Contemporary Amperex Technologies or CATL is China's leading EV battery supplier. As of this
writing, it is the only Chinese EV battery company that has begun to export its products abroad.
It is interesting to consider that one of China's most valuable companies makes, of all things,
batteries. When we think about high value add, technically complicated things,
we think about iPhones or other tech. Not exactly batteries.
But as it turns out, batteries are surprisingly complicated to make.
In this video, we are going to look at how CATL manufactures one of their EV batteries.
The Chinese battery giant was founded in the small city of Ningde, Fujian. And the city is still the
company's biggest production base - housing three of their manufacturing facilities. Those are
Ningde Zhangwan District, Ningde Cheli Bay, and Ningde Fuding.
But the company has greatly expanded
outside those city borders in an attempt to be a leading global enterprise.
In addition to the three Ningde facilities, there are three others in China
(Liyang City in Jiangsu, Yibin City in Sichuan, and Qinghai) and another in Germany.
And despite challenging economic conditions they have continued to invest in expanding
production and raw materials. At the start of the year, they announced that they would invest
$4.4 billion (29 billion RMB) into expanding current facilities or building new sites.
Shortly thereafter in February 2021, the company announced that
they would also build a new production facility in Zhaoqing City, Guangdong.
This facility is coincidentally near a cluster of automobile makers in the
Guangdong Pearl River Delta region - including a Xiaopeng Motors EV factory.
Then in September 2021, CATL announced a $2.1 billion USD (13.5 billion RMB) investment
in the construction of a new 1,300 acre production facility in Yichun City, Jiangxi.
The factories would produce batteries and battery materials.
So the company is moving fast to grow its production capacity
within China. We will talk more on what else CATL is doing to shore up its advantages.
But how about we first talk about the manufacturing process of an EV battery?
The EV battery supply chain has three parts to it:
Cell manufacture, module manufacture, and finally, pack assembly.
The cell is the smallest and most important component of the overall
battery. It contains the cathode, anode, and electrolyte packed together in a certain way.
Multiple cells are then packed together into a module. The exact number of cells per module
varies depending on the manufacturer. Some do four. Others can do as much as twelve.
After the modules are created, they are put into the final battery pack along with electrical
connections and cooling equipment. These can be done manually or with automated equipment.
Of these three steps, module and pack assembly add less value to the overall manufacturing
process - respectively contributing just 11% and 14% of the battery’s overall cost. So that
leaves cell manufacture as the most valuable step of the battery manufacturing process.
When it comes to lithium ion battery cells, there are two types in wide manufacture.
They are largely distinguished by their cathodes.
Most EV batteries have cathodes made of either lithium nickel manganese cobalt oxides,
hereby referred to as NMCs for my own sanity, or lithium iron phosphates.
The former are known for their higher energy density, but have certain trade-offs in terms
of sustainability and safety. The latter are cheaper and have certain safety advantages.
CATL makes both types, supplying five of China's major car companies. But their
current strength is in lithium iron phosphates as the world's largest supplier of the product.
Furthermore, battery cells can be made in a variety of designs - cylindrical, pouch,
and prismatic. Panasonic/Tesla do cylindrical.
LG Chem and SK do pouch-types. CATL generally makes prismatic batteries.
Despite this, the manufacturing process is largely the same.
For the various steps within the battery cell manufacture process,
you can categorize them in three ways: Electrode preparation, cell assembly,
and battery electrochemistry activation. Let’s go through them.
Electrode production is for producing the cell's anodes and cathodes.
These two are produced in different production lines, but their subprocesses are the same.
For each electrode, we mix the electrode's components - called the active material - with
a polymer binder, solvent, and a conductive additive into a mixer.
Then you mix it for several hours so that you end up with a uniform electrode slurry.
The binder is for making sure the slurry reaches the desired viscosity and homogeneity.
Without this, the slurry might not properly adhere to something called
a "collector foil", which we will need in the next subprocess.
The solvent is for dissolving the binder. For anodes, simple water can be used for the solvent.
But for cathodes, a common organic solvent like N-methyl-pyrrolidone or NMP is used.
Keep in mind however, that NMP is a toxic substance and its emissions are regulated.
So an additional step has to be implemented later on
to prevent this from being released into the environment and poisoning people.
After the slurry is prepared, the slurry is then coated onto both sides of the
aforementioned collector foil. For anodes, the foil tends to be made of copper. For cathodes,
the foil is made of aluminium. The coating is pretty important to the whole process.
If the slurry is not free of particles or is consistently applied
then the battery will not perform to spec and might even become dangerous.
The coated foils are then put onto drying equipment to evaporate away the solvent.
For the anodes, water is used for the solvent and can be safely evaporated away.
But cathodes, as I mentioned earlier, require an additional step to deal with the toxic NMP.
For efficiency reasons, the electrodes are often prepared on wide rolls much larger than what can
be stuffed into a single cell. So they then need to be cut to their desired width with knives. Then
the electrodes are placed into a dry room with dried separators to prepare for cell assembly.
In the cell assembly stage, the electrodes and separator are winded, stacked, and welded
layer by layer to create the cell's internal structure.
For instance to create the Z-stacked pouch style battery cells,
the anodes and cathodes are cut into single sheets. The separator is fed in
as an infinitely folding ribbon with the electrodes added in between the spaces.
Once this is done, the ends or "tabs" of each cell's anode,
cathode, and separator have to be welded together. Usually this is done with ultrasonic welding.
