Foreign manufacturers begin expanding into Chinese market to seize opportunities

Toyota Motor Corp and Panasonic Corp announced a battery business partnership agreement on Wednesday, with those batteries expected to be used in EVs produced by Toyota’s JVs in China. Experts say it is unlikely to pose too much pressure on domestic independent automotive lithium-ion battery makers such as BYD and CATL. However, thanks to the rapid development of the new energy battery sector, it is becoming a growing trend for more and more leading global battery manufacturers to begin expanding into the Chinese market. Meanwhile, experts also say foreign companies are still facing heavy pressure to cut costs in order to compete with local producers.

Amid fierce competition among automotive battery manufacturers to win larger market shares, Toyota Motor Corp announced a partnership agreement with Panasonic Corp on Wednesday to begin studying the feasibility of a joint automotive prismatic battery business.

The move is considered Toyota’s great ambition in the Chinese market, as it is very likely that the batteries will be used in new-energy vehicles (NEVs) produced by Toyota’s joint ventures (JVs) in China.

Toyota recently announced that it will make more than 10 electric vehicle (EV) models globally in the early 2020s, with sales starting in China, Reuters reported on Monday.

What influence will this move pose to domestic battery manufacturers?

Leading domestic battery manufacturers BYD Auto Co and Contemporary Amperex Technology Ltd (CATL) declined to comment when reached by the Global Times on Thursday.

But industry expert Zheng Jiatu, deputy managing director of the China Electric Vehicle Charging Technology and Industry Alliance, said that the deal is unlikely to pose too much influence on domestic battery brands.

With China’s NEV market looking good to Toyota, the Japanese manufacturer hopes to enter into the sector. “As far as I know, the batteries are very likely to be used in NEVs produced by Toyota’s JVs like Tianjin FAW Toyota Motor Co and GAC Toyota Motor Co rather than be directly sold in the Chinese market,” Zheng told the Global Times on Sunday.

On December 11, Japanese financial newspaper Nikkei Asian Review reported that Panasonic will start to mass produce batteries for electric motorcycles and low-speed EVs at its lithium-ion battery plant in Wuxi, East China’s Jiangsu Province, and may even supply them to Chinese companies due to the rising demand of batteries in the country.

Liu Yong, secretary-general of the Energy Storage Applications Branch of the China Industrial Association of Power Sources, said that it is still difficult to measure to what extent the expansion of global leading brands will influence domestic makers as their competitiveness is strong after years of development.

But the presence of foreign-backed battery makers could boost technological upgrading of lithium-ion batteries in China, Liu said.

Currently, leading Japanese and South Korean battery manufacturers produce nickel manganese cobalt (NMC) batteries, while their Chinese counterparts mainly focus on lithium-iron phosphate (LFP) batteries. The latter has lower capacity density and shorter driving mileage, but is safer.

Growing competition

Panasonic is currently the world’s biggest supplier of batteries for plug-in hybrid vehicles and EVs. In the first half of this year, Panasonic took up a 29 percent market share, followed by South Korean battery maker LG Chem Ltd with a 13 percent share, and Chinese brands BYD and CATL with shares of 10 percent and 9 percent, respectively, data from the Nomura Research Institute showed.

Panasonic considers the battery business central to its goal of doubling its automotive business revenue to 2.5 trillion Japanese yen ($22.05 billion) by March 2022, Fortune reported on Thursday. To realize that goal, it has been expanding its battery production capacity across the world.

Domestic battery maker BYD, based in Shenzhen, South China’s Guangdong Province, has been investing in research and development as well as the manufacturing of NMC batteries to complement its LFP batteries.

The company said in a statement sent to the Global Times on Thursday that it invested in an NMC battery production base of 10 gigawatt hours in Northwest China’s Qinghai Province to realize production capacity. BYD has since built facilities in the US, Brazil, Japan and Hungary.

Meanwhile, CATL, a latecomer based in Ningde, East China’s Fujian Province, has developed fast this year.

On December 4, the catalog for the 11th batch of NEVs, published by the Ministry of Industry and Information Technology, added 165 new vehicle types that qualify for promotion. CATL supplies batteries for 40 of these types of vehicles.

Vehicles included in the catalog can get subsidies, a favorable policy to help promote the development of the domestic new energy industry.

In terms of the overall performance index, the gap between domestic independently-made lithium-ion batteries and their foreign counterparts is not obvious, but what is certain is that battery cell performance is not as desirable, according to Zheng.

For example, Tesla’s chief battery scientist Kurt Kelty announced in May that his team made a great breakthrough, with the Tesla battery life now decreasing by 5 percent or less after the vehicle has run 480,000 kilometers.

Tapping the Chinese market

The sales of NEVs maintained high-speed growth this year, with the figure climbing to 609,000 units between January and November alone, the latest data from the China Association of Automobile Manufacturers (CAAM) showed.

According to CAAM, the sales growth rate of NEVs is expected to stay between 40 and 50 percent in 2018.

With the rapid growth of the market and the phase-out of subsidies to domestic new energy automobile brands, Japanese and South Korean battery makers in the Chinese market will grab new opportunities, experts noted.

The Chinese central government will cut subsidies to NEVs by 10 percent this year from the 2016 level and plans to phase out the subsidies entirely by 2020.

“With smart machinery and excellent processing techniques, foreign battery brands are indeed superior to their domestic counterparts. Demand for them may increase when the high-end market booms, but they also face heavy pressure to cut costs, and improve efficiency and safety in the Chinese market,” Liu said.

Only when costs are effectively lowered, driving mileages enlarged and ancillary facilities established will the demand for NEVs be truly realized, he said.

Zheng said that chargeable batteries may be a good choice to popularize NEVs among customers. “Just like petroleum stations, battery stations may also emerge in the future, supplying fully-charged batteries for NEVs,” he said.

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