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China’s BYD sets sights on crowning itself as global energy storage leader

Written by KrASIA Connection Published on   8 mins read

2023 marked a turning point for BYD as it began to double down on energy storage projects in the domestic market for ultra-low prices.

BYD, the world’s top seller of new energy vehicles, has once again achieved record-breaking performance.

On January 29, BYD disclosed its performance forecast, expecting to achieve a net profit of RMB 29–31 billion (USD 4–4.3 billion) in 2023, a year-on-year increase of 74.46–86.49%. Based on the lower limit of the expected profit, the Chinese company is set to earn approximately RMB 79.45 million (USD 11.1 million) per day in 2023. Additionally, its cumulative sales of new energy vehicles in 2023 reached 3.0244 million units, maintaining its position as the global sales leader.

In addition to the growth of BYD’s business, 36Kr noted that the company’s energy storage business has also progressed significantly, playing an increasingly important role. According to BYD’s previously disclosed production and sales brief, the total capacity of vehicle and energy storage batteries it installed in 2023 was approximately 150.909 gigawatt-hours, with the former accounting for around 111 GWh. This means that BYD’s installed capacity of energy storage batteries may reach 40 GWh in 2023, fast becoming a rising star in the battery space.

Leveraging its strengths in self-produced lithium batteries, BYD has long extended its business to the field of energy storage system integration, deeply cultivating both large-scale and household energy storage markets overseas for more than a decade. However, it has hitherto lacked a significant presence in the domestic market. A significant change in 2023 was that BYD began to vigorously target the domestic large-scale storage market, securing multiple energy storage projects at ultra-low prices, launching a fierce offensive that put immense pressure on veteran players in the domestic market.

A senior industry insider told 36Kr that, in 2023, BYD is expected to become one of the top three energy storage system integrators in China and may even compete for the top spot with CRRC Zhuzhou Locomotive. In 2022, BYD was not even in the top ten in terms of domestic energy storage system shipments.

Focusing on large-scale and household energy storage

Unbeknownst to many, BYD entered the energy storage market long before it became well-established publicly.

Over ten years ago, Wang Chuanfu, founder of BYD, set his sights on potential opportunities arising from growing calls for climate action globally. He proposed three “green dreams” accordingly: for BYD to focus on solar power, energy storage, and electric vehicles. Wang is also known to be a frequent attendee at the annual United Nations Climate Change Conference.

In 2008, BYD established EPRI, an energy research institute, officially entering the space before commencing an energy storage demonstration project in Pingshan, Shenzhen, the following year. This initiative put BYD ostensibly far ahead of other new players. Due to the maturity and scale of the foreign energy storage market, BYD’s energy storage business has always focused on overseas markets.

A senior employee who has worked in BYD’s energy storage business for more than ten years told 36Kr that, at that time, the company’s energy storage business was divided into two segments.

  • The first is represented by BYD’s EPRI, mainly engaging in large-scale energy storage projects, and it was regarded as the main force of the company’s energy storage business, earning over RMB 1 billion (USD 140.5 million) in revenue in 2020.
  • The second segment focused on household energy storage, mainly producing energy storage systems for homes. This segment achieved good sales performance in Europe, especially in the German market, by adapting and binding internationally renowned power conversion system (PCS) inverters.

According to data from EUPD Research, BYD’s market share in the German household storage market reached 24% in 2021, ranking first. Germany is the largest market for household storage in Europe, accounting for more than half of Europe’s installed capacity.

It can be said that BYD, which entered the energy storage space early, has fully enjoyed the dividends of developing the domestic and foreign energy storage markets from zero to one, and later from one to ten, laying the foundation for its current industry leader position. In terms of total installed capacity, data from Wood Mackenzie indicates that, in 2022, BYD ranked fourth in the world in terms of energy storage shipments, with a market share of 9%, tied with Huawei. The top three market shares are held by Sungrow Power Supply (16%), Fluence (14%), and Tesla (14%).

Currently, numerous core team members of energy storage startups come from BYD. For example, Yin Shaowen, a former general manager of BYD’s energy storage business, joined Canadian Solar’s Wenchu Innovation Technology after departing the company. Song Feng, a core member of BYD EPRI, also established Vilion New Energy Technology after resigning from the company.

It’s worth mentioning that BYD also holds the inherent advantage of developing its own core components:

  • In addition to self-produced energy cores and battery management systems, BYD has R&D capabilities for PCS technology.
  • The company has a foothold in the photovoltaic business and has launched its range of photovoltaic inverters. Photovoltaic (solar) inverters and energy storage PCS systems have technological homogeneity and can therefore enter the market more quickly.
  • BYD’s semiconductor arm can also produce core inverter components, such as insulated-gate bipolar transistors (IGBTs).

Waging a “price war”

Comparatively speaking, BYD’s energy storage business has had a much more muted presence domestically than overseas. At the China Energy Storage West Forum in August 2018, BYD explicitly announced that it would no longer participate in domestic bidding projects, opting instead to focus on supplying energy storage equipment.

