Energy
Thursday, June 30th, 2022 9:37 am EDT
The gates of history turn on tiny hinges. We know about how Elon Musk and his minions stuffed a few thousand laptop batteries into a Lotus Elise and voila! The electric car revolution began. While that certainly is part of the modern EV story, it is not all of it. CATL also had a lot to do with helping EVs go mainstream.
Wired published an in depth story this week about Zeng Yuqun, the CEO of Contemporary Amperex Technology Limited, popularly known at CATL. The company is the largest manufacturer of lithium-ion batteries in the world with a market cap larger than Ford and General Motors combined. Zeng, known to most as Robin, is 29th on the Forbes list of the world’s wealthiest people.
What the Wired article brings to light is the role Herbert Diess, currently the CEO of Volkswagen Group, played in creating CATL. In 2010, Zeng was working for TDK, a Japanese company that made batteries for laptop computers, among other things. Diess was in charge of purchasing for BMW. He had approached several battery makers in Europe, including Bosch, about supplying batteries for electric cars, but none were interested.
Here’s where one of history’s tiny hinges came into play. Diess asked Zeng if TDK would be interested in making batteries for EVs, but Diess says Zeng was “dismissive” of the idea, saying he could not envision building such large batteries. The following year, however, TDK decided to sell its EV battery division. Zeng and several colleagues purchased it and renamed it CATL “Diess brought our company into the car battery business,” Zeng told Handelsblatt in 2020. “I am grateful to him for that.”
Meet CATL And Zeng Yuqun
Diess might have inspired CATL to enter the EV market, but over the years Zeng earned a reputation as a founder who could master batteries as well as business. Lei Xing, former editor of Beijing-based media outlet China Auto Review told Wired that when CATL bought a US patent for mobile phone batteries in the early 2000s, Zeng worked to improve the battery design himself. When BMW agreed to use CATL as its battery supplier, it was Zeng who read the 800 pages of requirements line by line, according to Yunfei Feng, a research associate at IMD Business School.
At one time, BYD was the largest battery manufacturer in China, but its focus was on LFP technology. CATL elected to concentrate on NMC batteries instead. At that time, automakers were primarily interested in range, which gave the edge to NMC. CATL rapidly expanded its business in China and began forming business relationships with automakers in Europe. Within a few years, it had surged past BYD to become the largest battery maker both in China and the world.
When China announced subsidies for electric cars, it specified they were only available for cars that used battery cells made in China. Those subsidies created a demand for electric cars that propelled CATL forward. Zeng, like Elon Musk, is a believer in vertical integration. According to Kevin Shang, research analyst at Wood Mackenzie’s global energy storage team, CATL was able to use the profits from selling batteries “to invest in the whole supply chain, from mining to materials manufacturing to the battery cells making and even to recycling.” Today, the company controls lithium supplies in China, South America, and Indonesia.
Facing Industry Fears
Bill Russo is the former head of Chrysler’s northeast Asia business in Beijing. He now runs the Shanghai-based advisory firm Automobility. He tells Wired, “The policy of the automotive industry for a long time has been that they never single-source, because that gives too much power in the relationship to the supplier.” CATL under Zeng has developed a reputation of being a “take it or leave it” kind of company. It is unwilling to build batteries to customers’ specifications and insists on long term commitments from its clients.
But nothing ever stays the same in the world of commerce. The manufacturers are hedging their bets by forging relationships with other companies. Tesla soon will use use LFP batteries from CATL and BYD. Panasonic is also a major supplier for Tesla. General Motors is building battery factories with LG Energy Solution while Ford is partnering with SK Innovation to build two new battery factories.
CATL & The China Syndrome
While the automakers are anxious not to become too dependent on any one supplier, Zeng’s most serious thread may come from within China itself. “In the West, the personality cult style of leadership is something that’s valued, encouraged, and celebrated. In China, it’s dangerous,” says Bill Russo. “You can’t be bigger than Beijing.” he warns.
Zeng is quite the opposite of Elon Musk. He stays out of the limelight and rarely gives interviews. Insiders point out that Zeng is operating in an environment where notoriety could hinder, not help, his business. An example is Jack Ma, co-founder of Alibaba and one of China’s wealthiest individuals. After he gave a speech that criticized Chinese regulators for stifling innovation, Alibaba’s IPO was swiftly canceled and it received a record $2.8 billion antitrust fine. Ma’s personal fortune has taken a $10 billion haircut since last year.
The Chinese government has established what it calls its “common prosperity” policy which encourages sharing the wealth the tech industry has created with everyone who contributed, not just those in the C Suites. Chnia’s president Xi Jinping has described “common prosperity” as one of the country’s most important goals over the next 15 years. In June, banks in China were told to rein in executive pay.
CATL has already faced a soft rebuke for its behavior. In November 2021, the Shenzhen Stock Exchange raised concerns about CATL financing “excessively.” A crackdown on the electric vehicle and battery industries in China could have a profound impact on an industry the whole world is relying on for the green transition.
Concerns have been raised that Beijing would rather replace CATL and other battery giants with a network of small and medium size businesses. But experts are divided on how much risk CATL is facing. Russo believes CATL’s risk depends on whether Zeng can continue to balance his government relationships with his public persona.
CATL may have been crucial in helping China develop its EV supremacy, but the recent tech crackdown provides a warning that Beijing can abruptly reorganize its industries if they start to clash with wider political ambitions. “Too much dominance is a bottleneck,” says Russo. “And that’s something that neither industry nor government would want.”
The Takeaway
CATL’s rise to become the dominant battery manufacturer in the world has been meteoric, but staying on top in China is not always about shareholder value. The government is still controlled by the Communist Party, which has an historical interest in benefiting workers. It is clear that free speech is not a Chinese value. In fact, it may be a one way ticket to obscurity regardless of how wealthy an individual might be.
There are lessons for the Jack Ma saga that should be considered as warnings to anyone who thinks he or she is bigger than the party. Elon Musk may think he will be able to dictate who gets to say what on the internet after he buys Twitter, but he is deluding himself. The tech industry has a history of knuckling under to the dictates of the Chinese government as a condition of being allowed to do business in that country.
For Zeng Luqun, the path forward is to never slow down. He has doubled the number of battery researchers at CATL and they are hard at work perfecting sodium ion batteries, which will be the antidote to the high price of raw materials for lithium batteries today. The company is also building its own battery swapping infrastructure in China.
CATL made its name by having the best batteries at the best price at a moment in time when NMC chemistry was dominant. If sodium batteries or battery swapping are the future, CATL, under the guidance of Zeng Luqun, will be ready.
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