Value Chain Advantage from Below: A Study on How Chinese Electric Vehicle Battery Firms Build Core Competency

Type de publication:

Conference Paper


Gerpisa colloquium, Detroit (2022)


Battery Firms, China, Core Competency, Electric Vehicle Battery, Industrial Cluster, Technological Learning


China’s leading development of a complete battery value chain for Electric Vehicles (EV) is restructuring the global automotive industry. The main advantage of China's EV battery value chain lies on firms’ enormous production capacity and the underlying mass manufacturing of lithium-ion batteries with stable and consistent quality to supply vehicle manufacturers (OEMs). What are the main characteristics of this manufacturing capability? How does it emerge in China? Mainly based on first-hand empirical material and data from firm level, this paper explores the nature, process, and condition of mass manufacturing as core competency of Chinese EV battery firms.

We use statistical data to figure out the industrial clustering of EV battery manufacturing in China, taking into account of national and local policies regarding battery sector. Then we focus on the EV battery cluster of Huizhou, located in the Pearl River Delta region of South China, as a specific case of local battery manufacturing. We collected primary materials and data from in-depth interviews of all the ten EV battery firms in Huizhou during 2016 to 2019.

Based on theoretical approach of core competency, this paper tries to reveal the deep roots of verticalization strategy and competitive advantage of Chinese battery firms, by qualifying their core competency and describing how it has been built up from the bottom of value chain. We argue that the nature of core competency of Chinese EV battery firms is by far their mass manufacturing capacity of lithium-iron EV battery cells, modules, and packs including BMS with good quality/price ratio, accompanied by the capability of rapid production capacity scaling up through aggressive fixed assets investment. Although local government support is important, this core competency is essentially built up from the bottom by Chinese firms within regional battery clusters. We identify two key processes that determine jointly the core competency formation:

One process, external to firms, is clustering of EV battery manufacturing activities at regional level with strong local government policy support across China (Section 2). Detailed analysis of the EV battery industry in Huizhou shows that industrial cluster at regional level is characterized by quite complete value chain within it, even with a small number of small and medium sized firms who establish user-supplier linkages. Therefore, industrial cluster constitutes a “thick” ecosystem for manufacturing firms which can find easily accessible specialized resources and capabilities, such as skills, funding, precompetitive R&D, suppliers, facilities, and industry knowledge in proximity (Berger, 2013). Specialized EV battery cluster creates a favorable microenvironment where local firms can draw on these capabilities and combine them with their own internal resources to learn manufacturing technologies through interaction with other upstream or downstream firms in the same value chain.

The other process, internal to firms, is the shop-floor level technological learning of mass production of EV battery. The learning curve effect in EV battery is 18% cost reduction for every doubling of battery production capacity (BloombergNEF, 2021). Through mass production and rapid investment in most advanced equipment, Chinese local battery firms adopt very down-to-earth approaches of learning by doing, by using new equipment, and by interacting among suppliers, all appropriate to the intrinsic requirement of mastering collectively matured lithium-ion EV battery technologies. Therefore, China’s EV battery manufacturing has formed up from production and assembly lines a complex system combined of advanced equipment, cell designs, production engineering plans, production procedures and organizations, and workers skills and know-hows. Chinese battery makers have accumulated significant experience, which links the rate of price declines to the cumulative volume of battery packs deployed on the market. With these production capabilities in place, they also have a potential to accelerate the rate of cell design improvement and reducing costs.

This identification of nature of core competency of Chinese EV battery firms helps better understand their specialization and/or vertically integration strategies along the battery value chain, as well as the development of competitive advantage at the sectoral level. This formation process and mechanism of large-scale manufacturing capabilities of Chinese battery companies can also have some implications to other regions in the world that wish to build their EV battery industry.




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