Can Beijing Tolerate an EV Battery Monopoly?
(Bloomberg Opinion) -- The world’s largest electric-vehicle battery maker is getting bigger. Whether it can maintain its global reign will come down to Beijing’s tolerance of a private enterprise’s monopoly in a key industrial sector.
China’s Contemporary Amperex Technology Co. announced on Dec. 30 it was investing 24 billion yuan ($3.77 billion) to expand its battery production capacity in Sichuan province, maintaining its global dominance. It has also begun construction of an industrial park in Hubei to eventually power as many as 4 million electric vehicles. In addition, the firm is looking at factory sites in Poland for a total investment of around 2 billion euros, while Hungary is vying for a role in CATL’s expansion plans, too. There’s also a plant under way in Germany.
With this unchallenged momentum, CATL supplies a host of big, international car companies and EV makers including Tesla Inc. The Ningde-based firm’s heft and dominance has been well documented: It is now the largest profitable powerpack manufacturer on the planet, and one of the biggest publicly listed companies in China.
This industrial might could become the firm’s most pressing problem yet, given Beijing doesn’t have a great track record of allowing the dominance of private enterprises. It doesn’t help that the chairman, Zeng Yuqun — albeit more understated than his billionaire peer Jack Ma — and his top executives have been big beneficiaries of CATL’s rallying stock price. With China focused on anti-trust measures and the resultant troubles of its tech giants, including Tencent Holdings Ltd., Alibaba Group Holding Ltd. and Ant Group Co., it’s worth wondering whether President Xi Jinping can stomach one company having such a tight grip on market share — and significant global prominence — in what has been deemed an essential sector.
The broader anti-monopoly rhetoric has expanded beyond online platforms, too. Late last month, the head of China’s new bureau tasked with keeping an eye on concentrated market power said the country would step up supervision and law enforcement to regulate areas like technological innovation and information security, state media reported. The official said the body would “continue to strengthen review of cases related to the concentration of operators to prevent disorderly expansion of capital.” Recent editorials have also opined on antitrust and unfair behavior.
That logic, in theory, extends to CATL. It’s no surprise that Beijing might become uncomfortable with this situation. Bad actors or not, no amount of good will or international clout helps, as the experience of HNA Group International Co. or China Evergrande Group has shown.
While CATL has been a beneficiary of the state’s largesse and focus on electric vehicles, Beijing hasn’t let it run free. In November, the Shenzhen Stock Exchange raised questions about a close to $9 billion equity offering the company was planning and asked whether it was raising funds “excessively.” Soon after, the battery maker slashed its fundraising by billions of yuan and cut back on allocations to two projects, along with working capital. In its response to the exchange, the company said its current assets were not enough for the planned expansion.
What’s more concerning is the ecosystem of component suppliers that has grown around CATL. These firms are highly dependent on the powerpack maker: If it announces an expansion, they often do, too. In addition, they rely on the firm’s market dominance as a secure customer. It has started to look like a winner-takes-all model.
Yunnan Energy New Material Co., which manufactures battery separators, announced in late December it had signed a contract with CATL. The order is a significant chunk of the firm’s capacity and CATL is offering a prepayment to ensure production and supply. Other firms like Jiangsu Dingsheng New Energy Materials Co. (which recently signed a contract) and Jiangsu Guotai International Group Co. (which is expanding its facilities in Ningde and Poland) make up the hive around the company.
While that speaks to an efficient and reliable network of supplies for CATL, it’s also a system in which several companies lean on one main firm as their source of revenue. At a time when supply chain financing for manufacturers has been tight and raw material prices are shooting up, that becomes dangerous. Any weakness in demand, or snarls in electric vehicle plans, and it could go pear-shaped.
Yet CATL represents China’s path to dominance of the global EV battery industry and the new energy sector more broadly. No country or company comes close to this level of scale or efficiency. One reason Tesla has been able to get its cars on roads across the world is because CATL was able to produce at scale the batteries required — a surprisingly difficult feat. It’s also an example of how an important and crucial part of this process is in China’s hands.
Beijing may have other plans though. For instance, it wants to create an industrial complex comprised of powerful small- and medium-sized enterprises that are dominant players in niche sub-sectors, as it did with traditional auto parts, in order to spread the wealth. But even then, it ended up with one or two dominant companies like glassmaker Fuyao Glass Industry Group Co. instead of a handful of top-notch suppliers. Or it may want several, large battery manufacturers — backed by the state — instead of just a couple of private firms.
But getting in the way of CATL at such a crucial point of the global electric car cycle would be foolish, because China would lose out on the one chance it finally has to prove its industrial brawn.
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Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.
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