Since 2021, Chinese lithium battery manufacturers, led by CATL, have been accelerating their overseas factory construction to seize the expanding market for new energy vehicles abroad. The 'China's Lithium Battery Industry Goes Global' series will focus on the growth and transformation of the lithium battery industry, examining the changes in power dynamics among industry players over the past decade through case studies. It aims to provide readers with a deep exploration of the industry background behind the rise of China's lithium battery sector.
This article focuses on the early development of the Chinese lithium battery industry (2000-2013). During this period, the Chinese lithium battery industry went from non-existence to establishing a complete industry chain, thanks to the booming domestic development of new energy vehicles. From being an obscure global lithium battery industry OEM, it grew into a strong competitor. However, due to a lack of core technology and facing low-cost competition from Japanese and South Korean companies, the Chinese lithium battery industry failed to penetrate the global market and establish brand recognition. The awkward situation in the early stages of development: being constrained by a lack of core technology.
Lithium batteries were initially widely used in the digital toy market and then experienced two eras of application in the consumer electronics field: traditional mobile phones and smartphones. In 1991, Sony of Japan developed lithium-ion batteries that were extensively used in portable electronic products, marking the beginning of the first revolution in the battery industry. With their high energy density and excellent stability, lithium batteries rapidly transformed the landscape of consumer electronic products and found widespread applications in the market.
In 1996, Nissan successfully developed the world's first electric vehicle, Prairie Joy EV, equipped with cylindrical lithium-ion batteries. This vehicle was used by the National Institute of Polar Research's Arctic Observation Center in Japan as a support vehicle and was continuously used for 6 years under harsh climate conditions, demonstrating the reliability and durability of lithium-ion batteries in extreme conditions. Although, at that time, lithium battery-powered cars did not reach the stage of large-scale sales due to technological limitations, they showcased their immense potential in the transportation sector.
In 2000, the lithium battery market was dominated by a few Japanese companies such as Panasonic, Sanyo Electric, and Toshiba. These companies had established solid barriers in materials and battery processes and closely collaborated with the upstream and downstream of the industry chain, achieving highly automated production processes. During this period, Japanese lithium-ion battery sales accounted for 93% of the global sales. Meanwhile, the market share of Korean battery companies rapidly grew from 15% in 2005 to 39% in 2010, significantly narrowing the gap with Japanese companies. The lithium battery market presented a "battle between two giants" scenario.
In 2000, China had just achieved the milestone of commercial production of domestically produced lithium-ion batteries. Thanks to cheap labor and a massive market for electronic products, China quickly became the world's largest producer of lithium-ion batteries, with approximately 40% of production carried out by foreign companies from Japan and Korea, among others, with factories in China. The major challenge China faced at that time was the lack of core technology in lithium batteries.
Breaking this situation was a company currently thriving in the field of new energy. In 1995, Wang Chuanfu established BYD（比亚迪） in Longgang, Shenzhen, with the goal of developing and producing batteries for electric tools. With the advantage of low-cost labor and technological improvements, BYD achieved cost competitiveness, offering battery prices 40% lower than the average of companies like Sanyo in Japan. BYD's production capacity and market share rapidly expanded, gradually becoming a supplier for mainstream mobile phone manufacturers such as Motorola and Nokia. In 2005, Toshiba from Japan could no longer withstand the price war from Chinese lithium battery companies and announced its withdrawal from the lithium battery market.
During this stage, the domestic production model for lithium batteries mainly combined manual labor with automated equipment. Typically, lithium battery manufacturers only utilized a single automated equipment for a few precise processes, while other processes with lower precision requirements and the transportation of intermediate materials relied on manual labor. Compared to Japan's fully automated production lines, this labor-intensive production line had lower investment costs while possessing strong flexibility in production capabilities. Data from 2003 showed that the average wage level of manufacturing employees in China was only 1/23 of Japan's.
By 2003, BYD had grown to become the world's second-largest rechargeable battery manufacturer. However, at this point, founder Wang Chuanfu realized that the ceiling of the battery industry was low, and the later profitability was weaker compared to BYD's flagship product, automobiles. Consequently, he decided to solely invest in the automotive industry. Wang Chuanfu stated, "At that time, there were two options, semiconductors and automobiles. But because I only had CNY 2 billion on hand, I couldn't invest in both. Ultimately, I chose automobiles." This also reflected the lack of confidence among domestic enterprises in investing in the lithium battery industry during the early stages of development due to the limited market potential.
Deformed Development of Domestic Battery Companies: Vicious Competition Resulting from Short-sighted Decision-making
Unsustainable development of labor-intensive approach can not last long.
Since 2007, Japan's Sanyo Electric has established new production bases in Beijing and Tianjin, while Panasonic and Sony have invested in Wuxi to weaken the cost advantage of Chinese manufacturers. Meanwhile, from 2007 to 2009, the market began predicting that laptops and electric vehicles would become the main application areas for lithium batteries in the future. Both fields require higher quality lithium batteries, and the market size for mid-to-high-end smartphone lithium batteries would also grow.
The high quality of high-end lithium battery products implies stricter precision requirements for the production process. Chinese lithium battery manufacturers need to increase the proportion of equipment and the level of automation to meet the technological upgrading demands of lithium battery production processes. This means that enterprises relying on manual production of low-to-mid-end lithium batteries will lose their competitive edge, and automated lithium battery equipment will become a key factor in large-scale production of high-end batteries in the future.
