Let’s talk about batteries

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).

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