On March 28, LatePost learned that Contemporary Amperex Technology Co. Limited， CATL） is currently negotiating with GM on the LRS (Licence Royalty Service, technology authorization) mode of cooperation, and plans to jointly build a lithium iron phosphate power battery factory in North America. At this stage of the plan, the planned annual capacity of the plant is not lower than that of the plant built by CATL in cooperation with Ford. The location of the plant between CATL and GM may be in the United States or Mexico.
GM is the sixth largest auto group in the world and the first largest in the U.S., with brands such as Buick, Cadillac Chevrolet, etc. In 2023, the total sales of GM's passenger cars amounted to 6,186,000 units, of which 75,000 units were EVs, with a 6.4 % share in the U.S. EV market, and its main power battery supplier in North America at present is LG New Energy.
The cooperation between CATL and GM is likely to be similar to its cooperation with Ford: CATL is responsible for building battery production lines, setting up supply chains, debugging production line equipment, and managing the manufacturing process, while the automobile company will bear the capital expenditure of the factory, and CATL will not hold shares in the cooperative factory but will collect patent licensing fees and service fees. CATL and Ford's cooperative plant is scheduled to start production in 2026.
In addition to Ford and GM, CATL also reached cooperation with Tesla in January to expand the production line of energy storage batteries in Tesla's Nevada Battery Factory. CATL will help Tesla build the production line and provide part of the equipment, but it will not be involved in the management of the manufacturing process of the production line.
It is understood that different degrees of technology authorization will become the main business model of CATL in the North American market. Under the technology licensing model, the CATL revenue scale is smaller, but the capital expenditure is less and the profit margin is higher. North America is the market with the greatest opportunities and challenges for CATL. In 2023, the penetration rate of EVs in the US will be only 7.6%, and the year-on-year growth rate of EV sales will be 45%, compared with China's growth rate of 36% in the same period. The low total volume and still high growth rate indicate the potential of the U.S. market.
"The U.S. market, CATL is going in." Zeng Yuchun, chairman of CATL, said at a research event in early 2022. In the same year, CATL began to plan to build its battery factory in Mexico or Canada, which is in the North American Free Trade Zone, to serve U.S. automobile customers; however, the environment has changed since then, which has caused CATL to adjust its strategy for entering the U.S. market.
In August 2022, the U.S. Congress passed the Inflation Reduction Act to support the U.S. domestic electric vehicle manufacturing industry. According to the Act, the U.S. government will subsidize $7,500 for each EV manufactured in North America (including the U.S., Canada, and Mexico), of which $3,750 will be subsidized to power battery manufacturers, provided that components accounting for more than 50 percent of the cost of the battery are produced or assembled in North America. According to the Sensitive Entity Guidelines, if the battery is manufactured or assembled by a "foreign sensitive entity", it will not be eligible for the subsidy; all companies incorporated in China or in which the Chinese government owns 25% or more of the shares are likely to be considered as "foreign sensitive entities".
Although the U.S. government has not yet declared CATL a "foreign sensitive entity," this potential risk means that U.S. car companies that buy CATL batteries may not get the full subsidies, weakening their competitiveness.
Sources familiar with the matter said that to allow partner car companies to get subsidies and at the same time enter the U.S. market themselves, CATL negotiated LRS model cooperation with all major U.S. car companies at the beginning of 2023. under the LRS model, the absolute scale of CATL's revenues and profits will be smaller than that of the model in which the company builds its battery production lines and sells its batteries.
It is understood that the LRS mode of cooperation between CATL and Ford, CATL will have two revenues: one is the sale of battery production equipment and building the supply chain of the one-time fee; the second is to collect a certain proportion of the patent license fee of the number of batteries produced by the car company. To analyze, CATL and Ford car cooperation, CATL in each battery on the amount of royalties charged may be less than the CATL's own profits from selling batteries; but CATL investment is also less, so the profit margin will be higher.
One investor said that if CATL were to build a wholly-owned plant in North America, the profitability of its plant could be on par with CATL's domestic plant, and the net interest rate could reach or exceed 10%. "Although labor and supply chain costs are higher in the U.S., multinational car companies are also willing to pay a higher premium for good batteries." The benefit of the LRS model, on the other hand, is that it reduces the capital expenditures for expanding into the North American market, and Ningdezhen takes on less risk, he said.
In the LRS model, CATL does not need to bear the fixed capital expenditures for plants and production equipment. What CATL needs to do is help its partners build production lines, audit and set up the battery material supply chain, and send equipment and process engineers to help its partners maintain and optimize the battery production lines. CATL bears the cost mainly the cost of training partner engineers and their own stationed engineers' salaries.
Zeng Yuchun said in a media interview on March 25, that CATL is currently negotiating with more than a dozen European and U.S. automotive companies for similar technology licensing cooperation. It is understood that the details of cooperation between each company and Ningde era LRS mode are different, the division of work responsibilities and specific charges and proportions depends on the results of negotiations between the two sides.