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Tesla and Zeng Yuqun of CATL(Contemporary Amperex Technology Ltd) Battery

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Chinese battery engineer, who helped Apple improve MacBook, is Tesla's go-to man


Tesla is looking at batteries that may last 16 years and 2 million kilometers. Helping the company is Zeng Yuqun who previously helped Apple to extend battery life of its MacBook.

Tesla Inc. needs to succeed in China if it wants to dominate the world of electric cars—especially in a post-virus world. To do that, Elon Musk is turning to a battery engineer who once helped Apple Inc. extend the life of its MacBook laptops.

Zeng Yuqun, 52, built Contemporary Amperex Technology Co. Ltd. into China’s battery champion in less than a decade, creating the largest global producer of rechargeable cells for the plug-in vehicles considered to be the future of cars. That effort has helped propel Zeng from a modest hillside village and $30-a-month job with a state-run company to an estimated $17 billion fortune.

CATL’s products are in almost every major global auto brand, and starting this month they’ll also power electric vehicles manufactured by Tesla at its new factory on the outskirts of Shanghai. It’s an alliance with lucrative potential, combining the sector’s most-popular car—the Tesla Model 3—with low-cost batteries in a market that last year bought more than three electric vehicles for every one sold in the U.S., but faces an uncertain future as the pandemic rocks the global economy.

There’s already a developing partnership between the two executives, according to Zeng. The pair trade text messages to discuss prospective innovations in technology, their responses to the challenges wrought by the coronavirus and the Tesla chief’s primary obsession: cheaper batteries and vehicles.“Elon talks about cost all day long, and I told him to be assured that I would have solutions," Zeng said in an interview at CATL’s headquarters in Ningde, where his 20th-floor office overlooks a fishing hub on China’s southeastern coast now transformed by clusters of battery plants and laboratories. “We get along well. He’s a fun guy."


CATL’s batteries can offer the Palo Alto, California-based company key advantages in China, particularly the potential to boost margins and lower sticker prices in a market on track to have 59 million EVs on the road by 2030, even after the impact of the virus. Most importantly, Zeng is expected to supply Tesla with lithium-iron-phosphate (LFP) batteries that use a cheaper mix of raw materials and cost about 20% less to make than other common types of packs, according to BloombergNEF.
Tesla and CATL—the latter confirmed in a February filing it would become a supplier to the carmaker—declined to disclose precise details, including the types of packs involved.
Working with a domestic supplier like CATL could further burnish Tesla's relations with China's authorities, which have been key to its local success. What’s more, Zeng serves on the Chinese People’s Political Consultative Conference, the advisory body to top leadership. There, he’s put forward proposals to further focus on renewable energy.
For CATL, the alliance comes at a crucial time. Battery sales fell almost a third in the first five months of 2020, according to SNE Research, as car purchases plunged in China amid the pandemic, trade war and a scaling back of government subsidies. Electric-car sales have declined about 38 percent from a year ago, the China Association of Automobile Manufacturers said July 10, and that risks exposing the country’s multi-billion-dollar EV push as a bubble.
The battery producer’s domestic market share also ebbed as Tesla rolled out its first China-made Model 3s with batteries from LG Chem Ltd. and Panasonic Corp. Starting next year, CATL should supply components for about half the Shanghai plant’s output, according to Sanford C. Bernstein.



Aligning with Tesla will boost domestic sales, though CATL also needs to secure additional clients to improve its prospects outside China, where LG Chem and Samsung SDI Co., among others, are positioning themselves at a rapid pace.
“CATL's success is largely because of the strong demand in China," BNEF analyst Daixin Li said. “In the future, as EV markets outside China are growing quickly, maintaining and even increasing market share in the global market will rely on how successfully it can secure demand outside China."
Read More: A Million-Mile Battery From China Could Power Your Electric Car
The battery supplier has an eye on extending links with Tesla overseas, including to the automaker’s first European factory under construction outside Berlin. CATL, which also supplies Volkswagen AG and BMW AG, is building its own facility in central Germany and encouraging China-based suppliers to set up outposts there.
“We won't exclude the possibility to supply its Berlin Gigafactory," Zeng said in the interview.
Tesla didn’t respond to requests for comment.
Zeng has delivered in the past for blue-chip partners. His team helped BMW’s China joint venture develop its early battery-powered models, and CATL now has an 11-year supply contract with the German parent. At CATL’s forerunner company, Zeng helped Apple deliver long-life batteries for the MacBook Air.
The supplier now sees an advantage in accelerating research on lower battery costs to help electric-powered cars achieve price parity with, and subsequently supplant, gas guzzlers.
“You have to be more innovative, more cost-efficient, with better performance," Zeng said. “That's the only way to beat them."
CATL is poised to commercialize new types of batteries made without cobalt, among the most-expensive raw materials. Beyond that, it wants to eliminate other costly metals, such as nickel and manganese.
According to Zeng, the supplier also is capable of producing a long-life battery that lasts 16 years and 2 million kilometers (1.24 million miles), and is intended for use in multiple vehicles and in energy storage. That’s a milestone others, including Tesla and General Motors Co., are chasing.



