Author: Chris Zheng
On May 17th, CATL, a leading power battery company, held its 2020 annual performance briefing, which was attended by CATL Chairman Zeng Yuqun, Vice President and Secretary to the Board Jiang Li, and other executives who answered investors’ questions.
Zeng Yuqun continued his usual style of concise and straightforward answers. He provided direct responses to questions regarding the energy density of power batteries, material science, and development direction. For example, when asked about the commercialization of solid-state batteries, he made it clear that “there is still a long way to go for the commercialization of true solid-state batteries.”
Of course, there were also some interesting questions that did not receive an official response. For example, whether CATL is in talks with Apple on power battery supply for the Apple Car. Naturally, not responding is itself an official attitude.
Star Channel made adjustments without changing the original meaning, and organized them as follows.
Research and Development of Power Batteries
Q: Has the energy density of ternary batteries reached a bottleneck? Besides structural innovation, will there be innovation in electrochemistry?
Zeng Yuqun, Chairman: The energy density of battery cells has not yet reached a bottleneck, and the improvement of energy density is still ongoing, mainly relying on innovation in the electrochemical system.
Q: In terms of solid-state batteries, where does CATL’s research stand? What do you think about other manufacturers claiming to commercialize within two years or even one year?
Zeng: Our research belongs to the first tier, and we believe that “there is still a long way to go for the commercialization of true solid-state batteries.”
Q: Are CATL’s cobalt-free and rare-earth-free batteries lithium iron phosphate batteries?
Jiang Li, Secretary to the Board of Directors: The cobalt-free and rare-earth-free batteries that CATL is developing are not lithium iron phosphate batteries.
Q: Will CATL layout production capacity for pouch-shaped, cylindrical, and other forms of batteries?
Jiang: Currently, CATL has diversified product development and production capabilities, including square, cylindrical, and pouch-shaped batteries. The company will provide stable and reliable high-cost performance products according to customer demand in the future.
Q: What is CATL’s view on lithium titanate batteries? Does the safety of lithium titanate batteries improve? Does CATL have products with lithium titanate batteries at this stage?
Zeng: At present, there is no accurate definition for lithium titanate batteries in the industry. In fact, our ternary materials contain not only nickel, cobalt, and manganese.
Q: What is the progress of sodium-ion battery research? Can the non-metal battery system be matched with sodium-ion?
Zeng: The research on sodium-ion batteries is progressing smoothly.
Q: What is the composition of CATL’s R&D team? What is the personnel turnover rate? Will CATL continue to retain its backbone through equity incentives and other means?Jiang: As of December 31, 2020, CATL has 5,592 R&D personnel, of which 127 have doctoral degrees and 1,382 have master’s degrees. The overall size and strength of the R&D team is leading in the industry.
CATL will continue to roll out incentive plans to attract and retain outstanding talents, fully mobilize employee enthusiasm, and bind the interests of shareholders, CATL, and employees to promote the development of CATL.
Q: Is CATL’s battery technology leading in the industry?
Zeng: Technological innovation layout is the fundamental to keep the leading edge. CATL has experienced R&D team, a large-scale R&D investment, and a forward-looking R&D layout. CATL continuously breaks through innovations in areas such as materials, structures, and manufacturing, maintaining a leading position in technology and manufacturing.
About Commercial Layout
Q: What are the aspects of cooperation between Ningde Times and Huawei? Will future cooperation be intensified?
Zeng: We have cooperation with Huawei in energy storage and power batteries.
Q: How big is the space for CATL to enter the EV battery market?
Jiang: China is a major country for two-wheeled vehicles and is currently experiencing the development and application process from lead-acid batteries to lithium batteries. The future development prospects are very broad.
Q: What is the proportion of CATL 811 in the power battery, and what is the proportion of exports in the overseas market?
Zeng: 811 batteries account for more than 20% of the total shipments of power batteries, and large-scale deliveries have been achieved in overseas markets.
Q: What are the new energy vehicle customer base of CATL currently?
