Battery Giant CATL Face Intense Threat from LG Chem

While the market value exceeded 450 billion yuan and ranked first in the world for three consecutive years, the CATL (Contemporary Amperex Technology Co. Limited) era ushered in the "dark moment."

While the market value exceeded 450 billion yuan and ranked first in the world for three consecutive years, the CATL era ushered in the "dark moment."

After CATL Times announced its first-half financial report, the stock price of CATL Times rose 5.43% on August 27 to close at 204.95 yuan, with a total market value of 477.426 billion yuan. This value is twice that of BYD, 2.7 times of NIO, and three times of Geely.

It is different from Tesla's market value with a "bubble". CATL used its global market share to win its current state of affairs. In 2019, CATL’s lithium-ion battery sales volume was 40.96GWh, +92.2% year-on-year, and its global market share increased from 23.4% to 27.9%, ranking first in the world for three consecutive years.

However, after the highlight moment, CATL lost its throne in the global market competition in the first half of 2020 and was won by LG Chem.

In the first half of 2020, LG Chem's total installed capacity increased by 82.8% year-on-year to 10.5GWh, with a market share of 24.6%, while the total installed capacity of CATL dropped 28.1% year-on-year to 10GWh, and its market share shrank to 23.5%.

The emerging Korean companies are not just LG Chem. In 2019, Samsung SDI installed capacity increased by 34.9%, with a cumulative installed capacity of 2.6GWh; SK Innovation installed capacity increased by 66.0%, with a cumulative installed capacity of 1.7GWh. Compared with CATL and BYD's bleak decline of 28.1% and 65.7% in the first half of the year, Korean companies are bucking the market and rising.

Why did the CATL era suddenly lose the throne of three years of exclusive use? In the context of the global recession, are the expansion strategies of LG Chem and other Korean companies the fundamental reason for defeating CATL?

Falling from the Throne Position

On the evening of August 26, CATL released a report for the first half of 2020, achieving total operating income of 18.83 billion yuan, a year-on-year decrease of 7.08%. Net profit attributable to shareholders of listed companies was 1.94 billion yuan, a year-on-year decrease of 7.86%. In the context of a 44% year-on-year decrease in the production and sales scale of the new energy vehicle market in the first half of the year, the profit result exceeded expectations.

In the domestic market, CATL has achieved an installed capacity of 8511.3MWh, accounting for 48.7%, and is still firmly in the leading position. However, in the previous rankings, foreign-funded power battery companies such as Japan and South Korea are accelerating their penetration. Driven by the mass production and delivery of domestic Tesla, LG Chem and Panasonic have achieved substantial growth in installed capacity in the Chinese market and are gradually changing the domestic power battery market. Market structure.

Shipment market share of Chinese power battery companies in the past 5 years

The competition in the new energy vehicle market directly affects the survival and development of power battery companies. It is understood that in addition to the LG Chem battery used in the Tesla Model 3, electric vehicles such as Audi e-tron and Hyundai Motor are also equipped with batteries from Japanese and Korean battery companies.

To a certain extent, the loss of the global throne is the result of competition in the European market. In the first half of 2020, the European new energy market sales increased by 52% year-on-year to 403,300 vehicles, while the Chinese market fell 44% year-on-year to 335,200 vehicles. The European market surpassed China to become the world's largest new energy vehicle market. The sales volume in July in the eight European countries was 99,700, a year-on-year increase of 214%, of which the UK, France, and Germany increased by 286%, 298%, and 289% respectively.

This change is closely related to the EU's green economy recovery plan. On May 19, the European Union proposed to include electric vehicles in the plan. France was the first to respond and announced that it would invest 8 billion euros to revitalize the auto industry. Individuals who purchase electric vehicles can receive a subsidy of 7,000 euros, and companies that purchase electric vehicles can receive a subsidy of 5,000 euros. , And the purchase of a hybrid rechargeable car can receive a subsidy of 2,000 euros.

Germany passed a €130 billion European recovery plan in June; on July 6, the United Kingdom proposed a "new car scrap plan". In order to encourage drivers of fuel vehicles to switch to electric vehicles, the British government is considering rewarding drivers with a subsidy of up to 6,000 pounds.