More research facilities are under construction in Ningde, where entire city blocks are filled with laboratories and apartment towers for CATL staff, including the “Cloud-Capped Pavilion" neighborhood where Zeng and his wife have a top-floor home. A 3.3 billion-yuan ($470 million) research-and-development complex is intended to be a global flagship.
“Incremental improvements can build a well-performing company, but not a great one," said Zeng. A sand model of the planned center sits on the floor by his office door. “We invest in geniuses." Zeng himself earned a doctorate in condensed matter physics from the Chinese Academy of Sciences in Beijing.
Spending by CATL on R&D jumped about 50% last year, to almost 3 billion yuan, and the firm has almost 5,400 staff focused on the tasks. They include 143 workers with Ph.D.s—who receive such perks as their own canteen and can take advantage of a company-run dating service that took credit for 52 marriages last year.
Even before the new research hub, CATL’s efforts put it among the top tier of the industry, said Hu Feng, a partner at Shenzhen-based Gao Gong Lithium Battery Research Center who has tracked Zeng’s work for almost a decade.
The sophisticated labs and new factories coming in China and Germany are a marked contrast to the makeshift production lines of Zeng’s early career. Staff members coated batteries with a paint brush in one hand and a hairdryer in the other, and Zeng once used paper clips as a temporary fix to stop vibrating equipment from damaging cells.
Now, staff don medical-style protective clothing to limit the spread of dust before passing through a high-pressure air shower. In a nearby lab, batteries are shaken, crushed, immersed in water for 48 hours and placed into boxes heated to 130 degrees Celsius (266 degrees Fahrenheit).
“What we do is try to bring innovations to the structure and chemical system, which will enable Tesla cars to drive a longer range at a better cost," said Zeng, leaning against an armchair in a fifth-floor meeting space decorated with a Chinese painting on the wall and a tea set on a table. “That’s probably why Tesla likes us."
By using CATL’s cheaper and smaller batteries for the Model 3, Tesla’s costs per car could fall between $600 and $1,200, according to Bernstein. LFP packs traditionally haven’t been as powerful as more expensive alternatives, yet the technology is catching up.
“It could be pretty explosive if they get that in the international market because no one else is using LFP outside China in pure EVs," said Mark Newman, a Hong Kong-based senior analyst at Bernstein. “Tesla would have a pretty meaningful advantage."





Source: Hindustan Times
 
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In Depth: CATL Loses Electric-Car Battery Crown as Foreign Firms Muscle In

Contemporary Amperex Technology Co. Ltd. (CATL) has seen its spark fade this year, losing its position as the world’s No. 1 electric-car battery producer after foreign rivals started to take a share of the country’s massive market.

CATL’s luck has turned amid changes to China’s industrial policies, which helped the company’s rapid rise to the top in the first place.

Founded in 2011, CATL grew into an electric-car battery giant largely by piggybacking on government policies, including a de facto ban on foreign firms selling their batteries in China. It has also been one of the major beneficiaries of Beijing’s decade-old subsidy program which helped create China’s entire electric-car industry.

As both have either been cancelled or are set to be phased out, the Fujian province-based company is now facing competition from overseas on top of its domestic competitors, such as BYD Co. Ltd.

As Beijing moved to phase out subsidies, the whole industry has taken a hit. In May, total sales of new-energy vehicles in China amounted to 70,200 units, representing a year-on-year drop of 25.8%, according to China Passenger Car Association. Sales of new-energy cars will drop 14% this year to fewer than 1 million units, according to BloombergNEF.

