Overview
Eric, what’s going on with Chinese electric vehicle battery makers?
January to March is generally a very weak auto season. There is a vacuum in demand and at the same time, supply came up a lot last year when electric vehicles (EVs) were selling very well and a lot of battery manufacturers increased their capacity. So, we have huge increase in supply and not so much demand. That creates a supply and demand imbalance, a lot of pricing pressure and concerns about overcapacity.
We've also seen a lot of big Chinese battery makers pushing into overseas markets.
Yeah, the most talked about deal is the CATL-Ford deal. Investors are paying a lot of attention to it because this could set the precedent of China battery makers entering the US market. But politicians on both sides are also scrutinising the deal closely.
On the China side, they worry about this will lead technology transfer to the US. On the US side, they don't want US tax dollars to go to the Chinese players. I think it could be quite challenging to move forward.
Tell us about the technology behind EV batteries. What is China’s advantage there?
There are two main types of EV battery chemistry: Lithium Iron Phosphate (or LFP) and Nickel Cobalt Manganese (NCM). The biggest difference is that LFP doesn't rely on other metals apart from lithium and iron, which are all very abundant, whereas NCM relies on cobalt, which is rarer and mainly sourced in Africa.
That means LFP is more scalable and cheaper relative to NCM. But LFP also has lower energy density while NCM has higher energy density. That’s why you see LFP generally used in mass market products.
In China, 70 per cent of EV batteries are LFP. In contrast, in Korea and Japan, manufacturers historically make NCM batteries and have little incentive to change.
China is creating subsidies for the EV business. What are other major economies, like the US and Europe, doing in that vein?
Both Europe and the US have launched their own subsidy programs to build up their EV supply chains. And that brings into question how Chinese battery makers will fare in the international market going forward.
The US Inflation Reduction Act (IRA) subsidises both consumers and manufacturers. On battery manufacturing, they're subsidizing $35 per kilowatt hour. That's essentially more than the profits that Chinese battery makers are making today in the Chinese market. On that basis it would be very hard for US EV companies to compete if they use batteries imported from China or anywhere else.
So, then it makes more sense to move production onshore to the US.
Exactly. And that's also why we are seeing a lot more collaborations with Korean battery makers to establish production line in the US.
Will it work though? Will it eat into China's dominance in EVs?
This is giving time for the global players to catch up. China is leading in EV penetration and penetration in the US today is still very low. If they're given time to scale up, they have a chance to at least be on equal footing, and that will help them compete.
But at this point of time, it's too hard to tell. A lot depends on cost, which for those facilities in the US, is still up in the air. Bottom line: battery is a heavy component, and localisation of supply chain is going to be key in determining the global players’ success in the US market.
What does all this mean for consumers?
It’s definitely good news for consumers. We have already seen massive price cuts from both Tesla and the domestic players in China. Some consumers are taking a wait-and-see attitude - to see if even more price cuts are going to follow.
Historically, one of the biggest barriers for Chinese consumers is price. If you can sell an EV at a price similar to an internal combustion engine (ICE) vehicle, a lot of consumers would choose EVs because the cost of operations is just much lower. In China, electricity is especially cheap.
Last year, we did a survey with Chinese consumers and we had an astounding finding that nearly 90 per cent of consumers would first consider or would be likely to consider EVs for their next car purchase. That's the sort of statistics we’re seeing in China. I think, this year, the number will be even higher.
