On May 11th, CATL held 2019 Earnings Call. Although it was an earnings call intended for investors, during the event, we have realized that all senior managers have revealed a lot of information on EV battery products and industry. CATL CEO, vice-chairman, deputy GM, board secretary, financial director and other senior management participated in online conversation with the investors. We have compiled 26 questions that we think might be interesting. Answers are as follows.
Q1: How much capacity do you estimate to reach this year?
CATL finance director: Company’s capacity in 2019 was at 53 GWh. Announced capacity that is being built is 22 GWh. When will this turn into an actual capacity will depend on the construction progress. Please, follow our company statements.
Q2: May I ask about the current situation with upstream supply chain for the factory in Europe? Will it import from the current suppliers in China or will it build a local supply chain? How much is cost advantage of Chinese suppliers and can this advantage be brought to Europe? What are the biggest obstacles in doing that?
CATL vice-chairman: Supply chain for the European project will be mixed. In the early stage Chinese suppliers will be main and local will be backup. In later stages, when the size expands and production starts to pick up, local suppliers will be main. Local part will be a combination of European capacity by Chinese suppliers and European suppliers. The issue with European supply is that capacity construction cycle is relatively long, construction and operative costs are high, so you have to be creative in each supply chain link as to optimize cost cuts.
Q3: Cooperation with Tesla only includes Shanghai plant? CATL built factories in Asia and Europe. Do you plan to build plants on other continents in future?
CATL vice-chairman: Our strategic goal is to be leading global battery supplier that will serve clients globally with high-quality products. Currently, we have started capacity construction in Europe. In future, we will build capacities in other regions depending on EV market developments, client demand and our own advantages.
Q4: You are building several projects. Can you tell us more about when will these projects start production? Currently, which projects have completed equipment tenders and which projects will complete equipment tenders this year?
CATL vice-chairman: Globally, we have deployed five major production bases (Nigde, Qinghai, Jiangsu, Sichuan and Europe), which include EUR 1.8B European base, RMB 10B Cheliwan, RMB 10B Yibin, RMB 7.4B Jiangsu 3rd phase and RMB 4.6B Xihu expansion. For details please see company statements.
Q5: When you signed the agreement with Tesla USA, you have not signed it with Tesla Shanghai. Did you sign the agreement with Tesla Shanghai meanwhile?
CATL CEO: Our agreement with Tesla includes Tesla Shanghai.
Q6: In July, will you supply Tesla with ternary batteries or LFP, or did you develop some new technology that you will supply to Tesla?
CATL CEO: We have been communicating with Tesla technical team for quite a while now. Supply should start in H2. We have the most advanced products in ternary and LFP aspect. Supply is not limited to either LFP or ternary. What will be supplied will depend on market demand.
Q7: BYD says its blade battery is exquisite. What do you make of it?
CATL CEO: Blade battery was one of innovative CTP structure concepts that we manufactured in 2016. We chose and mass produced several best solutions among innovative CTP structure concepts, such as CTP-0, CTP-1, CTP-2.
Q8: What projects does 22.2 GWh capacity that is currently being built include? What are mid- and long-term production capacity plans? I understand Cheliwan planned capacity is 16 GWh. What products will it supply?
CATL deputy GM: First, for the projects being built at the moment, please see 2019 report. Second, capacity construction will be planned based on market demand. We have deployed five major production bases (Ningde, Qinghai, Jiangsu, Sichuan, Europe), which include EUR 1.8B European base, RMB 10B Cheliwan, RMB 10B Yibin, RMB 7.4B Jiangsu 3rd phase and RMB 4.6B Xihu expansion. Third, Cheliwan will mainly produce EV and energy storage batteries.
Q10: Considering the long-term downward trend in EV battery unit price, what measures do you take to cut production costs and consequently maintain the room for profit?
CATL deputy GM, board secretary: First, increasing product abilities and energy density, optimizing product design, improving production techniques and increasing product yield, as well as using highly efficient automation and deep cooperation with suppliers help us to reduce production and raw material costs. Second, since CTP does not need module, compared to conventional battery packs, CTP battery volume utilization increases 15%-20%, while pack components are reduced by 40% and production efficiency increases by 50%. Battery pack’s energy density also significantly increases. All this effectively reduces battery’s manufacturing costs. Third, we will continue to cut EV battery costs as to contribute to large scale use of new energy vehicles and energy storage batteries, and at the same time acquire reasonable return.
Q11: Tesla mentioned cobalt free battery development. Beside LFP does company have its own cobalt free battery developments? In what R&D stage are they? Second, Volkswagen will soon deploy its MEB platform, which will hold a significant share in the future EV market. Do you have a clear plan or agreement with Volkswagen on supply for MEB platform? Third, LG on the back of Tesla has won biggest Q1 global market share. LG with its production capacity and big clients has already become a global competitor to you. Do you have any clear strategies and specific plans to respond to LG on global level?
