Author: Qiu Kaijun

On December 8th in Changzhou, Chinese cutting-edge power battery company, Honeycomb Energy, held its second Battery Day, once again attracting the attention of the entire industry.

On December 3, 2020, Honeycomb Energy’s first Battery Day attracted great attention with a showcase of “disruptive” black technologies. Honeycomb Energy aims to catch up with and surpass its predecessors through early application of disruptive innovation technology.

At the second Battery Day, Honeycomb Energy showcased its ambition to conquer the world with a production capacity of 600GWh by 2025, with an estimated output of around 450GWh, accounting for a quarter of the world’s total battery output.

With a target of 600GWh production capacity and 450GWh output, it is undoubtedly a huge goal. This year, Honeycomb Energy’s actual shipment volume is only a little over 4GWh. To increase output by 100 times within four years, Honeycomb Energy undoubtedly needs a very fast-paced urgent march.

Why is Honeycomb Energy in such a hurry? Do the existing conditions support such rapid expansion?

From differentiation strategy to total cost leadership strategy

When Honeycomb Energy was born, it was so different.

First, it shouted out the “stacking era” and adopted the square stacking technology to try to differentiate itself from mainstream square-wound batteries. Later, it launched the world’s first cobalt-free battery and separated itself from ordinary ternary batteries and high nickel-low cobalt batteries.

These differentiated products quickly made the industry aware of Honeycomb Energy. Facing automakers, Honeycomb Energy had an impressive business card. In the subsequent product docking, testing, and validation, Honeycomb products withstood the test and won orders one after another.

In November, Honeycomb Energy ranked 5th in China’s monthly installation volume and 6th in cumulative installation volume in 2021. It took only three years for Honeycomb Energy to go from obscurity to the forefront of the industry. Obviously, the early differentiation strategy was effective.

What about the next few years?

Michael Porter, a master of strategic management, said that there are three competitive strategies for a company to stand out in an industry: total cost leadership strategy, differentiation strategy, and focus strategy. The focus strategy is applied to segmented markets. If you want to participate in industry-wide competition, there are only two strategies: total cost leadership strategy and differentiation strategy.

Can the differentiation strategy still be used?

Let’s first look at the development of the industry—the demand growth is even faster than what Honeycomb Energy initially expected.# Chairman Yang Hongxin of Honeycomb Energy mentioned in his speech on Battery Day: “At the beginning of this year, a well-known global consulting firm predicted that the demand for global power batteries would be around 1.2 TWh in 2025. The latest forecast has now increased to 1.8 TWh.”

Besides the well-known demand for passenger car power batteries, Yang Hongxin also predicted that the turning point for energy storage batteries is approaching, with demand possibly exploding in the second half of 2023. In addition, the electrification turning point for commercial vehicles and construction machinery has also arrived. There is also strong demand for forklifts, tricycles, low-speed four-wheel electric vehicles and so on.

For Chinese cars, the expansion of demand for power batteries is critical on a global level. “It’s a shame for our competitive industry in China if we don’t leave the country,” Yang said.

Taking a look at the competition.

The current global leader in power batteries is CATL (Contemporary Amperex Technology), which expects to have a design capacity of at least 520 GWh by 2025. Guoxuan High-tech plans to reach a production capacity of 300 GWh by 2025. CGL (China Aviation Lithium Battery) announced a planned production capacity of 500 GWh by 2025 and 1 TWh by 2030.

Competitors in foreign countries are mainly the two South Korean giants: LG Chem plans to expand its battery production capacity to 300 GWh by 2023, while SK Innovation plans to have a capacity of 200 GWh by 2025 and over 500 GWh by 2030.

Why are these major players setting such high production capacity plans?

It is partly due to demand, and partly due to the overall cost leadership strategy that comes with greater production capacity. A statement from CATL makes this clear: “The power battery industry has a high scale barrier, and battery companies with large production capacity have clear scale advantages in raw material procurement and production operations. The power battery market will further concentrate on advantaged production capacity, bringing continuous cost reductions from scale effects.”

The expansion strategies of Guoxuan High-tech and CGL are also motivated by similar reasons. In summary, as Yang Hongxin puts it, “The future supply chain will be very tight. If we don’t reach the top, we are likely to lose control and bargaining power, including the ability to negotiate prices.”

From the perspective of demand, expanding production capacity is feasible; from the perspective of competition, it is necessary. In the face of such skyrocketing demand, who has the opportunity?