Jiang: CATL has the widest customer base in the industry. In 2020, the Ministry of Industry and Information Technology released a list of more than 6,800 effective new energy models, of which more than 3,400 were equipped with power batteries from CATL, accounting for about 50%, which is the most power battery manufacturer with supporting models.
In the domestic market, CATL provides power battery products to car companies such as SAIC, FAW, Geely, Yutong, BAIC, NIO, and XPeng.
In the overseas market, CATL has deepened cooperation with international car brands such as Tesla, BMW, Daimler, and PSA, and won the designated point of multiple important projects. Supporting models will be launched successively in the next few years.
Q: What are the scenarios and profit realization methods of CATL’s investment layout in intelligentization and other fields?
Zeng: There are many scenarios for the landing of intelligentization. We currently have good expansion in fields such as unmanned mines and electric ships, and profits can be expected.
Q: Please introduce the progress of CATL’s investment in factories in Germany and the United States. Are there any negotiations and cooperation matters?
(Technical issue: Markdown doesn’t allow Chinese characters in URLs, so I couldn’t include links. If needed, I can provide them separately.)Jiang: The CATL German factory is expected to start production by the end of this year. CATL will plan production capacity construction based on market demand in the future.
Q: Last year, Ningde Times Power Battery’s overseas revenue was RMB 7.9 billion, accounting for 15.71%. Could you introduce the reason for the significant growth of overseas revenue last year?
CFO Zheng Shu: CATL’s overseas revenue in 2020 was RMB 7.9 billion, a year-on-year increase of 295%. In order to boost the economy and reduce carbon emissions, European countries such as Germany, the UK, and France have actively promoted the consumption of new energy vehicles and successively issued incentive policies. The registration volume of new energy passenger vehicles increased year-on-year, and CATL’s overseas customers are mainly major international automotive brands.
About energy storage business
Q: What is the current maximum cycle life of energy storage batteries?
Zeng: Currently, the cycle life of our energy storage batteries can reach 12,000-15,000 times. The current cycle life level can already achieve the economic benefits of energy storage.
Q: What are CATL’s plans in the energy storage business, and what will be the approximate proportion of the main business in the next 5 years?
Zheng: In recent years, CATL’s energy storage sector has achieved rapid growth. With the formulation of carbon peaking and carbon neutral targets in various countries around the world, energy storage is an indispensable supporting resource for photovoltaics and wind power, and its development is foreseeable to enter the fast lane. CATL’s future energy storage business will maintain high growth.
About finance and business layout
Q: In the investment process targeting upstream and downstream, which contributes more to investment income and operational synergy?
Zheng: CATL invests in the supply chain to mainly boost the supply chain confidence and maintain resilient supply.
Q: How does CATL ensure a stable supply of lithium resources?
Jiang: CATL has been continuously layout in critical resource areas such as lithium, nickel, and cobalt, and invests in areas including China, Australia, Canada, the Democratic Republic of Congo, and Argentina worldwide.
Lithium is currently one of the main metal elements required for the production of lithium-ion batteries. We will adopt various methods such as long-term agreements, investments, and futures to lay out in various regions worldwide based on short-, medium-, and long-term demands, in order to ensure adequate supply.
Q: We are currently investing heavily in building factories and equipment, but technology will continue to iterate. What is the universality of our factories and equipment? What is the approximate proportion if there is a certain degree of universality?
Zheng: Currently, CATL can achieve compatibility between the ternary and iron lithium production lines through process design optimization, and can realize capacity switching quickly and at low cost.
Q: What is the latest production capacity of the company? How much new production capacity will be put into production each year in the next 3 years? Facing LG’s large-scale expansion, do you have confidence in continuing to expand market share?Zeng: Currently, the company’s announced investment scale in production capacity exceeds 90 billion yuan. The market share is determined not only by production capacity but also by technology, products, services, and cost-effectiveness. We are confident to achieve outstanding results in long-term competition in the market.
Q: Can you tell us about the progress of CATL’s Extreme Manufacturing initiative?
