow are busy seeking detours. CATL announced in February 2023 a joint battery plant with Ford in Michigan, USA, but the project was halted. Chinese battery material company Huayou Cobalt is building a joint plant in Korea with LG Energy Solution and POSCO Future M.

The future challenge is to reduce dependence on China for critical minerals. According to detailed guidelines, the proportion of critical minerals mined, processed, or recycled in the U.S. or FTA countries or North America, which qualifies for subsidies, will increase from 40% in 2023 by 10 percentage points annually to 80% by 2027. Until now, Korea has mainly depended on China for critical minerals used in lithium-ion batteries such as lithium, nickel, cobalt, and graphite.

Notably, the IRA stipulates that from December 31, 2024, electric vehicles containing critical minerals mined, processed, or recycled by Foreign Entities of Concern (FEOC) overseas will be excluded from tax credits. The U.S. government has yet to announce detailed criteria for FEOC under the IRA. If FEOC is broadly interpreted, it would prohibit using critical minerals sourced not only directly from Chinese companies but also from Chinese companies operating in third countries or joint ventures with Chinese companies. This poses a significant risk for Korean companies.

The U.S. presidential election is also a variable

Meanwhile, the 2024 U.S. presidential election is emerging as a major variable in the battery market. Former President Donald Trump, a leading Republican candidate, has repeatedly criticized President Biden's electric vehicle expansion policies to appeal to American workers. Electric vehicles have fewer parts than internal combustion engine vehicles, so the transition to electrification inevitably leads to restructuring of existing production personnel. If Trump returns to power, changes in U.S. electric vehicle policies are expected. This would be a difficult situation for Korean automakers and battery companies that have been expanding investments in the North American market.

The change of administration in the U.S. will not only affect the U.S. Trump has also shown critical views on environmental policies such as the Paris Climate Agreement. If the U.S. withdraws from the Paris Agreement again, the pace of electric vehicle adoption worldwide could slow down.

KOTRA, China to completely abolish electric vehicle purchase subsidies from 2023, 2022.12.29
Hankyoreh, Major countries reduce or abolish electric vehicle subsidies... companies accelerate price cuts, 2023.9.7
KBAC2023, LG Energy Solution’s Battery Development for EV, 2023.9.14
FT, Rival battery technology race to dominate electric car market, 2023.8.14
Korea Institute for Industrial Economics & Trade China Industry Economy Brief July issue, 'Trends and Implications of China's Next-Generation Battery Technology Development amid US-China Competition'