While it is quite striking that the lithium-ion battery market will again be more than doubling over the next five years (https://www.bloomberg.com/news/articles/2017-06-28/china-is-about-to-bury-elon-musk-in-batteries), the biggest take-away message from global developments is that China has the ball; both from a policy and an investment side. The Chinese central government is continuing to provide clear policy around the need for electrification using renewables and battery technology.

This commitment to renewables and battery technology is not new since China fundamentally has minimal access to efficient fossil fuels and has for ten years encouraged, in particular, the battery industry to launch and grow in China. Over the years, these initiatives have been executed through very low-cost loans (frequently turning into grants) for battery manufacturing. In addition, large tax incentives have been and continue to be awarded for sustained operations and job growth.  Both of these policy elements encouraged quite a few western companies in the last five to ten years, including my previous company, Boston-Power, to set up manufacturing operations in China. And, in the end, many of the companies that did so gained substantial market advantage from these policies.

At this time, however, three new initiatives are bolstering the Chinese battery markets and the results are already visible as China this quarter is surpassing Japan and Korea in lithium-ion battery manufacturing volume. These new initiatives can be described in broad terms as:

1. an explicit recognition that with growing wealth in China, more people need access to transportation. Since China is behind technologically on the traditional fossil fuel ICE (internal combustion engine) technology, the electric vehicle paradigm has been embraced as theirs to lead. We observe today that the Chinese national government is very bold in setting a comprehensive public policy encouraging and mandating an all-electric drive future economy with large incentives both to manufacturers and consumers.  In addition, many big city governments in China have established a policy of limiting the issuing of vehicle license plates for traditional ICE cars.   Such license plates are being issued through a lottery or by paying a high price to buy the plates.  For example, last month in Shenzhen, the plate price was RMB67K (USD10,230) and in Shanghai, the price went up to as high as RMB93.5K (USD14,275), while license plates for EVs are available any time and free;
2. there is bold and clear regulation that allows relatively easy “go/no go” testing and access to sales, which is now, much of the time, in stark contrast to US and EU long test cycles and a confusing range of both more and less rigorous requirements; this Chinese regulation is allowing players in the China EV market segments to launch products with certainty for much less cost and with shorter development cycles; and
3. a drive to achieve a robust “China first” policy, which intends to deliver a domestic battery industry and strong China positions in foreign JVs (Joint Venture agreements) and/or partnerships through preferred market access and/or economic treatment, as well as aggressive tax breaks and government funded discounts

This development provides enormous opportunities for Cadenza to both be part of the Chinese growth market for batteries and at the same time capture the imagination of western battery brands with solid manufacturing and well-developed distribution channels.  In addition, as the recent Financial Times chart below demonstrates, the global western car companies operating in China are currently generating a major share of their global profits in China and will presumably do what is necessary to continue that growth as the xEV share of that market grows.  Cadenza stands ready to work with all of the players in the China xEV market as well as all western battery manufacturers to continue to grow the booming global battery market.

 

China Graph

The Opportunity in China is not only driving market share, but also substantial margins for western brands.

Published:2017-08-17
Retrieved: 2017-11-02 https://www.ft.com/content/c4c332c4-7036-11e7-aca6-c6bd07df1a3c?accessToken=zwAAAV99d7jYkdPEwzLEcDYR59Ospsa9B98aPA.MEQCIAY2g3Zo7AZiYLYMna3LvmlI20oss-puJ-tO3aNhdvH1AiBfGryphSs42H46dVAqiCAMchaJx0gxXQV-VE0hXi_jjg&sharetype=gift