No safety net

CATL’s real challenge came in June last year, when a government list of recommended battery suppliers was abolished, clearing the way for foreign companies to enter the Chinese market.

The list, which included only domestic firms, was widely criticized as protectionist when it was introduced in 2015.

Without foreign competition, CATL quickly developed into the dominant battery supplier in China, where most of the world’s electric cars have been sold since 2015. By 2017, CATL took the world No.1 battery-maker spot for the first time, unseating long-established rivals, including LG Chem Ltd. and Samsung SDI Co. Ltd.

Around a month after it said the recommended list would be scrapped, the Chinese government also announced it would start to significantly slash the subsidies it had offered to the sector since at least 2010, with an eye on eventually getting rid of them completely.

Though CATL, which was listed in Shenzhen since June 2018, has never revealed the contribution subsidies have made to its bottom line, analysts believe the incentives play a major role in its relatively high profit margin compared to its non-Chinese rivals.

CATL’s margin has been generally over 10% in recent years, compared to around 5% for firms such as South Korea’s LG Chem and Samsung SDI, and Japan’s Panasonic, according to a research note from Caitong Securities.

Tesla effect

Foreign companies have anticipated these policy shifts and have invested in the Chinese market in preparation.

One of them – LG Chem– saw a major breakthrough early this year when it was selected by electric-car maker Tesla Inc. to supply batteries for vehicles at the U.S. company’s new Shanghai factory, which began production in January.

Tesla’s share of China’s electric car market has climbed rapidly. In May, it delivered more than 10,000 units in China, becoming the largest electric car seller in the country, the second time a foreign firm has achieved that spot.

The brisk sales of Tesla cars in China helped LG Chem and Panasonic to quickly climb the ladder. In June, both companies were included in the list of top 10 largest electric car battery suppliers in China for the first time. Globally, LG Chem and Panasonic surpassed CATL to become the first and second largest sellers of such batteries, according to data from industry groups

In the first four months, LG Chem’s battery sales jumped 91% from a year ago for a global market share of 25.5%, according to data from SNE Research. Panasonic came in second with 22.9%, followed by CATL with 21%.

CATL had also been selected as Tesla’s battery partner. In February, the Chinese company disclosed that it had won a two-year contract to supply batteries to Tesla. However, Caixin learned from sources familiar with the matter that LG Chem had secured a far bigger contract from Tesla than CATL.

In the February announcement, CATL said the contract, which runs from July 1 until June 2022, is a so-called production pricing agreement that is still non-binding, and it is still unclear how many batteries Tesla will buy.

New competition dynamic

Foreign rivals are not the only competitors CATL is facing. At home, a slew of domestic players have all geared up to eat into CATL’s market share. One of the largest hometown rivals is BYD Co. Ltd., which itself is one of the country’s leading electric-car makers.

BYD previously produced batteries mainly for its own use, but has in recent years attempted to broaden its sources of revenue through greater battery sales to other automakers. Such efforts accelerated in March, when it announced it would spin off its battery business with the goal of listing it in future.

Two other smaller rivals – Gotion High-tech Co. Ltd. and Farasis Energy Gan Zhou Co. Ltd. – have recently ramped up their push. In May, Gotion hit the headlines when German automaker Volkswagen announced that it would take a 26.5% stake in a deal worth 1.1 billion euro ($1.24 billion).

And earlier this month, Farasis Energy said it had reached a deal with German luxury carmaker Daimler AG, which would pay 510 million yuan ($72 million) for a 3% stake.

One advantage CATL still has up its sleeve is its long-term supply contracts with many global automakers. For example, in 2018, CATL reached a deal with BMW Brilliance Automotive Ltd. — the joint venture between BMW Group and its local partner Brilliance China Automotive Holdings Ltd.

As part of the deal, BMW Brilliance agreed to procure from CATL batteries worth more than 800 million yuan. In 2019, the two sides signed another contract, agreeing to increase the value of that order to more than 56 billion yuan in a time frame of 11 years.

Still, sources said such long-term contracts don’t mean that CATL’s partnership with automakers will be secure. CATL will have to guarantee that it can control manufacturing costs, said a manager in charge of an engineering team at a foreign automaker which operates a local venture with CATL.


Source: Caixin Global
 

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