“In terms of the supply chain, cost control, talent, speed of technological iteration, and the volume of market application, Chinese power battery companies show obvious advantages over Japan and South Korea,” said Yang Hongxin. For power batteries, some developed countries that previously did not attach much importance to them are beginning to focus on them and take action, but it will take two to three years. “So we must complete a grand layout within the next two to three years and make our production capacity the leader.””The target we set previously was 320GWh by 2025, and we are currently building 297GWh. However, with our advantages, the once-in-a-century opportunity of building a brand, and the explosive growth in various markets, we aim to challenge higher goals.” said Yang Hongxin.

The “Short Sword” Category Emerges

“Our advantages?” What are the advantages of CATL?

“Our short sword product series with full lineup, advantages in industry chain layout, capital, and cornerstone customers.” said Yang Hongxin.

Yang Hongxin first mentioned the “Short Sword” series products. “It is safer, has higher energy density, and more standardized.”

When hearing the name “Short Sword”, many people will immediately think of BYD’s blade battery. Indeed, the two have similar functions, and the most important thing they have in common is standardization—to meet various customer needs with standardized products, and to reduce costs greatly through synergistic effects in procurement and production.

Not only BYD and CATL, but Tesla is also promoting the 4680 large cylindrical battery, which is almost single-handedly leading the way as one of the powerful routes for standardized batteries. Musk boasted that costs have declined 56%, and the GWh unit investment cost of batteries has decreased by 69%.

Volkswagen’s customized standardized battery (Unified Cell), which uses the same dimension specification of a square shape, is planned to be introduced in 2023. This standardized battery has outstanding cost reduction effect, reducing the cost of the entry-level electric vehicle battery by 50%.

The competition for standard products is not accidental. This is also a common practice of scale barrier type industries where companies try to lead the way.

According to Michael Porter’s competitive strategy theory, in order to adopt the total cost leadership strategy, besides certain advantages in market share, raw material supply, etc., generally, product design must be easy to produce, and a wide range of related product chains must be maintained to distribute costs.

CATL’s “Short Sword” new product category launched on Battery Day, not only takes care of demand, has a wide range of product chains, but is also easy to produce.

Although all of them are “Short Swords,” CATL’s products cover the full size range from L300-L600, and also cover the full range of charging from 1.6-4C, including passenger cars, energy storage, commercial vehicles, engineering machinery, non-high-speed electric vehicles and other application scenarios. They are also using a full range of chemical systems, from cobalt-free, ternary to lithium iron phosphate.

Yang Hongxin stated that from the perspective of demand on the vehicle side, CATL’s “Short Sword” products with a size of 300mm-600mm can cover 80% of the demand for passenger cars, and therefore have a broad application prospect.From a manufacturing perspective, “the larger the battery, the higher the manufacturing efficiency and the lower the cost,” says Yang Hongxin. “Previously 148mm in length, it now has become 600mm in length, and the amount of active material and energy packed in one time is four times that of before.”

From a product perspective, making the battery thinner is more conducive to heat dissipation and safety.

“From the three dimensions we derive the size, compared with traditional sizes from other companies, do we have a competitive edge?” Yang Hongxin asked himself. He compared the “short sword” to a large cylinder, “If we use lithium iron phosphate, the large cylinder can only provide 50 degrees of electricity, and the short sword can provide 80 degrees. If we want to provide 80 degrees of electricity, the large cylinder needs to use high nickel and silicon negative electrode. The large cylinder cannot compete with the ‘short sword’ using the same system. If we use the same system, we will have no competitive edge in all aspects.”

“In terms of performance, cost, efficiency, and safety, the short sword has strong competitive edge. Why not do it? We can lead the entire industry to standardization,” said Yang Hongxin.

Product diversification combines Beehive Energy’s rich technological solutions and standardized production and coordination to highlight product competitiveness. This is the first pillar supporting the 600GWh strategy for Beehive Energy. In addition, Beehive Energy will also implement AI intelligent manufacturing strategies, Beechain ecological partner strategies, and capital co-creation strategies to support the implementation of the 600GWh strategy.

Many people may still have questions and look to the founder and major shareholder of Beehive Energy, Great Wall Motor. What role will Great Wall Motor play in this 600GWh venture?

Great Wall’s “soft power” output

In the meeting rooms of Beehive Energy’s various bases, there is a clean governance warning sign on the conference table, which reads: If there is any bribery or deliberate obstruction, etc., it can be reported. The reporting agency is Great Wall Group’s disciplinary department.

Needless to say, this warning sign originated from Great Wall Motor.

