For many people in the energy market, and in many others for that matter, if a company operates almost entirely in China, it has little bearing on how they run their own energy company. But in energy, as in everything else, China has a plan and it would be wise to stay aware of it.
That’s the point of a centrally planned economy, five year plan after five year plan, centrally coordinated so that China can achieve its key aims – which are essentially to dominate all markets, become the largest economy in the world, and eventually take over global control of currency markets from the US. Right now we may find the idea of no real voting for politicians and virtually permanent control given over to their party Chairman, difficult to reconcile with our ideas of democracy, but try arguing that with a Chinese person.
And China’s plan in Electric Vehicle technology is the same as any other plan, to initially dominate manufacture, then become the largest market, then to export technology to the rest of the world.
A cautionary tale of the global TV market gives us a clue. In the beginning China did not have much of a TV industry, and little content was made there. Then overseas companies built factories in China to use local cheap labor. Through the 1970s and 80s, China became the largest maker of Cathode Ray Tube television sets in the world – but almost no-one in China owned one. Slowly the manufacturing revolution freed up a financially mobile middle class, who wanted nice things and they coveted TV sets.
Roll forward ten years and China was the biggest buyer of CRT TV sets in the world, as well as the biggest manufacturer. But being a planned economy it could also do two things at once – and it was also becoming the largest manufacturer of LCD TV sets, which formed the basis for large flat TV screens which only really began to take off in 2000.
This idea of doing two things at once is really important. In a capitalist economy there may be some R&D for next generation technology but it is always a tiny fraction of the money spent improving the current technology, and it is only a planned economy where the two routes to market can be isolated and funded separately. It is effectively down to governments to fund future excursions into new technologies, and in energy that means the Department of Energy in the US, and MITI in Japan, but neither have the scale of Chinese investment.
Back to TV and twenty years later no-one has a CRT TV, not even in China – and the average wage among the China middle classes is big enough for people to home to own a 54 inch TV set built with 7thgeneration LCD technology, and it is the biggest market in the world for all TV set types. Today Samsung is still just about the largest manufacturer of very advanced Quantum Dot LED style TV sets for customers outside of China, and LG still leads the technology in Organic Light Emitting Diode TV sets – with both styles being technologically just beyond Chinese firms, for the time being, but multiple US and European brands now acting as fronts for Chinese businesses, having been acquired.
But the two Korea manufacturers only lead the way after 40 years of constant innovation which has left companies like Sony, Panasonic and Toshiba virtually outside the manufacturing strata of the LED screen industry, and brand like RCA and Technicolor out of the TV industry. The Japanese firms still sell TVs, but the guts of them are made by South Korea firms in Chinese factories.
You can argue the dates and the precise transition detail, but this is essentially what China now has in store for the lithium ion battery industry, and it has begun for CATL (Contemporary Amperex Technology Comparex (CATL) with the contract to supply LFP battery technology to Tesla Shanghai.
Always part of this equation is the protectionism of Chinese markets from outsiders, and partnering with Tesla will keep CATL right up to date on technology thinking from Tesla, and it may even adapt its own technology to Tesla designs. It is not proud. And that may have been achieved by only allowing Tesla to make cars in China, not battery, forcing it into the arms of CATL.
But the final act is always one of exerting control on overseas markets and then finally driving down international prices. It did this in markets like Wind and solar before in Energy, and would have eventually attached thermal turbine designin the same way. None of this is evil or unprincipled, it is merely sticking to a plan.
One of the brilliant steps in such a plan is giving Chinese companies access to multiple sources of revenues – taking them public in US markets like the Nasdaq, or borrowing debt within China including from the government, but also capturing huge contracts, such as that CATL deal with Tesla, because no-one questions funding from US companies, who in turn extract it from the humble US investor.
At present CATL battery cells for Tesla are installed in EVs produced at Gigafactory Shanghai, which is part and parcel of Tesla’s speed to market with 100% more cars made globally once the Shanghai factory opened. Adding 450,000 EVs per year.
Our point is that energy companies cannot afford to ignore what is going on in China, but must look for triggering steps along the way that signify a particular milestone has been reached.
This week CATL said that the plant that it has been after in Germany and its very first plan outside of China, has received a 2nd round approval. This plant has been being prepared since 2019, and is a big part of CATL’s plans to break out of China. It will produce some 8 GWh of battery , rising to 14 GWh, from sometime this year when it is supposed to be switched on, growing over time, and almost certainly it will begin life supplying batteries for cars made at Tesla Berlin.
But if not that’s not a problem. CATL already has battery supply deals with BMW, Daimler, Hyundai,Honda, NIO, Stellantis, Tesla, Toyota, Volkswagen, Volvo and XPeng – obviously a number of them in Germany.
In China, its clients already include BAIC Motor, Geely, GAC Group, Yutong Bus, Zhongtong Bus, Xiamen King Long, SAIC Motor and Foton Motor.
The plant will also be Germany’s first active battery factory, and the first cells will roll off the assembly lines by the end of 2022.
Rethink’s latest forecast on giga factories has this factory extended to produce some 40 GWh by 2025. By that time 11 factories in China will produce 380 GWh of battery for CATL in China, and while there is no public plan to build a factory in the US, the fact that others are failing to keep up with EV sales in the US, will make the invite to build one or more factories all too mouth-watering.
The plant is actually referred to as CATT with the last TY standing for Thuringia the precise town it is based in and CATT consists of two buildings the first an existing assembly factory that was already there and the G2 plant to be built by CATT where cells will be produced. The latest approval was in fact manufacturing approval for G2, which is now going to be fitted out with clean rooms and humidity controls and being driven partly by solar power panels on the roof. Total investment is just €1.8 billion.