It is then placed into the pouch or whatever enclosure the cell uses
and filled with the liquid electrolyte. Then the cell enclosure is sealed.
The steps in the Electrochemistry Activation stage are for ensuring that the battery's
internal structure is stable and that it is ready for use in the real world.
The first and most important step is Formation. Here, the cell gets charged for the first time.
Then it is slowly discharged and recharged at different rates over several cycles.
This is crucial to help formulate a solid
electrolyte interface layer - often shortened to SEI - that protects the anode from reacting
with the electrolyte and forming lithium dendrites - which are known to cause fires.
This Formation process creates gas within the battery cell and that gas needs to be
slowly and safely expelled with external pressure. Or else problems will happen.
After this the cells are put on aging shelves for stabilization. Final tests are applied,
the cell is cleaned, and the last bits of gas expelled so to make sure that its internal
structure is stable. After this, the cell is ready to go out for installation into modules and packs.
CATL is pushing so hard to expand its footprint because there are
significant scaling advantages on the cost side.
Battery manufacturing has many different process steps and that presents its challenge.
Not all of the steps can cycle through their work flow as fast as the others.
For instance, consider the coating process - where the slurry is slathered onto the metal foil - and
the stacking process - where the finished, dried electrodes are folded over into their structure.
The former is done on large rolls that can move relatively fast.
The latter is a high precision pick-and-place operation.
The machine doing it has to do it right, or else the battery will short circuit.
These two steps cannot go at the same speed, and thus create
a bottleneck. Being able to bring larger capacity to these bottleneck-ed steps
means more batteries can be manufactured within a single, fast-depreciating facility. It means the
chance to experiment and implement cost-efficient measures within the overall process. And so on.
One big challenge that CATL faces is that it does not maintain a direct relationship with the end
users. The battery is the most important part of the EV. The single biggest differentiating factor
in cost and performance. But in the end the customers are driving the car. Not the battery.
EV makers know this. And many of them also know that their product's core differentiation
is dependent on a foreign third party. The chip shortage has gotten a lot of press lately,
but there also exists a mild EV battery shortage too.
This has affected their ability to churn out enough cars for their liking.
This incentivizes the manufacturers to eventually bring that work
in-house. CATL recognizes this and has implemented a number of different steps
to prevent itself from getting cut out of the chain entirely.
The first is to establish strategic alliances and share equity.
These are very common in the overall EV industry. Think Panasonic & Tesla, BYD & Toyota, and so on.
Last year in 2020, CATL struck an alliance with
Honda to conduct joint R&D and development of batteries for EVs.
Crucially, CATL agreed to issue to Honda 1% ownership of its own shares
for $570 million USD (3.7 billion RMB) - a stake today worth nearly $2 billion USD.
The second method has been to consume more of the value within the EV battery manufacturing chain.
In other words, more vertical integration.
This way, they can offer a more complete - and thus, locked in - solution to their end users.
This seems to be extending beyond the work done with modules and battery packs. One
interesting item announced at the same time of the Yichun City investment that went
under the radar was that CATL is working alongside a variety of Chinese technology
companies to found a Joint Venture called "Suzhou Times Xin'an Energy Technology".
CATL owns majority share of this JV, with 54%
so they are leading the effort. Its goal would be to develop new EV drive control systems. The
drive system is one of the most important parts of the entire EV. It is made up of the EV battery,
motor, transmission, and power electronics. This is the engineering heart of the system.
Foxconn is doing something similar - building an EV platform
open to manufacturers to use for their own cars. I have written about their efforts in
a previous newsletter email. Worth checking out if you are interested.
CATL being able to offer its end users not just the EV battery pack
but the entire EV drive system would be a massive value-add.
Another critical thing that CATL has been doing in order
to shore its manufacturing and cost advantages
has been to secure the best and cheapest supply of raw chemical goods for its batteries.
The raw materials making up the battery - particularly the cathode - are critical to
its performance and final cost. It is generally estimated that the cathode's active materials
make up over 30% of its final cost. Furthermore, they are not exactly super plentiful, so the
company has worked on securing reliable, low-cost supply for these rare goods.
Remember that lithium battery base in Yichun City, Jiangxi from earlier in the video?
Yichun City is known for its rich reserves of lepidolite, a lithium bearing material.
The area is sometimes referred to as the lithium capital of Asia. The company has
also made direct investments in companies and mines to secure its raw goods supply.
For instance. To guarantee its supplies of lithium,
CATL owns 25% equity share in Tianqi Lithium of Sichuan.
Along with direct investments in lithium mines in Canada, Australia, and the United States.
The company guaranteeing its position as the lowest cost supplier
will make it so that end users have to use them,
even if it is strategically unwise. Like the TSMC of EV batteries.
CATL's success has enriched many. Today, the company is one of China's most valuable companies,
with a market cap of $180 billion USD (1.16 trillion RMB) on the Shenzhen Stock Exchange.
Robin Zeng, its founder, is now one of Hong Kong's richest men.
But the company faces fierce competition. From old foes like BYD. From customers
who might be competitors like BMW and Audi. From well-funded foreigners like Panasonic and LG Chem.
And from fast-rising up-and-comers like Guoxuan High-Tech, China's number three EV battery maker.
CATL is doing its best to fight them all off. They are pushing up capacity to flood the market,
signing raw material deals to secure the cheapest supply, and conducting R&D in
things like sodium-ion batteries to keep from being disrupted out of the market.
For now, these measures appear to be succeeding. We shall see if it
will be enough and if they might remain the market leader in the years to come.
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