In fact, relative to Great Wall’s money and orders, the strategy, management, and organizational empowerment from Great Wall are even more valuable gifts.

Great Wall Motor has been established for more than 30 years, from weak to strong, not only in size, but also in its management and organizational capabilities. By learning from Lisi Consulting and Huawei’s experiences and adding their own summaries, they have developed a set of entrepreneurial and expansion methodologies.

In terms of strategy, we have already seen the empowerment effect of Great Wall Motor – Beehive Energy is the pioneer of square stacked, cobalt-free batteries, and NCMA batteries, and has made a name for itself. After initial experimentation, it focused on the short sword category.

In terms of management and organization, Beehive Energy also directly follows Great Wall Motor’s experience.# The Organizational Transformation of Great Wall Motors

Great Wall Motors is undergoing two transformations. First, it is integrating its marketing and R&D functions to better serve its users. Second, it is integrating its operational units to strengthen brand management and ensure that its resources are being used effectively.

The structure required for these transformations is variable and dependent on specific processes. Great Wall Motors is implementing edge computing and building self-driven partnerships to ensure fluidity and agility within its organizational structure.

Enhancing organizational culture is also a significant advantage cited by Yang Hongxin. In 2021, Great Wall Motors introduced several new models of cooperative strategy, including the operation group model, the iron triangle model, and the warlord operation model. Additionally, over 800 employees participated in the stock plan and were selected to become partners. Great Wall Motors is committed to innovation and rotating key personnel to promote cross processing throughout the team.

With regard to the four primary challenges facing its sister company, Hycan Energy: technological, production chain, intelligent manufacturing, and capital investment, the most significant challenge is resource acquisition. Great Wall Motors addresses this by striving to match the heights of industry giants like Tesla and Apple in its management, brand promotions, and incentive programs.

Great Wall Motor’s management experience has enabled Hycan Energy to achieve rapid and stable growth, and it is expected to continue along this path in the future.

Capital Support

Traditional industries rarely see the kind of rapid growth that Hycan Energy expects. However, capital injection during the expansion process is common in the internet industry. With a projected potential 600GWh production capacity, Yang Hongxin estimates that Hycan Energy will need an investment of over 200 billion yuan.

Still, Yang Hongxin believes that Hycan Energy has a distinct advantage in capital allocation. To support his claim, only three days after the Battery Day event, Hycan Energy signed a B+ round equity financing agreement. Investment organizations including Chuanneng Investment, DaZu Laser, and Xingyu Shares, as well as state-owned platforms like Huzhou, Yancheng, and Shangrao, and venture capital firms like Dinghui Investment, China Mobile Capital, Xingye Bank, Youshi Capital, Renbao Capital, and Taikang Investment, have all invested 6 billion yuan in this round of financing.

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杨红新之前也透露，蜂巢能源 A 轮融资规模 35 亿元。而 B 轮融资总金额超百亿。另外，蜂巢能源还在计划明年申报上市，现在股改已经完成。

确实，当前资本市场对于动力电池前景非常看好。领头羊宁德时代坐拥 1.5 万亿人民币市值，成为动力电池行业估值的标杆。而作为新晋动力电池企业当中势头凶猛的蜂巢，也不乏追求者。

借助资本的力量，蜂巢能源也将在研发、供应方面建立生态合作伙伴更深的联系，打造更强的竞争力。

今年 4 月，蜂巢能源宣布发起蜂巢资本，发起 20 亿元新基金。这次电池日上，蜂巢能源又宣布，将联合蜂巢资本成立百亿规模的基金，打造产业生态联盟。该基金分成产业基金、产能基金、创新基金三大类别，分别可以提供支持企业运营发展，支持企业产能落地、协助企业孵化创新技术。这一举措，无疑将有助于蜂巢能源的技术创新和供应保障。

成立 3 年，就喊出 600GWh 产能、四分之一市场份额的目标，蜂巢能源无疑是有野心的企业，但是，它也有理性和成长性。

理性的一面，是蜂巢能源战略目标的设定、拆分、实施路径，有严谨的逻辑，经过了详细的论证；成长性的一面，是要灵活应对市场的变化而持续进化 —— 从锚定高镍、无钴，到各种材料技术路线都有涉及，从追求差异化，到追求规模领先、成本领先。

在自己的愿景和行动之间，蜂巢能源建立了反馈闭环，因此能够实时调整战略。这是智能组织的特征，也是蜂巢能源值得我们期待的核心因素。
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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.