It May Be Too Late to Fend Off China’s Battery Giants
Summary
China’s electric vehicle battery juggernaut is going global. Western firms may have a tough time competing, even with significant protection.Having charged up in their massive home market, Chinese electric-vehicle-battery firms are becoming major export players, too. The West’s efforts to protect its own markets might prove too little, too late.
Chinese firms are also eyeing big new factory expansions in Europe itself, and in U.S. free trade partners, as a way to sidestep current and future import restrictions—much like Japanese carmakers did in the U.S. in the 1980s.
Sales of new-energy vehicles, which include plug-in hybrids, surged 37% year over year in China in the first nine months of 2023, according to the China Association of Automobile Manufacturers. But exports have also jumped sharply: China is now the world’s top exporter of EVs.
And that, in turn, is helping China’s battery industry. Contemporary Amperex Technology, or CATL, and carmaker BYD are already the top two producers of EV batteries in the world.
Outside China, Chinese battery manufacturers still lag behind South Korean rivals—the top three have nearly half the market. But if CATL keeps logging growth numbers as it did this year, that could change fast.
LG Energy Solution, the top Korean battery maker, booked ex-China sales that were 60% higher in the first eight months of 2023 than in the same period of 2022, according to SNE Research. But CATL’s overseas sales more than doubled, and its ex-China market share is now neck and neck with LG—both have about 28%. SK On, the No. 2 Korean battery maker, only boosted such sales 16%.
Meanwhile, CATL’s market share in Europe has risen to 24% this year, compared with 10% in 2020, according to HSBC. Exports of Teslas equipped with CATL’s batteries from its Shanghai factory are one reason. But the battery maker also supplies European carmakers like Stellantis and Mercedes-Benz.
And overseas sales could become more important to Chinese battery makers as domestic competition intensifies. Chinese battery companies enjoy significantly higher margins abroad, according to Goldman Sachs. For example, the bank expects around 70% of the earnings of Gotion, a Chinese Volkswagen supplier, to come from exports or overseas production by 2025. The company’s plant in Germany has started production this year and it is building a $2 billion battery factory in Illinois.
Geopolitics are one big risk to that scenario. The U.S. Inflation Reduction Act mandates that subsidized EVs use batteries with a certain proportion of content from the U.S., or from free trade partners. The European Union has launched an antisubsidy probe into EV imports from China—and set a target of making 40% of clean tech domestically by 2030.
But China’s battery industry is already trying to sidestep these restrictions. Chinese firms have announced overseas investments of more than 200 billion yuan, the equivalent of $27 billion, in batteries and materials, says Goldman. More than 80% of that is in Europe.
Hungary, in particular, is a popular destination. CATL plans to spend the equivalent of $7.7 billion in the country to build what could be the continent’s largest battery plant. Hungary is one of the friendlier countries to China in the EU bloc, and offers relatively low labor costs.
Morocco, which has free-trade agreements with both the EU and the U.S., is another likely beneficiary. Gotion has signed an agreement with the government to look into setting up a battery plant there with an eventual planned investment of $6.4 billion. China’s miner Huayou will build plants there for refining lithium and making cathode materials with Korea’s LG Chem.
China’s battery race abroad won’t be free of potholes, but its battery champions are ready to drive around them. For the U.S. and especially Europe, that offers pros and cons. In the long run, Chinese battery know-how could filter out into European suppliers and help build a local ecosystem, much like Tesla and Apple helped level up China’s EV and smartphone sectors.
In the short run, however, it might mean U.S. or European would-be CATLs struggle to gain much traction.
Write to Jacky Wong at jacky.wong@wsj.com