However, this strategy changed in 2020. In August that year, BYD launched BYD Cube, a grid-level energy storage system product, and announced at the Energy Storage International Conference and Expo its intention to actively participate in domestic market development with its new products.

Analysts believe that BYD’s previous reluctance to pursue the domestic business primarily stemmed from the limited market size. Although the concept of the “energy storage year” had been mentioned since 2016, it wasn’t until 2020 that the domestic energy storage market truly reached a turning point. BYD may have sensed the opportunity at that time.

However, in the two years after entering the domestic market, BYD’s performance was flat. According to statistics provided by the China Energy Storage Alliance (CNESA), BYD did not rank among the top ten in terms of domestic energy storage system shipments in both 2021 and 2022.

It wasn’t until 2023 when BYD’s market position suddenly rose, relying on price advantages to secure various domestic projects. In 2023, the prices of domestic energy storage systems were nearly halved, with bidding quotations repeatedly hitting new lows, and the profitability of system integrators becoming increasingly difficult to maintain. However, system integrators represented by BYD managed to retain sizable profit margins by utilizing self-produced battery cells, making them more confident in waging a “price war.”

As an example, BYD set the lowest bid prices for two large-scale battery energy system projects that called for tenders in July last year, surpassing its competition.

An energy storage business representative from an unnamed listed company told 36Kr that the cost of battery cells accounts for a major proportion in energy storage systems. In a 0.5C system, the cost of battery cells can account for up to 90%. Therefore, integrated manufacturers with self-produced battery cells hold a significant cost advantage over pure system integrators.

From another perspective, the energy storage battery market was facing overcapacity issues in 2023. The utilization rate of Contemporary Amperex Technology (CATL)’s production capacity in the first half of 2023 was only about 60%. Battery factories that participate in system integration, including BYD’s, are actually digesting excess battery cell capacity by directly participating in system integration to avoid waste.

As a result, some practitioners have spoken out, claiming that system integration has become a low-price channel for battery factories, putting considerable pressure on ordinary large-scale integrators.

Against this backdrop, BYD, with rich energy storage experience and significant cost advantages, naturally outperformed numerous domestic integrators. Its shipment ranking quickly advanced to the top three in the industry.

Continuing to lead the domestic market in 2024

Engaging in system integration presents a complex strategic choice for battery factories. While expanding downstream can boost shipments and profits, it also risks direct competition with their downstream customers. This dilemma poses a strategic test for every manufacturer.

It is understood that, as the industry leader in lithium batteries, CATL must exercise considerable restraint in expanding its system integration ventures. Although CATL, as a system integrator, participated in domestic large-scale energy storage tenders, its bid quotations were relatively conservative, and the scale of winning bids was far lower than that of BYD, reflecting the delicate balance of interests guiding its decisions.

In contrast, BYD is undoubtedly more aggressive, showcasing its ambitions for the energy storage business. In December last year, FinDreams Battery was renamed BYD Energy Storage, marking the first company under BYD to explicitly include the term “energy storage” in its name, thus emphasizing its commitment to this sector. At BYD’s annual shareholders’ meeting in June the same year, Wang underscored the significance of the energy storage business. “In the future, we will closely integrate the production capacity of automotive batteries and energy storage batteries to create a larger business space together,” he said.

Regarding capacity expansion, BYD commenced the construction of its global R&D center and energy storage industry park in Longgang, Shenzhen, in June last year. The planned investment totals approximately RMB 2 billion (USD 281 million), with a projected capacity of 20 GWh. Although this project is still in intensive construction, it starkly contrasts with the current industry trend of reducing overcapacity and production cuts.

Nevertheless, this doesn’t imply that BYD is exempt from market competition pressure.

Research firm GGII recently published an editorial highlighting the global energy storage market’s transition, expected to occur over the next 1–2 years. Last year, Wang Pengcheng, co-founder of Hithium, reiterated that the next 2–3 years will be a “life or death game” for the energy storage industry. In this context, both BYD and CATL have taken the lead in advocating for significant cost reductions and further price reductions in the battery production process to uphold their market positions in 2024.

According to a recent report from 36Kr, BYD has improved its operational efficiency through hierarchical screening, the elimination of inferior products, and the enhancement of competitiveness in its bids. Despite these advancements, there is still considerable room for reducing procurement-related costs. In 2024, efforts will persist in strengthening the management and control of non-production materials, concentrating efforts to reduce costs and increase efficiency.

A positive electrode material manufacturer for BYD informed 36Kr that they have received cost reduction requirements from the company. This suggests that the price of energy storage batteries could continue to decline in 2024. By leveraging its ability to reduce costs at scale and the lower prices of battery cells, BYD’s energy storage systems will enjoy even stronger price advantages.

“With lower battery cell costs, BYD’s energy storage system quotation prices can continue to decrease, continuing to dominate,” said the aforementioned manufacturer.

KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Wang Fangyu for 36Kr.


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