Battery Giants Hard to Beat.

"Having charged up in their home market, Chinese electric-vehicle-battery firms are becoming major export players. 

The West's efforts to protect its own markets might prove too little, too late.

Chinese firms are weighing factory expansions in Europe, and in U.S. free-trade partners, as a way to sidestep import restrictions -- much like Japanese carmakers did in the U.S. in the 1980s.

Sales of new-energy vehicles, which include plug-in hybrids, surged 37% year over year in China in the first nine months of 2023, according to the China Association of Automobile Manufacturers. But exports jumped sharply: China is now the world's top exporter of EVs. And that is helping China's battery industry. Contemporary Amperex Technology, or CATL, and carmaker BYD are the top two producers of EV batteries in the world.

Outside China, Chinese battery manufacturers lag behind South Korean rivals -- the top three have nearly half the market. But if CATL keeps logging growth numbers like it did this year, that could change fast.

LG Energy Solution, the top Korean battery maker, booked ex-China sales that were 60% higher in the first eight months of 2023 than in the same period of 2022, according to SNE Research.

But CATL's overseas sales more than doubled, and its ex-China market share is neck and neck with LG -- both have about 28%. SK On, the No. 2 Korean battery maker, boosted such sales only 16%.

Meanwhile, CATL's market share in Europe has risen to 24% this year, compared with 10% in 2020, according to HSBC. Exports of Teslas with CATL's batteries from its Shanghai factory are one reason. But the battery maker supplies European carmakers like Stellantis. And overseas sales could become more important to Chinese battery makers as domestic competition intensifies.

Chinese battery companies enjoy significantly higher margins abroad, according to Goldman Sachs. The bank expects around 70% of the earnings of Gotion, a Chinese Volkswagen supplier, to come from exports or overseas production by 2025. Its plant in Germany started production this year and it is building a $2 billion factory in Illinois.

Geopolitics are a big risk. The U.S. Inflation Reduction Act mandates that subsidized EVs use batteries with a certain proportion of content from the U.S., or from free-trade partners. The European Union has launched an antisubsidy probe into EV imports from China.

But China's battery industry is trying to sidestep these restrictions. Chinese companies announced overseas investments of more than 200 billion yuan, the equivalent of $27 billion, in batteries and materials, says Goldman. More than 80% of that is in Europe. Hungary is a popular destination. CATL plans to spend the equivalent of $7.7 billion in the country to build what could be the continent's largest battery plant. Hungary is one of the friendlier countries to China in the EU bloc, and offers low labor costs.

Morocco, which has free-trade agreements with the EU and the U.S., is another likely beneficiary. Gotion has signed an agreement with the government to look into setting up a battery plant there with a planned investment of $6.4 billion. China's miner Huayou will build plants there for refining lithium and making cathode materials with Korea's LG Chem.

China's battery race abroad won't be free of potholes, but its battery champions are ready to drive around them.

For the U.S. and especially Europe, that offers pros and cons. In the long run, Chinese battery know-how could filter out into Europeans suppliers and help build a local ecosystem, much like Tesla and Apple helped level up China's EV and smartphone sectors.

In the short run, however, it might mean U.S. or European would-be CATLs struggle to gain much traction." [1]

1. Battery Giants Hard to Beat. Wong, Jacky.  Wall Street Journal, Eastern edition; New York, N.Y.. 07 Nov 2023: B.12.