CATL, BYD, and Tesla expose Europe's EV battery 'reshoring'

Only China and Korea know how to build batteries

Bullets:

European governments are hoping to "reshore" the EV and battery industries, to reduce dependency on Asian factories and bring back manufacturing jobs.

But the EV industry was never in Europe, nor in North America, at either the scale or the levels of efficiency and engineering expertise that we observe in Chinese or South Korean plants.

CATL is the world's biggest battery maker, and employs over 21,000 engineers and scientists across its R&D departments alone.

Industry experts admit that to compete with Chinese or Korean battery makers, over a thousand key engineering processes must be replicated.

Report:

About ten years ago, these three themes began to appear in global business and industry, and they were driven by the motivation to bring factory labor back to the United States and Europe, which had been outsourced to Asia.

Friendshoring is bringing supply chains to friendly countries. Nearshoring is the setting up of supply chains closer to the final consumer—for example setting up a factory in Poland to serve markets in East Europe, and one in Brazil to serve customers in South America. Reshoring is bringing the manufacturing to where the company and most of its customers are, so American companies would set up factories again in North America, UK in the UK, and so on.

This is all expensive, and involves hiring lots of high-wage people in our home markets to replace lower-wage factory workers in Asia. But there is an even bigger problem. These are not our factories; we were just buying from them. They’re not our supply chains. And many of the industries that we are attempting to ‘reshore’ were never our industries to begin with.

China has near-monopolies in the supply chains and manufacturing for batteries for electric vehicles, and South Korea and Japan are also big players. So these attempts to build an EV battery industry in Europe and the US are already having big problems, because it’s something we’ve never tried before. We’ve never built these batteries, and we’ve never built factories for these batteries, and Chinese and Korean companies are years ahead of us.

Europe is giving it a go, and it’s not going well. Of the 16 big projects for battery factories in Europe that are led by European firms, 11 of those are either paused or bankrupt. Contemporary Amperex Technology is CATL, and they are by far the biggest producer now, and SDI from Korea—they are also in Europe, and 10 out of 13 of those are still on pace to be completed and producing batteries there. CATL and BYD—the Chinese carmaker of EV’s—have a big head start, and nobody can beat them on price. Which is another problem if you’re hoping to build a factory that competes against them—you need very high market pricing to compete with them, and the prices for EV’s are falling.

Some of these failures have been spectacular. Northvolt is a Swedish company that just filed for bankruptcy, and they reported cash on hand of $30 million, and nearly 6 billion in debt. They have 6,000 employees in 7 countries. Volkswagen has a 21% stake in Northvolt.

BritishVolt was the UK’s attempt to build EV’s at home, and even though they got a lot of positive publicity and government officials saying nice things, Britishvolt never produced an actual battery. They were building a $5 billion dollar factory to create 3,000 jobs, and they had partnerships with Aston Martin and Glencore, which is a huge commodities trader. They never got the factory built, and never got a battery built. Nissan’s plans are on track in the UK, because they’re partnered with a Chinese firm who can give them the batteries.

Wired has the inside story on Britishvolt, and by now Britishvolt was supposed to be up and running, producing lithium ion batteries. But as you read through the Wired piece, we can see that Britishvolt never stood a chance. The founders of the company were Swedish, not English, and neither had experience with EV’s. They didn’t have any technology, they didn’t have any money, and they didn’t have any customers. Nevertheless, the UK government stepped up and gave them lots of money, and that prompted Lotus and Aston Martin to sign agreements. Other companies put in $200 million dollars. That was in early 2022.

In August 2022 the founders resigned, after someone found out the one of them had committed tax fraud in Sweden. That’s something that the government and the investors in the UK should have found out, before giving them hundreds of millions of dollars. Pick up the phone, call someone in Sweden, and say, before we give this guy $200 million dollars, just a quick question—was he ever in trouble back home?

So the founders are gone, the money is gone, and the company is gone. Wired goes deeper to see where the money went. It was all about image, form over function. The company wasn’t building anything, and wasn’t even trying to secure the supply chains to build anything. The two founders traveled by private jet, and leased a $3 million dollar mansion to stay in, instead of getting a hotel room. The office staff at Britishvolt were surprised when they were given expensive 35-inch monitors which cost 900 pounds—by the way, those monitors cost a hundred dollars, at the most, here in China, and not a thousand.

And Wired makes us wonder why they went to all the trouble in the first place: Even if Britishvolt were successful, it wouldn’t have moved the needle at all. The UK isn’t even a factor in the EV space, and that would remain so whatever happened at BritshVolt.