Domestic battery manufacturing companies have begun to change their mindset and gradually increase their emphasis on the automation of production equipment. Many companies have started importing high-end lithium battery equipment from Japan and South Korea, while others have independently developed automated equipment and assembly lines. However, foreign equipment comes with a higher price tag and may not be suitable for domestic raw materials. Additionally, due to technology protection concerns, the equipment lines sold by Japanese and South Korean companies to Chinese lithium battery enterprises are generally relatively outdated, and the buyers are limited to a few top companies like BYD, Lishen, and BAK.
As a result, many battery manufacturers have started to abandon imported equipment and opt for domestic alternatives, creating favorable market conditions for domestic equipment companies. The supply chain transformation of leading domestic lithium battery companies further expands the market space for domestically produced lithium battery equipment, with related manufacturers leveraging their own advantages to compete for market share.
However, from 2007 to 2013, most lithium battery equipment companies remained relatively small in scale, had limited product offerings, and generally had weaker technical capabilities. Even by 2013, there were only 13 companies in the domestic lithium battery equipment industry with an annual revenue between CNY 100 million and 300 million, while over 200 other battery equipment companies had a revenue of less than CNY 100 million.
The main reason lies in the fact that many battery manufacturers entered the market based on the guidance of industrial policies, without a prior foundation in lithium battery manufacturing. As these enterprises mostly prioritize short-term profits and are unwilling to invest in higher performance and more expensive equipment, it further encourages the entry of equipment companies with lower technical capabilities into the market. Therefore, at this stage, the entire lithium battery industry remains in a state of low-price competition, with 60% to 70% of domestic lithium batteries classified as mid-to-low-end products.
Behind the Gradual Establishment of a Sound Industry Chain: Domestic Battery Companies Facing Suppression on Home Turf
Benefiting from government industrial policies and encouragement, China's new energy vehicles officially entered a phase of rapid growth in 2012, attracting the attention of leading battery companies worldwide. In 2015, South Korean companies such as LG and Samsung seized the opportunity, bringing their mature ternary battery technology into the Chinese market and accelerating the production pace of lithium battery assembly lines.
On October 22, 2015, Samsung SDI built a factory in Xi'an, equipped with the most advanced production line at that time, with an annual capacity of 40,000 units of high-performance automotive lithium batteries (meeting the standards for pure electric vehicles). This production line covered the entire process flow of automotive lithium battery cells and modules. Subsequently, LG Chem's factory in Nanjing was completed on October 27, with the Phase 1 facility capable of producing over 100,000 units of new energy vehicle batteries annually.
South Korean companies aimed to defeat Chinese battery companies through a price war, seeking to extend their illustrious track record in the field of electronic products. Around 2015, the factory price of domestic ternary lithium batteries was around CNY 2.5-3 per watt-hour, while Japanese and South Korean companies secured a large number of orders, including from car manufacturers such as Chery（奇瑞）, Geely（吉利）, and Changan（长安）, by offering a loss-making price of CNY 1 per watt-hour.
Rapid growth in China's new energy market in 2015 led to a shortage of battery supply and an exceptionally heated market, prompting many Chinese companies that had not previously entered the lithium battery industry to join in. Data from GBII indicates that in 2015, there were approximately 84 power lithium battery companies in China. Other sources suggest that by 2017, the number of lithium battery companies had exceeded 200. However, despite the expansion of China's lithium battery industry, it did not demonstrate a stronger advantage compared to Japan and South Korea. Imported equipment still dominated the lithium battery market, with fully automated production lines primarily imported.
Domestic companies had yet to grasp the core technology and components of high-end precision equipment, such as coating machine thickness measurement devices and coating heads, which were mostly imported products. Controllers and servo drive systems mainly used brands like Yaskawa and Panasonic from Japan. Currently, domestically produced servo motors are still in the small-scale trial stage and cannot replace foreign products.
Apart from a few companies like CATL (Contemporary Amperex Technology Co. Ltd.) that have overseas customers, Chinese battery companies are rarely recognized by foreign automakers. Typically, Japanese and South Korean batteries are the preferred choice for European and American car manufacturers. The most promising company, Tesla, exclusively uses batteries supplied by Panasonic, while General Motors, Ford, and other enterprises choose LG as their main supplier. Japan and South Korea have become the main battery exporting countries, while the US and Europe are the major importers. China, on the other hand, aims for self-sufficiency with independent production and sales.
According to statistics from China Industrial Association of Power Sources（中国化学与物理电源行业协会）, in 2012, China's lithium battery market reached a scale of CNY 31.7 billion, with a year-on-year growth of approximately 40%. China's lithium battery production already accounted for about 40% of the global total in that year and continued to grow annually. According to statistics from Highgreat Lithium Battery, in 2013, the production value of lithium battery equipment in China reached CNY 2.9 billion, with a year-on-year growth of 21%. Among them, the proportion of equipment upgrades accounted for 24%.
However, during this period, Chinese battery companies faced dual pressures from irrational price competition from Japanese and South Korean companies and disorderly competition from local companies. Without the formation of large-scale battery enterprises, they faced tremendous survival pressure, with few companies truly investing in technological advancements. Meanwhile, domestic automakers' procurement was primarily focused on obtaining subsidies, with little concern for the actual performance of the batteries, and even instances of automakers engaging in subsidy fraud. This further exacerbated the lack of emphasis on technology by some battery companies, leading to the chaotic production of batteries just for the sake of meeting quantity requirements.
Looking back at this stage of development, China's lithium battery industry mainly addressed the challenge of going from nothing to something. However, the products failed to enter the international market or establish brand recognition. Undeniably, the continuously expanding lithium battery market and the momentum of new energy vehicles indicate a long-awaited market expansion, which will bring about profound changes for lithium batteries and lithium battery equipment.
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