Earlier in stimulating the electric vehicle consumer market, the European Union has used carbon emission regulations to plant a "new energy leap forward".

In January of this year, the European Union began to implement the world's strictest carbon emission regulations, stipulating that 95% of new cars sold in 2020 must achieve 95g/km carbon emissions, while the average actual EU carbon emission in 2019 is still 122g/km. For the excess part, a fine of 95 Euros per g is required, which is huge.

Under the constraints of the ban on fuel vehicles and carbon emission regulations, the EU's development of new energy vehicles, especially pure electric vehicles, has become a general trend. Car companies such as Volkswagen, Daimler, and General Motors have all received this signal and have formulated clear and feasible transformation goals for this.

Whoever has more customers and large orders can achieve more market share. This obvious reason actually reflects the comprehensive strength of the enterprise to a certain extent. It is understood that LG Chem has reached agreements with almost all current mainstream new energy vehicle manufacturers (including Hyundai, GM, Tesla, Volkswagen, Volvo, etc.). In the European market, CATL and LG Chem both have layouts. From the perspective of installed capacity, LG Chem is clearly ahead.

The China Merchants Bank Research Institute report pointed out that considering LG's abundant customer resources, fast-paced capacity expansion speed, and European market dominance (EV battery market share exceeds 70%), LG returned to the domestic market and entered the domestic Tesla supply After the chain, the global share is still expected to increase in the future.

CATL announced last year that it will establish its first overseas factory in Germany, which will be one of the largest power battery factories in Europe. In addition to Europe, CATL has also established subsidiaries in the United States, Canada, and Japan, and is gradually improving its global layout.

Some analysts pointed out that due to factors such as the global spread of the new crown epidemic, tensions between China and the United States, regional protection, and insufficient penetration of the European market, the CATL era's overseas market is unlikely to experience explosive growth in the short term.

According to the latest data released in September by SNE Research, a power battery research institution, in the global power battery market share, Panasonic and LG both surpassed the CATL era, ranking first and second respectively, of which Panasonic accounted for 27.6% of the global market. LG batteries accounted for 22.9% of the global market. CATL Times and BYD ranked third and sixth respectively.

Analysts told reporters that the installed capacity of CATL is mainly due to the contribution of the Chinese market. The substantial growth of LG Chem, Panasonic and other companies in the past six months is mainly due to the advancement of global market strategies. From this perspective, CATL has fallen behind. step.

Escape from NCM811

Despite the decline in market position, the commercial territory of CATL is still expanding.

CATL Times issued an announcement on August 12 that it intends to invest in high-quality listed companies on the upstream and downstream of the industrial chain at home and abroad in the form of securities investment around its main business. The total investment will not exceed RMB 19.06 billion or equivalent currency, of which overseas investment will not exceed 2.5 billion dollars.

Park Zhenghao, a business analyst at Yiou Automobile, pointed out that there are two main sources of cost reduction for power battery companies. On the one hand, they change their products through technology, and on the other, they are through the layout of the industrial chain. The two-pronged CATL era has not stopped its expansion.

This is the result of its path choice of declining gross profit margin year by year. With the gradual adjustment of the subsidy policy for new energy vehicles, vehicle companies are increasingly seeking to reduce battery costs while pursuing higher mileage. Since 2016, the gross profit margin of major domestic power battery companies such as CATL has plummeted, from the initial nearly 45% to about 30%. In the first half of 2020, the gross profit margin of CATL was only 27.15%, showing a continued downward trend.

Even more serious is that the three fire incidents have caused public opinion to question the technological line of the CATL era.

On August 23, a GAC New Energy Aion S suffered a spontaneous combustion accident in Qiongshan District, Haikou City, Hainan Province. This is not an isolated incident. May 18th and August 12th. Related modified models had spontaneous combustion incidents in Guangzhou and Shenzhen, and the spontaneous combustion models happened to use NCM811 high-energy density batteries provided by CATL.

In 2019, the NCM811 battery of the CATL era has become the object of pursuit of major car companies. NIO ES6, Hechuang 007, Xiaopeng P7 and other models with a battery life of more than 600 kilometers have this type of battery. When the energy density of the battery pack equipped with other cells is below 160Wh/kg, the NCM811 can reach at most 180Wh/kg.

