EDITORIAL

Mike Halls • editor@batteriesinternational.com

Losing the lithium battle

So is any lead battery manufacturer earning money — good money that is — on their lithium product lines? Few, if any, we hear. Anecdotal evidence may not be the best guide to the health of an industry, but that’s what people are saying. There are also more solid indications that this could be the case. A glance through GS Yuasa’s 2019 annual report would suggest that healthy profits are elusive for its lithium ion business. Between 2018 and 2019, revenues increased by ¥10 billion ($92 million); however, operating income only increased by ¥700 million and then to a dismal ¥1 billion in total. To put it bluntly, that’s a terrible result. So why has this happened? The answer would appear to be that Yuasa is being hammered from two directions — it is being squeezed by challenges with supply issues, while at the same time it’s facing relentless competition. There’s a wider dimension than this. It’s not just the lead battery industry that’s hurting. This is going to be a regional problem too — with Asia largely unaffected and the US and Europe deeply challenged. Despite fancy talk — albeit very welcome talk — from the new US president Joe Biden about battery storage being part of a new focus of the US economy, the battle for market share and profits is, in our view, already lost. America was quick to the lithium game but, with the exception of Tesla and its Panasonic connection, never truly got to grips with the manufacturing side of the business. If the US was quick, Europe wasn’t even in the game. The latest generation of lumbering European Commission bureaucrats are planning detailed legislation to govern a market that will never truly exist. Already Asia manufactures some 90% of the world’s lithium cells and batteries. Stable door? Horse bolted? The reason for these regional failures is simple. It’s scale. Some of the Asian firms have a scale that is enormous. Consider the case of just one Chinese firm, CATL. Why, at just 10 years old, is it so much more profitable manufacturing lithium batteries when no other vendor in the industry is anywhere near as profitable and most are not profitable whatsoever at all? CATL is the largest lithium ion battery vendor and OEM, by far. It has huge scales of economy in its manufacturing operations and raw material buying power that no other lithium battery manufacturer can match. Its management has ramped up its production capacity to an extraordinary degree and profits continue to be ploughed back into further expansion. At the end of December, the firm announced it would pump some 39 billion yuan ($6 billion) into capacity expansion projects in Yibin, Sichuan province and Liyang, Jiangsu province, as well as a new lithium ion battery manufacturing base in Fuding, Fujian province. As Batteries International went to press the firm was talking about a further investment of 29 billion yuan ($4.5 billion). It is the gorilla in the room that sells to other battery companies at a price that discourages them to make their own investment in lithium battery capacity. This isn’t uncompetitive, it’s simply the way it is. It further discourages investment by constantly fine-tuning its manufacturing and taking costs out. Its experience in the past 10 years of its existence is matchless — budding competitors don’t stand a chance. So CATL’s huge head-start in lithium battery production makes all the hot air of gigafactories in Europe sound like nonsense. Ignoring the trumpeting sounds of the European Commission’s bureaucrats and their bleats of a green economy and lithium gigafactories, the fact is that the European Union has, by virtue of its lumbering inertia, entered the party too late. One of the early laws of internet success — first mover advantage — has been ignored by the politicians and rule-makers in Brussels. While they may have been lunching in some of the finest restaurants in Europe, firms such as CATL have shown initiative, vision and commitment. Given that it takes around five years to set up a greenfield battery plant — and that Asia already provides some 90% of lithium cell manufacture — Europe’s battle for business was lost before even the troops could be rallied. And although lead battery manufacturers will continue to supply lithium products to their customers they will always be at a competitive disadvantage.