China is almost the whole market. China supplies 80% of the world’s batteries, and 6 of the top 10 battery makers are here. CATL is the biggest of them all, and they have 21,000 engineers working just in their R&D department. CATL’s R&D department, by itself, is four times bigger than what Northvolt had working in their entire company. Europe has never been in this industry, and they don’t have any people there to start one now. Plus, setting up a factory is a lot harder than anyone thought, and over a thousand processes need to be perfected independently, and China and Korea have already done the work on all of it. Making batteries is hard, it requires high capital investments, it’s a brutal market, with high standards in the production and from customers, and the only ones who do it well are the ones who’ve been doing it a long time.

The companies that cooperate with China are doing fine, so far. Stellantis is teaming up with CATL and Renault with Envision Group, but that means that Europe is still dependent on China to get batteries built.

This headline from INSIDE EV’s is a little more sensational than I would prefer, but they go into the chemistry of battery design and manufacturing, against the backdrop of a very public disagreement between Elon Musk of Tesla, and Robin Zeng, the head of CATL. First, Tesla is a huge customer of CATL, and Musk and Zeng have deep respect for each other and have been business partners for years. Tesla’s gigafactory in Shanghai is their most profitable, and CATL is the supplier for that plant, and both Musk and Zeng are heavily invested in the success of Tesla here.

CATL is also the battery supplier for Tesla’s plant in Nevada. So this argument between Musk and Zeng is strictly along engineering and scientific lines, and not personal in any way. But it revolves around Tesla’s commitment to build a cylindrical cell battery, and Tesla announced that it just built its 100 millionth 4680 cell of this type. 100 million sounds like a lot, until we see that Tesla’s current production of 4680 cells are enough for only a few hundred Tesla cybertrucks.

Robin Zeng told Musk that CATL has looked hard at the problem and concluded it won’t work—Tesla is going the wrong way. Remember, CATL has 12,000 people on the job figuring out how to build the best batteries. Zeng said that Musk doesn’t know how to build a battery. Musk is great on the chips, the software, the hardware, the mechanical engineering—but he’s just wrong on the batteries. “The 4680 is going to fail and never be successful.” Zeng agrees with Musk on lots of other things—the future of EV’s, the future of self-driving cars.

Zeng may even be wrong, we’ll see, but this is a discussion that can only happen at all with two guys who’ve been in the industry a long time. And why did he warn Musk that Tesla needs to change direction? It’s because they’re business partners, otherwise Zeng wouldn’t say a word. You don’t interrupt the enemy when he’s making a mistake.

Robin Zeng is one of just a handful of guys in the whole world who can sit down with Elon Musk, tell Elon that what he’s doing cannot work, and that he’s got 12,000 people in his labs that are doing it better. Musk is the guy who last month caught rockets, in midair, using chopsticks, seems like. He’s juggling rockets around, in flight, and even NASA goes to him whenever they need something. Musk and SpaceX know reusable rockets.

But Zeng and CATL know batteries, and he’s warning his buddy Elon that he’s heading off in the wrong direction.

Back to Europe and the reshoring problem, then, this is who you’re up against. You’re competing against Musk and Zeng. You’re up against Tesla and CATL and BYD, you’re up against China and Korea, and you’re starting from zero, in an industry you were never in.

Resources and links:

Bloomberg, Europe’s Big Battery Ambitions Are Failing, and China Is Benefiting https://www.bnnbloomberg.ca/investing/commodities/2024/12/10/europes-big-battery-ambitions-are-failing-and-china-is-benefiting

Reuters, Sweden's Northvolt files for bankruptcy, in blow to Europe's EV ambitions https://www.reuters.com/technology/northvolt-files-chapter-11-bankruptcy-us-2024-11-21/

New York Times, British Battery Start-Up Files for Bankruptcy https://www.nytimes.com/2023/01/17/business/uk-britishvolt-battery-maker-bankruptcy.html

Wired, The Collapse of the UK’s Electric Vehicle Champion https://www.wired.com/story/the-collapse-of-britishvolt/

Inside EVs, ‘He Doesn’t Know How To Make A Battery’: China’s CATL Chief Blasts Elon Musk

https://insideevs.com/news/740941/he-doesnt-know-how-to-make-battery-musk-blasted-catl-chief/

Reuters Exclusive: China battery giant CATL would build US plant if Trump allows it https://www.reuters.com/business/autos-transportation/china-battery-giant-catl-would-build-us-plant-if-trump-allows-it-2024-11-13/

Reshoring, Nearshoring, and Friendshoring https://www.aatcc.org/aatccnews_2024_01a/

Visual Capitalist, Visualizing China’s Dominance in Battery Manufacturing (2022-2027P)

https://www.visualcapitalist.com/chinas-dominance-in-battery-manufacturing/

The Top 10 EV battery companies https://www.greencarcongress.com/2022/10/20221009-evbatteryshare.html