A couple of news stories that crossed our transom recently reminded us that the batteries in electric vehicles (EVs) are not all the same, and that’s a good thing for China’s CATL.
CATL is the world’s largest maker of batteries, which are by far the highest-value component of EVs. In recent years, the company has gained considerable share globally and now accounts for nearly 40% of global EV-battery shipments, more than its three closest competitors combined. Over time, we have seen CATL’s brand emerging as an asset in itself, as its technology and quality differentiate its products from what were largely seen as commodity items.
EV makers are beginning to highlight their use of CATL batteries as a way to differentiate their cars from the competition. Companies such as Zeekr have been advertising their use of CATL batteries, much like PC makers used to do with “Intel Inside” stickers to differentiate themselves in a crowded, intensely competitive market. Like Intel’s chips in the 1990s, CATL’s batteries have consistently pushed the envelope in technological advances, including industry-leading charging speed and density, which enable total ranges of more than 600 miles. These advanced batteries, called Shenxing and Qilin, now account for roughly a third of its EV battery shipments. Earlier this year, CATL started offering special service stations exclusively for owners of cars with the Shenxing batteries.
In August, CATL took that idea—that the battery in your car matters, more than you think—one step further. It opened a showroom in Chengdu, in Sichuan province, displaying nearly 100 models of EVs from 50 different car brands that use CATL batteries. The only major car maker not featured is BYD, a vertically integrated EV maker that has insisted on producing its own batteries, effectively becoming CATL’s main competitor.
As if to illustrate just how important an EV battery really can be, a Mercedes EV caught fire in Incheon, South Korea, just a week before CATL’s showroom launched. Thankfully no one was hurt, but the fire ended up damaging or destroying dozens of cars in an underground garage. After that, Korean regulators started requesting automakers disclose their battery suppliers.
The car in question had a battery from Farasis, a Chinese semi-captive supplier to Mercedes and one of a long tail of unprofitable, substandard rivals to CATL, which has the best safety record in the industry among major makers. CATL sets aside the most reserves for quality/warranty payouts (a conservative accounting approach), yet uses the least amount of those reserves in practice.
Batteries are not as commoditized as many think. These recent events could lead more consumers, and investors, to that conclusion. ∎