Zeng: CATL’s Extreme Manufacturing initiative aims to:
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Achieve six sigma manufacturing with a random defect rate of one in a billion through Extreme Manufacturing
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Ensure the reliability of battery products throughout their entire life cycle
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Significantly increase production efficiency and develop super-large-scale and high-quality delivery capabilities at the TWh level
The production of power batteries involves multiple strong coupling, multi-scale, and multi-position, with strict requirements for shape and quality control. Advanced intelligent manufacturing processes and equipment must be adopted to achieve high security requirement products.
CATL’s Extreme Manufacturing involves systems, production lines, equipment, processes, and the entire life cycle of products, making full use of technologies such as automation, informatization, and intelligence. The improvement in production efficiency far exceeds that achievable with traditional manufacturing methods.
The above is what we define as Extreme Manufacturing.
Q: There is often a comparison between Contemporary Amperex Technology Co. Limited and China Petroleum & Chemical Corporation. In terms of market capitalization, both companies surpass each other. Socially, does this indicate that new energy is replacing traditional energy? Will CATL become the new China Petroleum & Chemical Corporation?
Representative Zhang Shuai: New energy replacing traditional energy is the trend, as well as the long-term development direction. CATL’s cultural genes have strong inclusiveness.
Going forward, facing the imminent TWh, CATL will continue to uphold its core cultural concepts, accelerate the establishment of CATL (base) in different regions overseas, and increase efforts to attract talents from both home and abroad, in order to better serve global customers and global market.
Q: Currently, CATL’s gross margin is controlled at 27.8%. For upstream and downstream and CATL’s investment and return on operation, what do you think is a reasonable range for future gross profit margins?
Zheng: CATL’s comprehensive gross profit margins from 2016 to 2020 were 43.7%, 36.3%, 32.8%, 29.1%, and 27.8%. Although the comprehensive gross profit margin has gradually declined, the decline has slowed down.
The new energy power battery industry, in which CATL is engaged, is a key industry supported by national industrial policies. With the advancement of technology, massive investment in industry funds, and the maturity of the industry chain, the rapid decline in the cost of power batteries, the large-scale promotion and application of new energy vehicles and energy storage, and the decline in CATL’s gross margin are consistent with the development of the industry.As CATL’s production capacity is released, its manufacturing technology level is improved and the depth of cooperation in the industry chain increases, CATL’s gross margin will remain at a reasonable level. At the same time, CATL is continuously launching the most competitive and cost-effective products/services through technological innovation, excellent operation, high-quality service and business model innovation to create value for its customers.
Q: How is the nearly 1 billion paid to CATL by ATL each year calculated? Is there the possibility of new cooperation with ATL planning?
A: ATL has paid CATL 1.5 billion U.S. dollars each year for ten consecutive years, totaling 15 billion U.S. dollars. The patent authorization scope is related to CATL’s patents in the lithium battery field. The technology of power battery and energy storage battery, which we have developed for many years, can enhance ATL/TDK’s long-term and sustained market competitiveness in consumer battery business.
Q: Could you please elaborate on the cost pressure confronted by CATL in the second quarter? Does long-term agreement account for a high proportion of the cost structure of CATL, so that CATL faces less cost pressure when raw material prices rise?
A: With the increase in commodity prices this year, the prices of CATL’s main metal materials have risen, causing certain pressure on the cost side. CATL mainly reduces production costs and raw material costs through improving product performance and energy density, optimizing product design, improving production processes, enhancing product yield, achieving more efficient automated production, and reaching a deep-level cooperation with the industry chain.
Q: During your interview, you stated that you don’t want to position CATL solely as a battery manufacturer, and that battery manufacturing is just CATL’s foundation. What is your vision for the future development of CATL?
A: CATL’s three major development strategies are “fixed fossil fuel replacement with renewable energy and energy storage as the core, mobile fossil fuel replacement with power batteries as the core, and integrated application with electrification and intelligentization as the core.”
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.