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Posted by AGORACOM-JC at 10:52 AM on Tuesday, June 25th, 2019

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China’s breaking up the EV battery monopoly it carefully created

By Echo Huang

As China phases out subsidies for electric vehicles next year, it’s also ending a related policy that effectively shut out foreign battery makers, creating the domestic monopoly we see today.

China’s Ministry of Industry and Information Technology (MIIT) announced yesterday (June 25, link in Chinese) it is dropping its practice of publishing lists of battery makers that met technical standards. The policy, put in place in 2015, was meant to help develop the industry. Supplying the information to get on the list was supposedly voluntary (link in Chinese), but in reality, using the batteries on the ministry’s lists made it more likely car makers would qualify for government subsidies. As of 2016, the last time the list was updated, it included a total of 57 companies—none of them foreign firms.

As a result, the top 10 battery makers powering the world’s largest EV market are all Chinese (link in Chinese), according to 2018 data from the China Battery Industry Association. That means China dominates the value-added chain for domestically made electric vehicles, since batteries contribute 40% of the cost of an EV—quite a contrast to the value added when China assembles an iPhone.

Financial newspaper Economic Observer noted (link in Chinese) in April last year that Chinese car makers made their component decisions from the lists, while local governments and investment firms also consulted them. “Associated with subsidies, these became known as the ‘white lists,’” the newspaper said.

The lists included CATL, the world’s largest EV battery maker (Quartz membership), which supplies Chinese and foreign carmakers that include state-owned BJEV, one of the country’s biggest manufacturers, Volkswagen, Daimler, BMW, Honda, and Shanghai-based startu NIO. The world’s biggest EV manufacturer, BYD, is also the country’s second-biggest battery supplier, since it makes the batteries for its own electric cars—last year it sold some 100,000 of them. Both BYD and CATL could supply batteries to Toyota cars soon. In third place is Guoxuan High Tech, a major supplier to state-owned carmaker BAIC Motor, the parent company of BJEV.

This situation isn’t the case everywhere. Tesla, the biggest US EV firm, gets its batteries from Japanese electronic firm Panasonic, France’s Renault sources the batteries for its ZOE electric vehicle from South Korea’s LG Chem.

Taking away the lists could benefit established foreign battery makers. “It’s a gesture of China opening up, along with pressure from G20 and trade,” says Qiu Kaijun, who runs an EV news blog (Quartz membership). Chinese president Xi Jinping is set to discuss US-China trade tensions with US president Donald Trump on the sidelines of the G20 meeting of leaders of top economies, which begins in Japan Friday.

Before the policy was put in place, when China’s EV market was starting to take off, foreign firms like LG and fellow South Korean major Samsung were about to expand (link in Chinese) in China. In 2015, LG had opened a battery factory in China’s eastern city Nanjing that could supply to more than 100,000 EVs (link in Chinese), yet it never got on the white list and the factory ended up being sold to Zhejiang-based carmaker Geely in 2017 (link in Chinese).

“Earlier, all the subsidies went to those using Chinese EV batteries—if you use LG and Samsung, you won’t get subsidies,” said Angus Chan, a Shanghai-based auto analyst at Bocom International, “When 2020 comes, it will be free-market competition. It’s straightforward for carmakers—energy density, safety, and price… Everybody is on the same racing starting point in the post-subsidy era.”

China began reducing its massive subsidies two years ago, and will move to a credit system next year.

The scrapping of the battery lists comes at a time when China has rolled out the welcome mat for foreign EV firms in other ways. China last year said it would phase out foreign investment limits for car manufacturing, a rule that earlier made it impossible for foreign car makers to set up shop in China without a local partner. That reform began with manufacturers of electric vehicles, allowing Tesla to become the first foreign car maker with a wholly-owned plant in China. Located in Shanghai, it is taking orders for the first made-in-China Teslas, which are expected to roll out in the next six months.

Other new rules limiting the number of new factories in a province mean Tesla’s factory has put a spanner in the works for local manufacturers who were also hoping to set up near one of the country’s most important cities for EV sales. It’s clear China’s EV industry is going to put under greater pressure as a result of these moves—which could improve their technologies, or kill off some of the weaker firms.

Already, CATL is looking beyond China, setting up offices in France, Canada, Japan, and Germany (Quartz membership).

“What happens after the typhoon passes?” asked Zeng Yuqun, CATL’s founder, in an internal email (link in Chinese) in 2017. “Can a pig really fly?”

He was referring to a Chinese allegory—“When the typhoon comes, the pig will fly”—comparing the government subsidies to strong winds lifting the company’s fortunes, and warning of a possible heavy landing once those winds die down.

Looking for more in-depth coverage? Sign up to become a member and read more in-depth coverage of China’s electric-car boom in our field guide.


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