Someone read my previous article “Let’s talk about batteries” hoping to learn something about batteries, I mean, the fundamentals of batteries. Instead, he was to complain to me, all he learnt was about 2 battery makers namely CATL and BYD and how they compete against each other for a bigger slice of the pie and how they become so wealthy from batteries. I told him that, despite his misgivings about the article, most people who asked me about batteries are not interested in the technical part of it, but more interested in knowing about the key suppliers, and how prices will be driven down further from the competition. They also want to know enough for their EV purchase consideration and to make sure they make the right decisions for their mobility needs.
Well, we are not calling anyone pedantic (certainly NOT!), we can talk about batteries from a more technical perspective, and to share and exchange knowledge with each other if you may, hence today’s article.
Batteries are highly important in promoting alternative energy, because without the ability to store energy, most of the energy produced can go to waste. Take for instance, solar energy. Without the battery, you can only use solar energy in the day, and only when the sun shines, and hopefully it does not rain…On top of that, most of the solar energy produced goes to waste unless it is immediate consumed.
Battery technology has not changed much in the last 100 years. As I told you before, I used to sell lead acid batteries for a few years, for both motive and stationary power. Motive power refers to power for mobility, so it is used in cars, forklifts, and so on. Stationary power is used for non-mobility purposes, such as your uninterrupted power supply (UPS), even to power the telecom base stations. For motive power, I sold car starter batteries (all types, flooded, AGM, Gel, start-stop etc), deep-cycle batteries, traction batteries. As I said earlier, the technology has remained very stable for decades, unchanged, with innovation mainly in recycling.
Batteries for EVs are different, as EVs require much more powerful batteries. Such batteries have also evolved over time, with the Lithium Ion now being the most widely used. These EV batteries are basically many mobile phone batteries put together to generate more power. Hence, all the issues one encounters with phone batteries apply to EV batteries, though EV batteries have more issues, as there is also battery management system, and protection to prevent explosion from collision, and so on.
Is there any difference between the way lead acid batteries and lithium ion batteries work? The principle is the same, which is the movement of electrons for storage and power release. The main difference between the types of batteries is the material for the electrodes (cathodes and anodes), and the electrolytes. There can be some technological advancements in separators but this is not the most critical component. So battery makers try to develop and enhance batteries by finding material that can help to:
Thus, the continual search for material that can fulfill the above 5 requirements. Lithium ion used to be ideal until the demand soars, and the world soon finds out that supply is limited, and so demand forces drive up costs, so now lithium is getting more and more expensive, and soon it may no longer be commercially viable. Remember, EV makers also have to make sure that EV cost becomes very competitive to internal combustion (ICE) cars. So, CATL is researching sodium batteries, why?
Because sodium is so abundant and cheap. BYD’s blade batteries try to overcome the problem if explosion, but it is expensive to make. Traditional automakers like VW and Toyota are exploring solid state batteries where the electrolyte is not liquid but is solid, hence more compact, non-explosive due to no thermal run away, and potentially more energy dense. E-waste will become a serious issue if lithium ion batteries continue to be expensive to recycle. Note that one of the main reasons why the lead acid batteries can be commercially viable for so long is because 95% of it is recycled.
I told my friend, now that you are armed with the basic knowledge of batteries, you can judge for yourself which battery maker has brighter prospects, and hence higher market value in the near future. He can also decide for himself whether battery leasing is a viable business in the next 5 years. One has to bear in mind that battery costs today is 10% of what it used to be just a decade ago. Had it not been so, Tesla would have been history, imagine that! Finally, he can decide whether his next car should be an EV!
In the previous article, I commented that had BYD focused on batteries, they would have been valued higher today. Let’s talk a little about the market leader for batteries, CATL. This is a company that adopted a different strategy to BYD. CATL focused sole on batteries. It is the biggest battery supplier today. The founder of the company is the richest man in Hong Kong (he became a HK resident and citizen), overtaking Li Ka Shing. The company CATL was only listed in 2018, so it is a very young listed company, however, since then the share price has increased 160 times. This means that, if you had invested US$100,000 in the company in 2018, you can cash out for US$16 million today! Now compare that to BYD, which is worth 32 times more than when it first listed in 2008 (which, by the way, is itself a remarkable achievement), that is why some have argued that BYD would have been worth so much more had it focused on batteries.
CATL, including the years before it became CATL, actually has a long history. It started in 1998. However, over the years it focused on batteries even at times when this laser sharp focus was being tested tremendously. Together with LG Chem, Panasonic and BYD, they control 80% of world EV battery supplies. This stronghold is being challenged now that car OEMs are starting to invest in battery production as well, the most notable being Tesla.
