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As the EV race speeds up, can BYD’s battery business close the gap on CATL?

Written by AJ Cortese Published on     5 mins read

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With global tech giants getting into EVs, China’s two largest battery makers are vying to supply the next generation of EV projects.

“We’re getting along well, and he’s a fun guy,” CATL’s founder and chairman Robin Zeng told Bloomberg in June 2020. He was referring to Elon Musk, founder and CEO of Tesla, one of CATL’s biggest clients. And since the two signed a deal to use CATL batteries in Tesla’s vehicles in February 2020, why wouldn’t Zeng and Musk be getting along in what has been a massively lucrative relationship?

Fujian-based Contemporary Amperex Technology Co, better known as CATL, currently dominates the global EV battery market, ahead of LG Chem, Panasonic, and BYD Auto. The recent deals signed with Tesla, plus record sales growth registered by CATL’s customers Nio, XPeng, and Li Auto, have sent the company’s shares up 62% this year, while CATL’s market cap rallied past USD 200 billion from around USD 70 billion just a year ago. Zeng is now richer than Alibaba’s founder Jack Ma, with a net worth close to USD 50 billion.

But the battery industry is dynamic, with no place for complacency. While CATL is currently leading, other battery producers are vying for market share as demand grows in China for electric cars. Batteries are the single most expensive part of an electric vehicle, representing about 30% of the total cost of a car, according to Bloomberg.

BYD Auto, China’s largest EV maker and the country’s former leading battery producer, looks like one of the most serious challengers to CATL. The Xi’an-headquartered carmaker, backed by Warren Buffet, has batteries at the heart of its business, producing them for a broad range of devices such as cellphones, laptops, and grid-connected energy storage systems. Yet contrary to CATL, which from the beginning focused on manufacturing batteries for other EV clients, BYD had exclusively placed its lithium-ion batteries on its cars. From this year, however, BYD has moved to increase the scale of its battery business by supplying other companies, and it has already struck deals to supply automakers like FAW Group, BAIC Group, Toyota, and Daimler.

With a host of tech giants throwing their weight into the EV race, including Apple, Xiaomi, Huawei, Tencent, Didi, and Alibaba, China’s largest two battery producers are set for a new round of competition for supplier contracts in the next era of EVs. However, unlike other industries, battery supply deals are usually not exclusive, with plenty of overlap among EV customers.

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CATL has demonstrated agility before

CATL, founded in 2011, built its business on the Chinese market, signing key contracts with automakers like BAIC Group and Geely, while benefiting from restrictions on foreign battery companies. In 2017, after snatching the battery manufacturing crown from BYD, CATL noticed strong demand for batteries from European automakers and quickly moved to penetrate the old continent.

The same year, it invested EUR 240 million (USD 283 million) to build a factory in Germany after securing a major contract with BMW worth EUR 4 billion (USD 4.7 billion). The facility is expected to reach a production capacity of 14 gigawatt-hours by 2022. The deal marked CATL’s first German client and represented a significant coup for the battery maker’s international business. Since then, CATL has gone on to supply a plethora of global automakers with its batteries, including Tesla, Toyota, Mercedes-Benz, and Honda.

CATL has proven flexible and adaptive so far, enabling it to retain a leading position among global battery producers as the EV industry evolved in favor of all-electric startups. By Q1 2020, CATL’s portfolio of clients changed dramatically, as burgeoning EV startups like Tesla, Nio, and Xpeng Motors became its main buyers. BAIC Group, which was CATL’s top customer in 2019, dropped to ninth place, a reflection of how Chinese EV startups all ramped up production in 2020 in a bid to catch up with Tesla’s dominant position in China.

Industry-leading lithium-ion battery technology has been essential to CATL’s rise, and the company has even sued smaller rivals to protect its intellectual property. CATL is currently working on developing a new EV battery without expensive materials like nickel or cobalt, as well as a new technology that integrates battery cells into a vehicle’s frame to expand the driving range. The company’s promising research has enticed Tesla to extend its supplier agreement with CATL through 2025.

CATL’s strategic agility allowed the firm to transition from focusing on supplying traditional automakers, which were gradually electrifying their vehicles, to EV-native startups with fast-growing demand for batteries. Now, the upcoming generation of EV companies​​—notably backed by tech and internet giants with deep pockets like Baidu, Xiaomi, and Apple—represent valuable opportunities for CATL, as well as for BYD.

byd blade battery
BYD’s Blade Battery presented last year is safer than common ternary lithium batteries, according to BYD. Source: BYD press release.

BYD’s underdog attitude

BYD’s battery business has also made significant strides in technology. The company released its Blade Battery in March 2020, boasting better performance, improved safety, and a smaller size. The battery was hailed as “a game-changer for the EV industry,” according to BYD Europe managing director Isbrand Ho in March 2021. Two months later, Benchmark Mineral Intelligence, an industry trade group that assesses battery product quality, promoted the company’s lithium-ion batteries to its top tier—the first battery maker to be upgraded since March 2020—to join the likes of CATL, Panasonic, and LG Chem.

Historically, one of BYD’s advantages over CATL has been its DNA as an automaker, which allowed the company to integrate its latest batteries into all of its vehicles, giving the firm a larger sample on the road to optimize its technology. In the first half of 2021, BYD sold 93,440 all-electric passenger vehicles, a scale unmatched by other leading Chinese EV companies like CATL’s customer Nio, which delivered just over 40,000 vehicles in the same period.

With renowned ambitions as an EV battery provider, the firm is betting heavily on its Blade Battery—now present in all of its newly produced vehicles—to catch up with CATL and LG Chem.

Angling for future markets

As tech giants such as Xiaomi, Baidu, and even Apple are committing significant investment to EV production, the demand for battery technology is set to explode. Huawei is already working with Changan Automobile and CATL to jointly develop EVs. Apple has been in talks with both CATL and BYD over potential battery supplier deals for its highly anticipated EV, which could be released as early as 2024, according to Reuters. 

Going forward, BYD’s heritage as an automaker could be useful in partnering with tech firms that lack an industry background in car-making. Yet, it may not be enough to outweigh CATL’s incumbent position as a battery provider.

As more EV projects scale in the coming months, the rivalry among China’s top battery suppliers is only set to intensify. Ultimately, it will drive the EV market forward through vital upgrades in battery technology and efficiency. After all, improvements in battery technology are “essential to Tesla’s goal,” Elon Musk emphasized last year at Tesla’s Battery Day, recognizing the importance of batteries for the wider EV industry.

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