An article appeared in Chinese media stating that CATL, the world’s biggest EV battery supplier and a major supplier to Tesla, is working with American consultants to assess the possibility that the company might be subject to US sanctions.The article has now been deleted across major platforms but is still available on smaller news aggregators.
A report in The New York Times on December 22, 2021 made CATL aware of this crisis – “Why a Chinese Company Dominates Electric Car Batteries” , which raised concerns about CATL’s dominance in Washington.
According to the New York Times, “The dominance of CATL in the power battery market stirred fears in Washington that Detroit could someday be rendered obsolete, and that Beijing could control Americans driving in the 21st century the way that oil-producing nations sometimes could in the 20th.”
As is customary in the auto industry competition between the U.S. and Japan, when the U.S. sees that China is already leading the way in the surging wave of electrified and intelligent vehicles, skilled U.S. policy tools may fall on the leading Chinese companies. As the leading company in the power battery market, CATL has seen a surge in overseas compliance risks, especially in the context of the U.S.-China technology war.
Why the U.S. will sanction CATL
China’s auto industry, which has struggled for decades to catch up in the fuel-fired era, is finally at the forefront of the EV wave, while the U.S., traditionally a major auto industry power, is falling behind.
From the demand side, the U.S. new energy vehicle penetration rate is significantly lower than China’s. EVvolumes published data showing that of the 3.24 million battery electric vehicles and plug-in hybrids sold worldwide in 2020, China will account for 1.3 million vehicles, compared to 300,000 in the U.S.
From the supply side, while the top of the global new energy vehicle sales ranking from January to October 2021 is still firmly dominated by Tesla, BYD in second place and SAIC-GM-Wuling in third are both Chinese companies. In addition, Chinese companies such as GWM, GAC Motor, NIO and XPeng are all active in the list. On the contrary, in the United States, Ford, GM and other old American domestic car companies are missing.
This gap is even more obvious when comparing from a supply chain perspective.
With the new energy vehicle as a key component of the power battery track, the world has formed a three-legged situation in China, Japan and South Korea, and China is in a dominant position. Industry data show that in 2020, the global electric vehicle lithium-ion battery manufacturing capacity of 747GWh, the United States accounted for only 8%, while China accounted for up to 76%. Global power battery suppliers include CATL, LG Chem, Panasonic, BYD, Samsung SDI, etc., with CATL ranking first in market share.
According to SNE Research, a South Korean energy market analyst, CATL ranked first in the global power battery market with a 29.9% market share in the first half of 2021, and the growth rate of installed capacity is significantly faster than its Japanese and Korean competitors.
The New York Times, citing data from London-based consultancy Benchmark Mineral Intelligence, says China’s electric vehicle battery production capacity is 14 times that of the United States. Even with continued U.S. construction (including projects such as Toyota’s planned North Carolina plant announced in early December 2021), China will maintain its lead, and four years from now, China will have seven times the capacity of the United States.
Past history has shown that when U.S. concerns reach a certain point, means other than market competition are used. Another troubling sign is that the foreign media questioned the shades of Chinese policy support in both the birth and development of CATL, which could exacerbate U.S. jealousy of CATL. After all, strength and “close ties to the government” are the two factors most often considered by the U.S. when sanctioning extraterritorial companies.
CATL has a low market share in the US
However ,CATL’s position in the global power battery market benefits largely from the domestic market, and its penetration of the U.S. market is still small. The phenomenon is not only reflected in the reports of major consulting firms on the North American power battery market, which often do not involve CATL, but also in the revenue data published by CATL.
According to CATL’s 2021 interim report, for the six months ended June 30, 2021, CATL’s overseas revenue was CNY10.2 billion, accounting for about 23% of its total revenue, with the domestic market still being the main source of its revenue. Although the percentage of revenue from the U.S. market is not known with certainty, it can be seen from its major customers. CATL’s existing contracted customers include BMW, Dongfeng Motor, Honda, SAIC, Stellantis, Tesla, Volkswagen Group, Volvo Car Group, and only one U.S. car company, Tesla.
Furthermore, in recent years, power battery manufacturers have been building factories in the three major global markets – China, Europe and the United States. CATL’s domestic expansion has become the first priority, and in the European region, in addition to the German plant ” officially announced” in 2018, it was also rumoured recently that CATL plans to invest 2 billion euros in Poland to build a plant. Only in the United States, although there are occasional rumours that CATL is considering building a plant in the United States to achieve localised production, the progress is unknown, and the official response has never been given. To some extent, the U.S. market is not important enough in CATL’ s map, at least far below China and Europe.
The extent to which a smaller market share in the U.S. can help protect CATL from U.S. regulatory risks needs to be measured specifically. As CATL continues to expand overseas, that risk could grow significantly.