The gates of history turn on tiny hinges. We know how Elon Musk and his minions put a few thousand laptop batteries into a Lotus Elise and voila! The electric car revolution has begun. Although it certainly is part modern stories about electric vehicles, it is not everything from that. CATL has also had a lot to do with helping EVs go mainstream.
Wired published this week a detailed story about Zeng Yuqun, CEO of Contemporary Amperex Technology Limited, popularly known in CATL. The company is the largest producer of lithium-ion batteries in the world with a market capitalization larger than Ford and General Motors combined. Zeng, known to most as Robin, is 29th on the list Forbes list of the richest people in the world.
Which Wired the article reveals the role of Herbert Dies, currently CEO of the Volkswagen Group, in the creation of CATL. In 2010, Zeng worked for TDK, a Japanese company that, among other things, produced batteries for laptop computers. Diess was in charge of purchasing for BMW. He approached several battery manufacturers in Europe, including Bosch, about supplying batteries for electric cars, but no one was interested.
This is where one of the tiniest hinges in history came into play. Diess asked Zeng if TDK would be interested in making batteries for EVs, but Diess says Zeng “dismissed” the idea, saying he couldn’t imagine building such large batteries. The following year, however, TDK decided to sell its EV battery division. Zeng and a few colleagues bought it and renamed it CATL “Diess brought our company into the automotive battery business,” Zeng said. Handelsblatt 2020. “I am grateful to him for that.”
Meet CATL and Zeng Yuqun
Diess may have inspired CATL to enter the electric vehicle market, but over the years Zeng earned a reputation as a founder who could master batteries as well as business. Lei Xing, former Beijing media editor China Auto Review said Wired that when CATL bought the US patent for mobile phone batteries in the early 2000s, Zeng worked on improving the battery design himself. When BMW agreed to use CATL as its battery supplier, it was Zeng who read the 800-page application line by line, says Yunfei Feng, research associate at IMD Business School.
At one time, BYD was the largest battery manufacturer in China, but the focus was on LFP technology. Instead, CATL decided to concentrate on NMC batteries. At the time, car manufacturers were primarily concerned with range, which favored the NMC. CATL quickly expanded its operations in China and began to establish business relationships with car manufacturers in Europe. Within a few years, it surpassed BYD to become the largest battery manufacturer in China and the world.
When China announced subsidies for electric cars, it specified that they were only available for cars using battery cells made in China. Those subsidies created demand for electric cars that pushed CATL forward. Zeng, like Elon Musk, believes in vertical integration. According to Kevin Shang, a research analyst in Wood Mackenzie’s global energy storage team, CATL was able to use the profits from the battery sale “to invest in the entire supply chain, from mining to materials production to battery manufacturing and even recycling “. Today, the company controls lithium shipments in China, South America and Indonesia.
Confronting Industry Fears
Bill Russo is the former head of Chrysler’s Northeast Asia business in Beijing. He now runs Shanghai-based consulting firm Automobility. He says Wired, “The policy of the auto industry has long been to never single-source, because that gives too much power to the supplier relationship.” CATL under Zeng developed a reputation as a “take it or leave it” company. He does not want to manufacture batteries according to customer specifications and insists on long-term commitments to his clients.
But nothing ever stays the same in the world of commerce. Manufacturers hedge their bets by establishing relationships with other companies. Tesla will soon use LFP batteries manufactured by CATL and BYD. Panasonic is also a major supplier to Tesla. General Motors is building battery factories with LG Energy Solution, while Ford is building two new battery factories in partnership with SK Innovation.
CATL & Chinese Syndrome
While automakers are anxious not to become too dependent on any one supplier, Zeng’s most serious thread may come from China itself. “In the West, the leadership style of the cult of personality is something that is appreciated, encouraged and celebrated. It’s dangerous in China,” says Bill Russo. “You can’t be bigger than Beijing.” he warns.
Zeng is the complete opposite of Elon Musk. He stays out of the limelight and rarely gives interviews. Insiders point out that Zeng operates in an environment where notoriety could hinder, rather than help, his business. An example is Jack Ma, the co-founder of Alibaba and one of the richest individuals in China. After giving a speech criticizing Chinese regulators for stifling innovation, Alibaba’s IPO was quickly canceled and it was hit with a record $2.8 billion antitrust fine. Ma’s personal fortune has been cut by $10 billion since last year.
The Chinese government has instituted what it calls its “shared prosperity” policy, which encourages sharing the wealth created by the tech industry with everyone who has contributed, not just those in the C Suites. Chinese President Xi Jinping has described “shared prosperity” as one of the country’s most important goals for the next 15 years. In June, banks in China were told to rein in executive pay.
CATL has already faced mild reprimand for its behavior. In November 2021, the Shenzhen Stock Exchange expressed concern about CATL’s “excessive” funding. A crackdown on China’s electric vehicle and battery industry could have a profound impact on an industry the entire world relies on for the green transition.
Concerns have been raised that Beijing would prefer to replace CATL and other battery giants with a network of SMEs. But experts are divided on what risk CATL faces. Russo believes CATL’s risk depends on whether Zeng can continue to balance his government relationships with his public persona.
CATL may have been instrumental in helping China develop its supremacy in electric vehicles, but the recent technological overhaul provides a warning that Beijing may abruptly reorganize its industries if they begin to clash with broader political ambitions. “Too much dominance is a bottleneck,” says Russo. “And that’s something neither the industry nor the government would want.”
CATL’s rise to become the world’s dominant battery maker has been meteoric, but staying on top in China isn’t always about shareholder value. The government is still controlled by the Communist Party, which has a historical interest in benefiting workers. It is clear that freedom of speech is not a Chinese value. In fact, it can be a one-way ticket to obscurity, no matter how wealthy an individual may be.
There are lessons in the Jack Ma saga that should be seen as a warning to anyone who thinks they are bigger than the party. Elon Musk may think he’ll be able to dictate who says what on the Internet after he buys Twitter, but he’s wrong. In the past, the technology industry has been subjected to the dictates of the Chinese government as a condition of being allowed to do business in that country.
For Zeng Luqun, the way forward is to never slow down. He has doubled the number of battery researchers at CATL and they are hard at work perfecting sodium-ion batteries, which will be the antidote to the high cost of lithium battery raw materials today. The company is also building its own battery replacement infrastructure in China.
CATL made its name by having the best batteries at the best price at a time when NMC chemistry was dominant. If sodium batteries or battery replacement are the future, CATL, led by Zeng Luqun, will be ready.
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