Blog

In order to increase production capacity and accelerate market penetration, domestic battery manufacturers have been pulling out all the stops in recent years, building factories and raising billions through additional share issuances, a trend closely related to the booming growth of the new energy vehicle market. However, from an industry perspective, the aggressive expansion of battery manufacturers is focused on more than just the new energy vehicle market; it also includes the rapidly expanding energy storage market. According to data from research firm Mercom Capital, financing and mergers and acquisitions related to battery energy storage systems, smart grids, and energy efficiency have reached hundreds of billions of dollars. Electrochemical energy storage companies raised US$9.6 billion in the first half of 2021 alone, compared to just US$716 million in the same period of the previous year—a mere fraction of the former. The rapid explosion of the energy storage industry is evident.

Against the backdrop of the continuously rising popularity of the energy storage industry abroad, major domestic battery manufacturers specializing in the chemical industry are also taking action, entering the electrochemical energy storage field to seize the opportunity. On November 4, 2021, EV battery manufacturer EVE Energy announced that it had signed a strategic investment agreement with the Jingmen Municipal Government. The company and its subsidiaries plan to invest 30.521 billion yuan in fixed assets in Duodao District, Jingmen City, acquiring approximately 3,000 mu of land to build a Jingmen power and energy storage battery industrial park with an annual production capacity of 152.61 GWh, exceeding the scale of its previous investment project in Sichuan. While EVE Energy continues to expand production, industry leader CATL, along with other players such as BYD, Ganfeng Lithium, and Guoxuan High-Tech, are also accelerating production expansion. Several factors are driving the influx of giants into the energy storage market.

Firstly, as a new type of energy storage, electrochemical energy storage will play a significant role in domestic energy storage methods. Public information shows that energy storage is mainly divided into three categories: mechanical energy storage, electrochemical energy storage, and thermal energy storage. In the past, our energy structure was mainly based on pumped hydro storage, but in recent years, the new energy storage industry has developed rapidly. This includes various methods such as lithium batteries, compressed air, flow batteries, flywheels, sodium batteries, hydrogen storage, and thermal storage. Among the many new energy storage technologies, both globally and domestically, sodium-ion battery energy storage systems have become dominant in the commercial field, which is why many battery manufacturers are entering the energy storage sector. In electrochemical energy storage batteries, sodium battery technology is not yet mature enough for large-scale commercial use. In comparison, the more mature lithium iron phosphate battery is expected to be widely used in the electrochemical energy storage field.

Secondly, with the large-scale deployment of new energy power infrastructure, the mismatch between power generation and demand peaks has highlighted the importance of energy storage in the overall energy cycle. In recent years, with China's vigorous promotion of new energy development, the growth of new green electricity has accelerated. According to relevant industry statistics, the compound growth rate of green electricity in China over the past decade has reached 32.1%, far exceeding other industries.

However, compared with conventional energy sources, new energy power generation has small unit capacity, large numbers, and dispersed locations, and is significantly affected by external factors such as seasons, weather, and day and night. In addition, energy transmission and demand are not in the same location. For example, Northwest China is a source of green energy, while the eastern region is the core area for energy consumption. This spatial difference means that excess green electricity in the west may not be consumed, while the east has a large demand deficit. To avoid wasting green electricity produced in the west, energy storage devices are needed for preservation.

Furthermore, energy storage, as a key link in China's large-scale energy cycle, has also received support from various national policies. According to incomplete statistics, no fewer than 20 policies have already been issued, and various subsidies, promotion, and support policies have provided a good policy environment for the sustained and healthy development of the industry.

CATL Takes the Lead

As the leading company in the power battery field, CATL has always been regarded as a leading supplier of automotive power batteries. However, CATL has also been involved in the energy storage field for some time. According to CATL's 2021 financial report, energy storage systems contributed 15.457 billion yuan in revenue last year, a year-on-year increase of 601.01%, making it a solid "second growth engine." CATL's ability to quickly take the lead in the energy storage field is largely due to its long-term layout in this area.

First, it began to develop energy storage technologies before the industry's opportunities fully emerged. According to public information, CATL began to develop energy storage business from its inception. Since then, relying on its rich industry experience in the power battery field, it has improved and optimized the performance of power batteries with similar properties, and combined with the characteristics of the energy storage battery market to launch comprehensive product and technology solutions.

For example, its product system includes battery cells, modules, cabinets, and battery systems, and provides comprehensive safety system design based on chemical safety, high-voltage safety, mechanical safety, and functional safety. For example, the cycle life of conventional lithium iron phosphate battery platforms on the market is only 3,000-6,000 times, which greatly limits the service life of energy storage batteries. After years of research, CATL has successfully extended the life of lithium iron phosphate batteries to 12,000 cycles, far exceeding the current market average.

Relying on these excellent technologies and product systems, CATL has experienced rapid growth following the outbreak of the domestic energy storage industry. According to relevant industry data statistics, by the end of 2018, the cumulative installed capacity of electrochemical energy storage in China reached 1036.03 MW, a year-on-year increase of 144.79%. By 2020, this figure had reached 3.27 GW.

According to the "Energy Storage Industry Research White Paper 2021," CATL has become the energy storage technology service provider with the largest installed capacity in the electrochemical energy storage field in 2020, thanks to its rich products and advanced technologies. For example, on the generation side, CATL provides new solutions for the safe operation of new energy power stations and the consumption of new energy electricity; on the grid side, CATL's energy storage system achieves multiple functions, improves grid flexibility, and ensures safe, stable, efficient, and low-cost grid operation...

