60 Business The Economist July 17th 2021
Superpowersurge
I
n america, ifyou want to dominate an industry, you channel
your inner Elon Musk and shout about it. But catl, the Chinese
company that makes batteries for some of Mr Musk’s Tesla electric
vehicles (evs), is different. When your columnist first contacted it
in 2017, the brushoff was swift. “We want to concentrate on our
products only and do not accept any interviews at present.” These
days it is only marginally less blunt. “Unfortunately, we are sorry
that it’s hard for us to arrange [interviews] at the moment.” The
temptation is to give it a dose of its own medicine and ignore it.
And yet in 2017 the firm, founded only six years earlier as Con
temporary Amperex Technology Ltd, vaulted from being the
world’s thirdlargest batterymaker to its biggest. It has since
reached a market value of 1.3trn yuan ($200bn), more than the sec
ond, third and fourth producers—South Korea’s lgChem, Japan’s
Panasonic, and China’s byd—combined. In recent days its rising
share price has made its 53yearold founder, Zeng Yuqun, richer
than Jack Ma, a muchbetterknown Chinese tech baron. Given Mr
Ma’s blackballing by the Chinese government, for Mr Zeng to have
kept his head down now looks shrewd.
The world will hear a lot more about catlin the future. That is
because one of the justifications for its high valuation is that it is
about to move beyond the Chinese mainland, the world’s biggest
ev market where it accounts for about half of lithiumionbattery
sales, to Europe, Indonesia and possibly even America. Its profit
ability far exceeds that of its global peers. Its technology has be
come at least as good as theirs, giving it the clout to outcompete
them and contribute meaningfully to a worldwide cleanenergy
revolution. And yet it is also what Sam Jaffe of Cairn era, a battery
consultancy, calls the “dreamchild” of China’s governmentindus
trial complex. That makes it a potential flashpoint in the torrid
world of technology geopolitics.
catl’s low profile starts with its provenance. Mr Zeng created it
in the backwater of Ningde, a subtropical city better known for tea
than tech, in Fujian province where he grew up in a hillside vil
lage. But he has long had high ambitions. In 1999 he founded Am
perex Technology Ltd (atl), a maker of lithiumion batteries for
portable devices, which he sold to tdk, a Japanese firm, in 2005.
One of his big clients was Apple, maker of the iPhone. Seeing the potential for evbatteries, which China was keen to
turn into a strategic industry, Mr Zeng led a spin off from atlin
2011, severing links with its Japanese parent company—possibly to
please the Chinese authorities, says Mark Newman, a battery exec
utive who formerly covered the company as an investment ana
lyst. When it listed in 2018, catlhad a small percentage of direct
and indirect state ownership. More important, the government
had its back. For years China used subsidies to favour domestical
ly produced batteries for electric cars and buses, kneecapping
South Korean competitors such as lgChem and Samsung sdi.
catl, one of two toptier Chinese producers, benefited most. The
other, byd, made cars as well as batteries. For that reason, many ri
val carmakers in China—including foreigners such as Tesla and
bmw—gave it a wide berth and turned to Mr Zeng instead.
It is unfair, however, to ascribe catl’s success purely to eco
nomic nationalism. According to James Frith of Bloombergnef, a
consultancy, when catlwas faced with the winding down of sub
sidies in 2019, it quickly leapfrogged its South Korean rivals to pro
duce the latest highnickel batteries, which run for longer than the
cheaper lithiumironphosphate ones that had been China’s sta
ple. Chinese carmakers are bolder than their Western counter
parts (apart from Tesla) in adopting innovative chemistry, he adds,
which gives catlmore freedom to experiment. It also gets more
for its investment in China than rivals do elsewhere and has a
cheaper workforce, which makes its operating margins, just shy of
15%, the best in the business. Strong profits provide more cash to
invest in expansion. Neil Beveridge of Bernstein, an investment
firm,expects its capacity roughly to quadruple to 500 gigawatt
hours (gwh) of battery cells a year by 2025. That is an amount simi
lar to what is promised from all of the world’s gigafactories today.
Only Mr Musk sets more outlandish targets. Zeng and the art of market-share maintenance
Most of catl’s expansion will come in China, where it has a grow
ing export business. But by the end of this year it is also expected
to start production at its first offshore factory, with capacity of
14 gwh in Erfurt, Germany, from where it will supply carmakers
like bmw, Volkswagen and Daimler. Its move overseas appears to
be motivated by a desire to retain its market leadership as evsales
outside China accelerate. Its South Korean and Japanese rivals
have a bigger global presence. Simon Moores, a battery consultant,
thinks a subsequent step will be into America.
Yet energy—even the clean stuff—is dirty business, muddied
by geopolitical rivalries and economic jingoism. There are already
fears in the West that catl’s profitability in China will enable it to
offer cutprice products abroad, reopening wounds caused when
China’s subsidised solar panels swept the world in the 2010s.
Moreover, advanced batteries, like semiconductors, are increas
ingly discussed in terms of an arms race. Europe and America are
offering big inducements for locally made batteries and adjacent
supply chains in order to catch up with China. They see a strategic
vulnerability in being too reliant on a Chinese supplier.
As a result, catlwill have to be clever. Already it has more alli
ances with global carmakers than any other battery firm; jointly
building factories close to their operations around the world
would buy it political support. It will need to counter geopolitical
paranoia by stressing the importance of cheap batteries, both for
evs and cleanelectricity grids, in the fight against climatechange.
More transparency wouldn’t go amiss, either. It is a finelinebe
tween being coy and acting as if it has something to hide.nSchumpeter
China’s “dreamchild” is stealthily winning the battery race