Growing and Competing within Industry: Value Chain Strategy of Power Lithium-ion Battery Firms in China

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Within a short period of time, China has developed a full-fledged industrial value chain for electric vehicles batteries, from mining and raw materials supply to EV battery manufacturing, to end-life reuse and recycle, as well as the related infrastructures. Supported by the ambitious national EV industry development plan, stimulated by considerable amount of investment and backed by the Chinese EV market, the largest one in the world, this most complete and dynamic EV battery sector gives China a competitive advantage in the electrification of vehicles. The aggressive business competition strategy adopted by the Chinese incumbent battery makers, including cost leadership through continuous capacity expansion and product differentiation through technological improvement, is commonly regarded as the source of industrial dynamics. More empirical observation from the field shows that value chain strategy of firms, i.e., which segment to position, expand, exploit, and to combine within the sector, can also provide answer to the question why the rapid formation of a complete and dynamic battery value chain has only taken place in China so far. Thus, this paper enlarges the scope to explore the driving force behind the emerging Chinese EV battery industry. Our methodology is a bottom-up approach. We first adopt a micro perspective to examine the business and corporate strategies of firms. We analyze the major business development strategies applied by different categories of players, explaining the underlying strategic logic through resource-based view of firm, highlighting the vertical integration of firms along the value chain of battery technologies, products and services. At industry-level, we look at the development of power LIB industry in China, studying the drivers behind its fast growth, the surrounding ecosystem, and the current challenges. Finally, we specify the consequential rapid development of a complete value chain of battery production in China and its main characteristics. Based on observations and data collected from various industrial sources, the paper identifies and analyzes strategic moves of all major actors along the battery value chain in China - mainly battery makers, but also OEM firms, mining and refining firms, material producers, EV new players, recycling companies, energy providers, etc. The findings indicate that a strategy widely adopted in the Chinese battery sector can be described as “Specialized Vertical Integration”, i.e., firms actively entering related upstream and/or downstream segments, while continuing to reinforce their existing value chain segments as expansion bases. This unique value chain approach typically represents the strategy of resource-based view of firms, creates an internal dynamism of EV sector development in China, and contributes to its competitive advantage in the global value chain. Under this “Specialized Vertical Integration”, strong user (EV car) – producer (EV battery) – supplier (EV components) linkages and interactions are created through the active development of mainstream firms, further strengthening the localization of EV battery value chain in China. A trend of internationalization, through different strategies (greenfield investment, M&A, strategic cooperation, etc.), is also observed among leading Chinese battery firms, which demonstrates China’s deepening insertion into the global value chain. The paper highlights some practical implications of value chain strategy to businesses and governments, as well as some perspectives of future trends. Consolidation of the battery industry is already on the way and the value chain of battery sector will keep deepening with growing reuse/recycle activities and emerging applications in the energy sector. Government support and policy guidance will continue to play an important role in the evolution of EV industry and battery sector. “Coopetition” will become a new normal for OEMs and battery firms, and for Chinese players and global players.