E-car batteries Fearing an E-Powered Price War

German electric carmakers have shied away from producing their own batteries for fear of competing with Asia’s low prices. Since China announced plans to command the market, industry players are on guard.
Charging the future.

Batteries are the nerve center of the electric car. Electric vehicle (EV) battery technology determines the limit to how far one can travel per charge, and also the speed of recharging. Around 40 percent of an electric car's value is based purely on the battery alone.

EV batteries are a lucrative field, but one most German auto makers have been holding back from. Merecedes' parent company Daimler collaborated on the technology with German chemicals firm Evonik, a project which it abandoned in late 2015 for lack of prospective buyers. Daimler’s "Made in Germany" cells were too expensive compared with Asian competitors.

Now China plans to take on a leading role in the e-car batteries market, and are closer than one might think. Chinese producers will try to push sales in 2017 by selling lithium-ion batteries for lower prices. In January, Shenzhen-based market researcher Gaogong Industry said that the price of batteries produced in China are expected to fall between 35 to 40 percent this year.

Manufacturers stand to suffer the most if China decided to overproduce the batteries.

The market's response has been swift. Stocks of Japanese and Korean market leaders in battery technology momentarily sank. It wasn't good news for electro-mobility pioneer Tesla. Together with Japanese electronics giant Panasonic, the company has invested in the Gigafactory, a $5 billion factory that will be the world's largest producer of lithium-ion batteries. Tesla's founder Elon Musk argues that mass production will push the technology forward and yield better prices.

But Mr. Musk might now be fearing for his competitive advantage. Chinese producers could apply the same price-dumping tactics here as they did in the solar industry. In just a few years, China shoved Western solar module manufacturers aside to dominate the sector worldwide.

But China will probably not find starting a price war so easy in this market, according to Henning Wicht, a battery expert at market research company IHS.

"Japanese and Korean batteries of the same size store much more electrical energy," he said. Unlike with solar modules, quality is much more important to e-car batteries than price. China's battery cells are lagging behind considerably in terms of safety.

“Cheap batteries from China do not necessarily find a buyer,” Mr. Wicht said.

Established battery cell manufacturers are not in panic mode just yet , but also not writing off changing winds from the east. "All providers will have to react and reduce costs," said Mr. Wicht.

07 p22 The World's Biggest Battery Producers-01

Up to now, Western car manufacturers have been purchasing their battery cells almost exclusively from companies such as Panasonic and Korean manufacturer LG Chem. Contracts are long-term, but for industry players to underestimate Chinese competition would still be careless.

The Chinese government has declared electric cars as a strategic market for the country and is providing state support to make domestic companies global leaders. The "Made in China 2025" strategic plan projects that by 2020 at least 70 percent of all electric and hybrid cars sold in China will come from domestic makers. Five years later, that share should be at least 80 percent.

Beijing's industry ministry has already published new requirement standards that could exclude Korean battery manufacturers from its market. Samsung and LG have both fallen through four testing rounds so far. As a result, Volkswagen's partner, China's state-owned car manufacturer Anhui Jianghuai Automobile, announced it would stop using Samsung’s battery cells in its busses for fear of losing government subsidies.

Manufacturers stand to suffer the most if China decided to overproduce the batteries, according to Mr. Wicht. "If there is any overcapacity such as with photovoltaics, a similar intense price war would occur.”

Despite this, Wolfgang Bernhart, a business consultant for the global strategy firm Roland Berger, does not believe China will repeat its steps in the solar industry. "From a Chinese perspective, it would not make sense to drive forward such a dumping development," he said.

The Chinese government’s strategy of strengthening the domestic car industry means it would not benefit from providing cheap batteries to Western car manufacturers, he explained.

However Mr. Bernhart does expect the price of battery cells to drop massively by 2020 - from the current price of €150 to around €100 euros per kilowatt hour.

Low prices are a reason German carmakers have refrained from setting up their own battery production. Instead, companies such as Mercedes-maker Daimler have operations to design and make their own battery systems, using batteries from Asian suppliers, to adapt them to the car's needs.

Daimler has such a battery system facility in Kamenz in the state of Saxony, but it is also considering to build a battery production facility abroad. The company has set aside around €500 million and China is one of the favorite potential locations.

 

Lukas Bay is an editor with Handelsblatt’s companies and markets desk. Franz Hubik covers renewable energy from Düsseldorf.  Stephan Scheuer covers China’s economy and politics. To contact the authors: [email protected][email protected] and [email protected]

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