Who’s in charge?

The rivalry between Airbus and Boeing is one of the most determined in corporate history. Over the years, they have swapped places as the market leader and traded jabs over the role of military contracts or government subsidies in each other’s success.

In the world of batteries, BYD from Shenzhen and Ningde-based Contemporary Amperex Technology (CATL) are engaged in similar skirmishes as they fight for supremacy in the technology that powers next-generation electric vehicles (EVs).

The latest chapter in their rivalry opened in March, when BYD unveiled its latest technology known as the Blade Battery. It is a type of cell that uses lithium iron phosphate (LFP) as its cathode material but in a much longer and thinner design than its predecessors. This enables more cells to be fitted into a battery pack, which the company claims translates into higher volumetric energy density and a longer cruising range for the cars. The technology is also said to be a more reliable performer because the cells, which are long enough to touch the frame of a battery pack, also work as support ‘beams’ that strengthen the pack, as well as having enhanced cooling ability.

The Warren Buffett-backed firm proved its claims by putting a battery through a filmed ‘nail penetration’ test. In the video BYD showed that a fully-charged Blade Battery did not catch fire after being pierced by a steel nail. With its surface temperature reaching only 30 to 60°C, an egg cracked on the battery’s surface did not cook. In contrast, an NCM (nickel, cobalt and magnesium) lithium battery, which uses ternary as cathode material, burned fiercely, with its surface temperature exceeding 500°C. A conventional cubic lithium iron phosphate battery, although emitting no smoke nor flame, saw its surface temperature rise to 400°C and burn the experimental egg.

“The Blade Battery is going to remove the word ‘spontaneous combustion’ from the dictionary of New Energy Vehicles,” BYD’s founder Wang Chuanfu said at the product launch. Wang said the innovation could redefine safety standards for the industry and challenge the dominant position of the ternary-based battery.

An investor then asked Zeng Yuqun, CATL’s chairman, for his opinion on the Blade Battery during a video conference a few weeks later. CATL is a leading player in ternary batteries (see WiC404).

“The Blade Battery is merely one of the many designs we explored for our cell-to-pack (CTP) series back in 2016. At present our company has already picked the best ones to produce,” Zeng replied, adding that a nail penetration test is just one of many testing methods, and inadequate by itself in assessing battery safety.

On the same day, Li Yunfei, deputy general manager of BYD’s sales unit, challenged CATL on weibo: “Not convinced?! Why don’t you put your product through the same test? Nail penetration is the most difficult of all tests. Think Mount Everest! If you can reach the top of Mount Everest, surely you have no problem climbing other peaks!”

Ten days later CATL released a video showing how a 5mm steel nail broke as it was plunged into its ternary battery format. It added another video that seemed to demonstrate that a number of its older models could also be penetrated by a steel nail without catching fire.

The following day BYD’s Li fired back on weibo that CATL had missed the point with its latest round of tests. “The purpose of the test is to prompt a short-circuit and assess how the battery behaves when there is a thermal runaway,” he insisted, outlining a further five key points that needed to be considered. “If the nail breaks, or even pierces into the battery, but fails to create a short-circuit, then the test is invalid,” he added.

The row rumbled on when an engineer from CATL, who identified himself as David, poured scorn on Li. “In just five short statements there are two technical errors,” he scoffed, claiming that the purpose of nail penetration tests is less about creating short-circuits than simulating conditions where researchers can better understand the probability that a thermal runaway might happen.

CATL then posted an article on its weibo entitled ‘Some Knowledge about Power Battery Standards’. In it the company claimed that its ternary batteries had passed the nail penetration test as early as 2017 at the request of a prominent European carmaker. It chose not to make the success public because foreign carmakers were favouring a more holistic assessment of battery safety as opposed to focusing on a single element. “There is a better safety solution at the battery pack level, and therefore the practical need for testing a single cell with nail penetration is obsolete,” remarked CATL.

Indeed, nail penetration tests are no longer required by the Chinese regulator, according to the latest standards released in May. What is demanded instead is for a battery system (as a whole) to demonstrate that it can hold off an explosion for at least five minutes, so that passengers have time to escape during emergencies.

The skirmish has put the spotlight on the dog-eat-dog relations between BYD and CATL, which were less apparent in the days when the authorities were lavishing wider subsidies on the EV sector.

LFP (lithium iron phosphate) used to be the more favoured EV battery type due to its thermal stability. However, the introduction of a subsidy requirement that prioritised high-density battery packs in 2017 boosted demand for ternary products. CATL became the world’s largest battery manufacturer that year. In 2019 it shipped 32.5 gigawatt-hours (GWh) of EV batteries, up 39% on the year, taking 28% of the global market, according to SNE Research. BYD ranked fourth with a 9.5% share but its shipments declined nearly 6% to 11.1 GWh.

Within China, purchases of lithium-based EV batteries grew 11% to 62.82 GWh last year, of which 64% were ternary and the rest LFP, estimates Realli Research, another data provider on the lithium industry. That said, CATL and BYD engage in the production of both battery types. Last year nearly three-quarters of BYD’s EV battery sales were ternary, which the company said was a result of the sector’s pursuit of longer driving ranges at the expense of safety, according to a report by Sohu, an online news portal.

The removal of a government subsidy for domestic EV battery producers – announced last year – is going to give LFP batteries a chance for a revival, Sina pointed out, citing LFP’s cost advantage over ternary. Recent innovations have improved LFP batteries’ energy density too. A BYD Blade Battery, for instance, can now support a cruising range of 605 kilometres, with 80% of its full capacity rechargeable within 33 minutes. That explains why California-based Tesla is looking for the Chinese government’s approval to equip its domestic Model 3 with LFP batteries, Reuters reported last month.

CATL, poised to become one of Tesla’s three suppliers in China from July, was back in the headlines on Monday with the claim that it is ready to manufacture a product capable of powering a vehicle for 1.2 million miles (two million kilometres) across the course of a 16-year lifespan.

Industry commentators point out that BYD and CATL, while competing fiercely against one another, should be mindful of the challenges posed by foreign players. Since the government dropped a prior practice of publishing a list of approved suppliers last June, carmakers in China have no longer been guided to procure key components from local companies in the same way as in the past, especially as major players such as South Korea’s LG Chem and Japan’s Panasonic have set up production lines in China.

In the first quarter LG Chem toppled CATL as the world’s largest EV battery maker with 27% market share, followed by Panasonic on 26%. Both have been supplying Tesla’s Gigafactory in Shanghai, whose Model 3 bucked the downtrend in Chinese auto sales during the virus-hit quarter with a 13% growth in deliveries. In contrast, CATL and BYD slipped to third and sixth places respectively over the same period.

Foreign carmakers’ eagerness to diversify their supply chains also seems likely to seed new alliances and create greater competition. On May 20 Volkswagen, for example, invested €1.1 billion in Hefei-based Guoxuan High-tech for a 26.5% interest. The deal – which followed a 2018 partnership agreement with CATL, LG Chem and Samsung SDI – will see the German carmaker become the largest shareholder of China’s third-biggest lithium battery maker. VW says it aims to have delivered 1.5 million EVs to Chinese drivers by 2025.

The changes in the landscape have spurred BYD to rethink its tactics – with the carmaker opting to supply batteries to other car firms rather than just making them for its own vehicles. A document on the website of the Ministry of Industry and Information Technology last week suggested that BYD will provide the battery for a plug-in hybrid model made by Ford’s China joint venture with Chang’an Automobile.

That marks BYD’s first-known battery supply deal with a major global automaker.

---

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.