Others planning to product batteries include Mercedes Benz, BMW, and VW. On top of that, battery technology is always evolving and so CATL has to continue to stay ahead of the competition and invest heavily in R&D. The product has to continually evolve, to have greater energy density, to be non explosive, to be cheaper, to allow for faster charging without accelerating battery deterioration, the increase charging cycles, to reduce in size and weight. Yes, customers want all that, and it will take a lot of skills, expertise, resolve, perseverance, to attain these goals.
As mentioned in the previous article, BYD is challenging CATL today with the blade batteries. As the founder of BYD said, the blade battery can make the battery explosion a thing of the past (刀片电池会让电车自然这几个字从字典里消失). In recent articles, it seems that CATL is also developing non-explosive batteries to challenge BYD’s. The most interesting development which CATL announced is the sodium battery aiming to replace lithium, which is becoming more and more expensive due to demand and supply forces. LG Chem’s problems in GM Bolt have also given BYD the edge over the Korean battery makers as the world gradually turns away from the Korean suppliers.
There are also more and more new entrants to the battery market but in the short to medium term, these small players are very unlikely to challenge the very entrenched positions of the big 4, namely CATL, LG Chem, Panasonic and BYD.
Many car OEMs have no reservations about using CATL batteries as compare to BYD’s, as I mentioned in the previous article, because CATL focuses on batteries and they do not produce EVs, so CATL is not a competitor in any sense of the word. That is why many stock analysts believe that, in spite of the 160 times share price increase in the last 3 years, the share price is CATL is still expected to increase 3 fold in the next 2 to 3 years, as demand of batteries surges due to the EV productions worldwide.
The future challenges to CATL will be potentially new and revolutionary battery technology in the hands of competitors (solid state batteries, possibly?), politically reasons as rivals may attack them for their close relations with the current president of China, or BEVs losing the race to FCEVs (which is very unlikely in my view).
Many of us know that Warren Buffett invested in BYD way back in 2008 at a time when even the most optimistic of EV proponents had not in their wildest dreams thought that New EV automakers would one day have market values much greater than the well established brands like GM, Ford, even Toyota. With the benefit of hindsight, we know that his investment had increased 32 times since, and we would probably be thinking on his behalf that perhaps he should have invested more than the 10%.
However, compared to its peers, BYD’s share price actually hadn’t done as well. As such, many, albeit with the benefit of hindsight again, raised questions about BYD’s strategy and asked if they should have done better if only they had focused on just making batteries instead of spreading their resources so thinly across so many product types. For those not yet in the know, BYD makes a lot of things other than batteries. They also produce cars (ICE, hybrids and EVs), electronics, phone component parts, and when COVID struck, they even produced masks.
Compared to CATL which makes only batteries, BYD’s market valuation is much lower. This could be hard fact for BYD to swallow as they are the pioneers of car batteries. It makes me wonder, if BYD had stuck to just batteries, would they be the undisputed number 1 today? The reality is that today, BYD is only number 3 in China for batteries. Though holding the status of being the first in China to venture into EV production, today they are still not the number 1 in China. Matter of fact, BYD started researching batteries 26 years ago and produced their first EV, months before Tesla even rolled out their first vehicle.
BYD has struck back with a vengeance recently with the introduction of the blade batteries, to rival CATL’s claim to non-explosion batteries. Indeed, the blade batteries are truly revolutionary and is a strong testament of BYD’s strong battery expertise. However, when compared to CATL, BYD does have a disadvantage when it comes to selling batteries to other car manufacturers. You see, car brands have no problems buying batteries from CATL or LG Chen or Panasonic, because these brands do not produce their own brands of cars, whereas BYD has how car brand and so car maker would be supporting a competitor if it buys BYD batteries.
What BYD has done very well is in the promotion of their electric commercial vehicles especially buses. It has a worldwide acceptance. To me, this is a very clever move, because the typical reasons holding back EV car buyers do not apply to the commercial fleets, especially government-run public transportation. There is not issue about range anxiety (public buses run on specific routes), second hand value (note that in Singapore BYD buses are expected to run for 17+3 years until the end of its useful life), payback period since the high mileage means that investment is recovered quickly.
I have a lot of respect for BYD, especially their persistence and perseverance, from the days when everyone doubts their ability to survive, when everyone doubts their vision of an EV future. When it comes to exports, BYD share the international market essentially with only 2 other Chinese EV makers namely MG/SAIC and GWM/Haval. The rest of the EVs offered outside of China come from the traditional car makers from Europe and a few from USA.
Of late, BYD has entered into strategic partnerships with well known car companies, for example Mercedes Benz, and that should pave the way for BYD to further strengthen their position in the EV battery market in the near future.