Testing Tony Seba’s EV Predictions 5 (The View from China)

In my last post we looked at the Big 6 automakers and their somewhat panicky strategy decisions over the last 6 months to fast forward EV capital expenditure and model  roll-outs.

Teasing out the causation behind this step change in attitudes to EVs is not easy. Could it be the FoMO (fear of missing out)  response to Volkswagen’s decision to go full EV via its “Roadmap E” plan (which sees VW’s entire model line-up available as EVs by 2030)? And was VW’s action, in turn, founded on the realisation that Tesla was moving down the food chain into the mass-market saloon segment with the Model 3? Personally, I don’t think either factor is the key catalyst in causing the attitudinal shift. For me it is China. And what is going in China is posing an existential threat to all the Western based auto makers. So what’s so special about China? Well:

• China is the largest auto market in the world, 60% bigger than the US at number 2.
• The Chinese auto market is growing faster than any developed nation’s auto market.
• The Chinese government has made the shift to EVs a national strategic priority.
• China’s EV market is the largest in the world, more than the rest of the world put together.
• The Chinese EV market is dominated by local producers; Tesla, Nissan, VW and GM are nowhere to be seen.
• China has a suite of new entrant disruptors with no ICE legacy business to protect.
• The large incumbents with strong ICE sales are pivoting toward EVs at breakneck speed helped by access to almost unlimited pools of financial capital under China’s public-private system of capital allocation.

A couple of charts to illustrate these point (Source: here):

And here:

Then there is the fact that China has become the world’s battery behemoth. Batteries will get a number of posts dedicated to them in due course, but until then here is a taste of China’s positioning in the battery ecosystem:

• China is buying up battery metal resources across the globe (or locking major battery metal miners into long-term supply contracts).
• China dominates the production of electrode powders that are fabricated into cathode and anode components.
• China has a web of component manufacturers covering cathode, anode, separator and electrolyte production.
• China has the largest battery cell maker in the world, CATL, plus another 4 in the top 10: BYD, Guoxuan High-Tech, Tianjin Lishen and Optimum Battery.
• CATL is also the world’s largest producer of lithium-ion battery modules, with BYD and Lishen also in the top 10.

Critically, the strength and depth of the Chinese battery food chain has resulted in every major non-Chinese battery overseas manufacturer getting involved in battery fabrication operations in China as well. This includes Tesla, LG Chem, Samsung and Panasonic.

The slides below are from the an investor presentation by the Australian lithium miner Kidman Resources. The aggregate numbers show battery production growing 6-fold between 2016 and 2020, and China dominates the market:

If Tony Seba is right and internal combustion engine fabrication will be an irrelevance by 2030, it will be a story made in China. Next post the Chinese government’s EV strategy and the Chinese auto makers’ response.

For those of you coming to this series of posts midway, here is a link to the beginning of the series.