While high energy density means high endurance, it also means increased risk. It is reported that GAC New Energy and CATL are conducting intensive and intense communication about the fire incident. After the accident, it was reported that the Aion S produced by GAC New Energy after May had switched to NCM523 batteries. GAC New Energy has not officially issued a statement to confirm.

There are more than one NCM811 batteries that abandoned the CATL era. Geely Geometry’s previous generation model Geometry A also used this battery. Although there was no accident, Geely re-used the NCM523 battery on the Geometry C launched this year for stability. Last year, Guoxuan High-Tech, Vision AESC, Lishen Battery, Honeycomb Energy, Tafel, Wanxiang 123, BYD, Thornton New Energy and other battery companies that were also keen on NCM811 also quietly silenced the voice of this model.

In the technology-oriented power battery market, competitors have never given up on the future mainstream technology route.

In March of this year, BYD divested its battery business and formed a new company, Ford Battery. In addition to supplying batteries for BYD, Ford Battery will also be sold externally, and the main promotion of blade batteries for lithium iron phosphate routes; In May, Volkswagen China invested 60 100 million yuan in shares of Guoxuan Hi-Tech became its largest shareholder; in July, Daimler strategically invested 900 million yuan in Funeng Technology and signed a strategic partnership; Honeycomb Energy released cobalt-free batteries.

Although the CATL era is still the undisputed leader in China, it is not an exaggeration to describe the current power battery pattern as "the universe is uncertain, you and I are both dark horses".

Market Competitions

The sudden change in the pattern of domestic power batteries will begin in the first quarter of 2020. As the Ministry of Industry and Information Technology announced the abolition of the "Regulations for Automotive Power Battery Industry" in June 2019, the power battery "white list" was officially cancelled, allowing foreign power battery companies to enter the Chinese market, and international battery giants such as LG, Panasonic, and SKI returned strongly.

Enterprises under the umbrella are ultimately limited in vitality, and a new competitive landscape is being polished and formed. The CATL era is also facing threats. The bundling model of "power battery companies + vehicle manufacturers" can guarantee the survival of power battery car companies to a certain extent, that is, "customers are life."

Some studies believe that the power battery market is expected to present a new pattern in the future: foreign-funded enterprises + domestic leaders + second-tier battery companies. At present, foreign-funded battery companies are mainly concentrated in foreign-funded car companies due to their short return time and fewer customer resources.

As the localization of their own raw materials progresses, foreign-funded battery companies are expected to expand new customer resources, superimposing the increase in sales of existing models, and their market share will show an upward trend. At the same time, the competition between foreign capital and leading companies will further reduce the market space of second-tier battery companies.

Compared with foreigners and local competitors, the potential and most helpless competitor of CATL is actually the car companies themselves. At present, some auto companies are setting foot in the battery field through self-built factories and shares in power battery companies. For example, Volkswagen invested in Guoxuan High-Tech, Daimler invested in Funeng Technology and so on. With the decline in the number or increment of bound car companies, the market share of power batteries in the CATL era faces the risk of being eroded.

The CATL era, which fell from the throne, clearly understood the biggest reason for its defeat-the hindrance of overseas markets. For CATL, although the United States, Japan and South Korea are the mainstream new energy vehicle markets, Sino-US relations are tense, Japanese and South Korean power battery manufacturers have obvious home advantages, and regional protection is serious. It is difficult for them to become their overseas destinations in the short term.

In Europe, another major battlefield in the new energy vehicle market, CATL has not yet been able to establish in-depth cooperative relations with local car companies.

In addition, the black swan event of the new crown epidemic in 2020 has severely dragged down the growth of the global automobile market. The automobile industry has suffered heavy losses, the production rhythm has been disrupted, and there is greater uncertainty in the development of market demand, which is more uncertain than the deterministic increase in production capacity. Big contradiction.

According to the plan, CATL’s production capacity is expected to reach 240GWh in 2023, and its foreign production capacity accounts for about 5.8% of the overall production capacity. Capacity consumption mainly depends on the domestic market; on the demand side, global new energy vehicle sales need to maintain a growth rate of 30% throughout the year. In order to achieve the expected sales.

