The Battery Industry in China

19 November 2021

 

Speakers: Xieshu Wang, Zhao Wei, Stephane Heim

Discussant: Bruno Jetin

 

This seminar followed up on the rich discussion started at the last GERPISA Colloquium in June, and combined multiple interests. Firstly, GERPISA’s focus on the electrification process, on the restructuring of the global auto chain this is causing, and on the emergence of new industrial segments, like the battery industry. Secondly, the seminar responded to GERPISA’s interest in further exploring the role, the strategies and the business models of new global players, like China. Here we had two presentations, by (1) Xieshu Wang (Université de Paris 13) and Wei Zhao (ESSCA School of Management), (2) Stephane Heim (Kyoto University), in conversation, discussed by Prof Bruno Jetin (University of Brunei Darussalam).

 

The work by Wang and Zhao, on Specialized Vertical Integration: Value Chain Strategy of Power Lithium-ion Battery Firms in China, analyses both policy frameworks and firms strategies that have allowed for the rapid and successful establishment of a Lithium-ion Battery Value Chain in the emerging Asian giant. At government level, the growth of such industrial segment was enabled by a mix of industrial policy tools: infrastructure building, subsidies, R&D financing and infant industry-type of protection. This encouraged market competition and selection, tightening technical requirements. At the micro level, leadership was built through continuous capacity expansion; product improvements and innovation initiatives led to progressive diversification, and strategic moves were taken in order to channel technological upgrading along the value chain and the formation of backward/forward linkages. Overall, the strategy that the authors define as specialised vertical integration was based on significant resource and capability-based specialisation, largely focused on technological innovation. Firm strategies entailed the active involvement into upstream and downstream activities, while consolidating their own boundaries of battery-related production. This unique combination of resource specialisation and vertical integration led to the emergence of dynamic and powerful value chain, supplying the entire lithium-ion segment.

Experiencing rapid growth since 2014, in 2019 the Chinese lithium-ion battery value chain concentrated an impressive 73% of the global manufacturing capacity. Industrial consolidation is still underway, and it involves both a reduction in the number of operational battery makers and the consolidation of installed battery capacity.

In sum, Wang and Zhao effectively argue how the vertical integration strategy is not unique to China, but in China it did indeed find the best ingredients to succeed: a large market, an active government policy support, the endowment of key natural resources and very focused firm strategies. In the near future, China will likely continue to expand and to invest abroad, especially in Europe where the recent Green Deal represents a particularly attractive playing-field. Ultimately, together with firm strategies, the specific combination of government support, technical requirements and industrial coordination will determine future trajectories and developments.

 

The second work, presented by Stephane Heim and conducted by a team composed by Heim, Kakitani, Lee and Shioji - The competition patterns and dynamics of the Chinese Li-ion battery industry, builds on previous work discussed at the 2021 GERPISA Colloquium, which highlighted the role of industrial policies and incentives, and the strategies put in place by new entrants like FoxConn. Here, the authors not only outline the structure of the Chinese Lithium-ion Battery industry and the evolution of its supply chain, but closely analyse the segmentations in the industry determined by different battery chemistries. They represent the whole value chain in detail, from raw materials mining and refining to the different production of cells, packs, modules and full batteries. Eventually, they show how the Chinese players built their competitive advantage thanks to three factors: the reliance on different battery chemistries, the in-house development of strategic technologies, and the bargaining power of suppliers, acquired through customisation and diversification. In terms of firm strategies, the authors illustrate the combination of vertical integration adopted by the LIB makers, with the downstream specialisation of mining companies and the diversification of industrial segments achieved on the basis of different chemistries. They also develop a potential roadmap for LIB makers, depending on evolving energy density.

 

The two combined presentations led to the discussion of several key issues, amongst which:

·         Electrification as historical paradigmatic change in the automobile industry, changing business models and global players. Change from ICEs to electric batteries so dramatic that it will probably take decades, no other industry has gone through such a radical transformation. This process might bring about progress and setbacks. In China, battle between different players in the value chain, upstream and downstream. Not only between manufacturers of different components, but also involving companies providing energy. Government/central authorities have played a central role in shaping the industry. Questions: who do you think will win this war? Will the upstream mining companies manage to dominate the industry, appropriating also battery assembly and car-making segments? Will downstream producers manage to scale up to the upstream? What is specific to battery-making companies that allows them to be successful also outside of their core competences? Will battery makers manage to influence car production in terms of models and makes? Also, with regard to finance: who is financing these huge investments? Who are the shareholders/stakeholders? Are these investments financed by banks? We need to understand more about financing models to better assess the sustainability of these industrial strategies, value chain development and consolidation processes. Finally, what do you think will be the Chinese government strategy in the next years, with reference to this industry? What role will innovation play and how will the government guide the technological innovation process? At global level, will Chinese companies continue to dominate, or do you see potential foreign competition establishing itself? (B. Jetin)

·         Government policy to set EV credits for OEMs

·         Tightening technical requirements to access financing schemes

·         Chinese companies as technology/innovation followers rather than first movers

·         Sustainability of energy provision system and recent electricity cuts in China

·         Consolidation and diversification: possible future scenarios

·         Perception of easy access to this industry vs real barriers to entry. Competitive advantage of first movers: where does this exactly lie? (ex. variety, quality, innovation level, cost competitiveness?) What will define competition in the future? Key research questions for the future, that GERPISA could/should focus on? (T. Pardi)

·         Massive consolidation process you describe – to what extent this was spontaneous, to what extent this was driven? Contrary to the potential winners you discussed, who were actually the losers? Who was left out and why, and what was the impact of this consolidation (ex. downsizing, employment impact)? (L.Monaco)

·         Geographical location and role of industrial clusters in China

·         Role of old automobile industries (Western Europe, US) in the future of the battery value chain

·         Battery Management System (BMS) strategies (M. Alochet)

·         Future governments strategies towards carbon-neutralisation and European Green Deal

-        Investments of Chinese battery companies in Europe.