Secondly, as an energy storage technology service provider, it has extensive experience in energy storage project construction. As an early participant in energy storage projects, CATL has accumulated rich experience in energy storage project construction. Its large-scale construction of the Jinjiang energy storage power station is a culmination of its energy storage technology and experience. It is reported that its Phase I project has reached (30 MW/108 MWh), which is almost a benchmark project in the industry. Currently, it has accumulated a discharge of 68.52 GWh, which is equivalent to the total power supply of 150,000 households, based on the annual electricity consumption of 3,000 kWh for a family of three.

In short, with its advanced technology and project construction experience, as well as its extensive layout in the energy storage industry chain, CATL has taken the lead in the energy storage industry.

EVE Energy Catches Up

As a leading battery manufacturer closely following CATL, EVE Energy spares no effort in catching up in the energy storage field. According to publicly available information from EVE Energy, the company's current energy storage layout covers communication energy storage, wind energy storage, distributed energy systems, and power energy storage. As a giant in energy storage with such a wide coverage, electrochemical energy storage is closer to its main business, and naturally becomes its key area for multi-pronged expansion of production capacity.

First, it expands production capacity around major raw material markets and industrial clusters to reduce the circulation costs of the upstream and downstream industrial chains. Currently, EVE Energy's production expansion purposes vary. For example, the production in Jingmen is due to its proximity to Wuhan, Hubei, a major automobile industrial cluster in China, with good regional industrial cluster effects; Huizhou is located in the Guangdong-Hong Kong-Macao Greater Bay Area, closer to its direct user market, such as BYD's headquarters in Shenzhen, while its production capacity expansion in Sichuan and Yunnan is another approach. Specifically, Sichuan and Yunnan have abundant phosphate resources, which are important for the production of lithium iron phosphate batteries. Expanding production in the origin can reduce the cost of transporting raw materials from the producing area, and obtain raw materials nearby, ensuring the stability and continuity of its supply of production materials, thus obtaining multiple benefits in terms of production capacity and cost.

Second, through methods such as additional issuance and reduction of holdings, it continuously provides blood transfusion to its power battery business to support its technological upgrades and production capacity expansion needs. As early as April this year, EVE Energy announced that it would obtain working capital by reducing its holdings of Smoore International by 3.5%, which was somewhat unexpected; after all, Smoore International, which initially acquired a controlling stake for 400 million yuan, now has a market value exceeding 100 billion yuan and generates a large amount of net profit and dividends every year. EVE Energy's willingness to sell Smoore International shares for "production expansion" is somewhat surprising; in addition to reducing holdings of the "cash cow", EVE Energy also issued a fundraising announcement of up to 9 billion yuan for battery production capacity expansion...

Third, through cooperation among lithium battery industry chain companies to enhance its own advantages in the industry. According to publicly available information, EVE Energy's current upstream partners include DNF, Betterry, Huayou Cobalt, and Zhongke Electric. The industry chain cooperation enterprises involve cathode materials, anode materials, diaphragms, electrolytes, and upstream materials such as nickel, cobalt, and lithium. Through these cooperations, it can greatly reduce the decline in gross profit margin caused by the increase in supply chain prices (mainly the increase in lithium or lithium salt prices), and consolidate its advantageous position in the battery industry chain.

In short, through the cooperation of supply chain and industry chain on one hand and production capacity expansion on the other, EVE Energy is rapidly catching up with CATL, which is ahead. 。

Challenges Remain

The successive entry of industry giants such as CATL and EVE Energy has quickly ignited people's enthusiasm for the energy storage track. Huawei, which has always been deeply involved in ICT communications, has also established a digital energy company to enter the energy storage industry... The entry of a number of giants seems to give people the illusion that the energy storage track is about to start fighting each other? In fact, this is a bit of unfounded worry. From the perspective of the industry track's space and development stage, China's energy storage industry is still in its infancy and has not yet developed to the stage of competing for food.

First, commercialization has not yet been fully implemented. According to data provided by the grid-side energy storage power station put into operation by the State Grid system in Changsha, Hunan, the first-phase construction scale of the 60MW/120MWh energy storage power station requires an investment of 400 million yuan. Based on peak-valley electricity prices and battery technology, the power station will be in a state of loss throughout its life cycle. Similarly, many energy storage power stations in China currently still heavily rely on local government subsidies, and many energy storage power stations are still in a state of loss without subsidies.

Second, the guarantee of battery raw material prices also poses a major external challenge to the development of the energy storage industry. According to currently publicly available industry data, lithium-ion batteries account for more than 90% of the total amount of new energy storage batteries, which means that lithium-ion batteries will play a huge role in the energy storage industry. However, due to the rapid development of new energy in China in recent years, domestic lithium ore prices have soared, and the prices of lithium resource processed products have also risen exponentially, which undoubtedly poses a huge external challenge to the rapidly developing energy storage industry. In the long run, to develop energy storage well, on the one hand, we must continue to strengthen the control ability of the supply chain, and on the other hand, we must accelerate the commercialization of the energy storage industry. From this perspective, the entry of giants including CATL and EVE Energy may be a huge opportunity for this industry, which is still in its early stages of development. After all, both their strong appeal and influence and their superior technological R&D capabilities give them the confidence to change the industry landscape and promote industry innovation.