Battle for Top Dog

To a certain extent, the number of orders and the scale of production capacity can directly reflect the competition between CATL and LG Chem. The mass production of Tesla in the second half of the year may become the most critical factor in this suspense.

It is understood that CATL has reached cooperation with more than 20 car companies including BMW, Volkswagen and Volvo. In 2018, CATL won an order of 20 billion euros from the Volkswagen Group. In 2019, it announced that it had signed an order of 7.3 billion euros with BMW and signed a billion-dollar order with Volvo. In February of this year, CATL signed a purchase agreement with Tesla. This also means that the CATL will take a share of Tesla’s power battery supply in China.

Unlike the CALT era, which is deeply involved in the domestic market, LG Chem focuses on global strategies. LG Chem initially cooperated closely with Hyundai, and established a joint venture subsidiary with Hyundai Mobis in 2010 and became a stable supplier of Hyundai; in 2010, LG Chem promoted the listing of Chevron Voil, thus laying the foundation for the following years of cooperation; Renault is giving up After controlling the cost of self-produced batteries, LG batteries were adopted in 2012.

From a regional perspective, LG Chem’s customers in Korea include Hyundai and Kia; customers in the United States include GM, Ford, etc.; customers in China include Tesla, SAIC-GM, etc.; in the European market, Volvo, Renault, and Audi are rapidly expanding their markets.

LG Chem stated in July that the company currently holds orders worth 150 trillion won (approximately US$125 billion), which will keep it busy for the next five years and help it survive the pandemic crisis.

In terms of production capacity, CATL and LG Chem both maintained an expansion trend. At present, LG Chem has 4 production bases around the world, namely in Ocang, South Korea, Michigan, Nanjing, China, and Wroclaw, Poland. To meet the backlog and increase in orders, the production capacity of the factories in Nanjing and Poland is expected in 2020. Will reach 100GWh.

As of the end of 2019, CATL has put into production capacity of 58GWh, and it is expected that the capacity will reach 100GWh in 2020. Zeng Yuqun, chairman of CATL, said the company expects to increase battery production capacity in the next two years. Based on the current domestic and overseas capacity construction projects under construction and planned, it is expected that it may reach a capacity scale of more than 240GWh in 2023. Some analysts say that with the gradual increase in production capacity, CATL has the risk of increasing inventory.

With the two relatively consistent production plans for 2020, Tesla may become a key player in this throne battle. It is reported that the CATL is supplying lithium iron phosphate batteries to Tesla, and the supply is not less than 40% of the planned production capacity of Tesla's Shanghai Super Factory (Phase I).

Based on the output of 49,800 Tesla Model 3 in the first half of the year and the standard battery capacity of 60KWh, the total battery capacity is about 3000MWh. If the supply is stable and the ratio is true, only the Tesla Model 3 will bring more than 1000 MWh of battery capacity to the CATL.

CATL is still working hard to expand its overseas territory. According to the plan, CATL is building a new factory in Germany with an annual production capacity of 14GWh. At present, the factory has started construction and plans to officially put into production in 2022. The competition in the European market is still going on, but the CATL era is obviously a step too late and it has fallen into a disadvantage in the competition in the European market.

LG Chem previously stated that the battery orders in the third quarter are full and it is expected to increase by more than 25% compared to the second quarter. With the delivery of Volkswagen ID.3 and other models in Europe, the growth engine is still very powerful.

Compared with LG Chem, which already has multiple engines, CATL relies too much on the domestic market. Public data shows that 95% of the current battery capacity of CATL is for domestic users. In 2019, CATL’s revenue was 45.546 billion yuan, while CATL’s battery exports that year were only 2.56 billion yuan, accounting for about 5.6 of its revenue. %.

It is still doubtful whether CATL can achieve a substantial increase in installed capacity in the context of the domestic market rebound in the second half of the year, and even regain the annual sales throne. But from another perspective, it is not sensible to "be the king for the throne". Whether it can improve the overseas territory and complete the industrial chain extension plan during the opportunity period will become the core factor for the long-term vitality of the CATL.