CATL CEO: First, we have our own cobalt free development. Currently, R&D progress is going smoothly and we are trying to figure out supply because it is a completely new, disruptive product. The answer to your second questions is yes. Third, clients will only accept products that provide more value for money, more competitiveness and that can help clients’ products realize their value in the market. There are no companies that can easily keep clients. Our products’ long term competitiveness and production capacity deployment gives us confidence to face global competition.
Q12: Can you reveal more about 2019 production capacity numbers?
CEO deputy GM, board secretary: 2019 battery production capacity was 53.00 GWh, under construction capacity was 22.2 GWh.
Q13: In 2019, company opened a lot of subsidiaries. Can you tell us what is the function of these subsidiaries and their affect on company’s results.
CATL finance director: We have established closed loop industrial chain that includes mine, raw materials, cells, packs and recycling.
(1) Upstream resources: Using equity investment, long-term purchase order and other methods, we have constantly increased deployment in lithium, nickel, cobalt and other upstream metal resources and processing areas.
(2) Mid-stream materials: Using Ningde Bangpu and Pingnan factory, the company increased investment and construction in cathode materials as to ensure raw material supply and quality.
(3) Battery use: Company continued to invest in non-EV market and established special operation department. We have entered charging, swapping, energy storage network and established joint ventures with auto companies to build plants.
(4) Battery recycling: Company wants to increase construction of domestic recycling capacity and initiate EV battery collection network, invest in the establishment of overseas recycling and exploitation bases and expedite deployment of battery recycling business.
Q14: What is your opinion on autonomous driving development and effect on your company? Does Huawei like automotive ecosystem as energy provider have viscosity?
CATL CEO: Autonomous driving features are entirely compatible with electric vehicle, so autonomous driving is also one of the most important drives in promotion of EVs. Huawei wants to become a major contributor in EV intelligentization. We are one of the main contributors to automobile electrification. Our cooperation with overseas auto companies in electrification is very close and overseas auto companies have overseas intelligentization partners. In China, we have deep cooperation with Huawei and are jointly promoting Chinese EV electrification and intelligentization.
Q15: Compared to competitors, such as Panasonic and LG, is CATL competitive? I saw an article online saying CATL’s ternary batteries are 20% more expensive than Panasonic.
CATL vice-chairman: CATL’s ability to use science and innovation to cut material R&D, cell and pack design costs has clear advantages on global level. Saying that ternary battery costs are 20% more expensive compared to Panasonic’s is nonsense.
Q16: Can you tell me how do you think Tesla making its own batteries will affect you? How do you think it will affect you, when auto OEMs start making their own batteries? What is company’s future positioning and strategic direction?
CATL vice-chairman: We always believed in the advantages of specialization. Technology, talent and experience that is involved in development and production of EV batteries is different from development and production of automobiles. We firmly believe that in the end CATL’s product quality, cost advantages and service brought by our long term focus, innovation, manufacturing experience and size will become ever more obvious globally. Of course, in this process, auto OEMs will also try various things, including making their own batteries. We do not oppose that or worry. We are focused on ourselves. EV industry is a long-term development.
Q17: Company’s cooperation with Tesla is aimed at local or global market？
CATL deputy GM, board secretary: Our cooperation with Tesla is not limited to China.
Q18: CATL is about to enter international market, while Panasonic, Samsung and LG are about to enter Chinese market. There will be direct competition between the giants. In the past, you have become the giant in sealed off domestic environment. What advantages do you have that will help you compete with these giants in the future? Will you become a supplier giant like Bosch?
CATL CEO: In the international market, when it comes to auto industry, it usually takes between 36 and 48 months from developing product A, B, C samples in cooperation with client until mass production. Clients usually start to designate suppliers after the second product sample. A lot of projects have already been designated, and in competition with Panasonic, Samsung and LG in the international market, we have achieved results that make us proud. We do not produce same products as Bosch and our products have different roles in the automobile compared to Bosch’s.
Q19: Which energy storage batteries will achieve large scale production sooner, generation side or supply side? Are you just experimenting with fast charging stations or is this part of your development strategy?
CATL CEO: First, different countries have different grid features, so some countries will develop generation side faster and some supply side. Second, fast charging stations are an important measure in solving EV charging on consumer side. Our solar-energy storage-charging integration can serve consumer side and at the same time can adjust peak and valley prices using energy storage. It is a hub between energy grid and transport network.
Q20: Nowadays, EV battery technology is revolutionized daily. Can CEO tell us how does he see future mainstream technology and what is the situation with company’s technology pool?
CATL CEO: Battery technology revolution is divided into structural and chemical innovation. We have invested a colossal amounts of time and energy into both aspects and, based on our technology road map, we currently have a technology pool for the next ten years.
Q21: Can current LFP and ternary batteries pass puncture test? Are there already examples of CTPs with 5- and 6-series ternary batteries being installed in vehicles?
CATL vice-chairman: We have ternary and LFP products that can pass puncture test. CATL has products with different features to meet different client demands and application scenarios. Regardless of cell, module or pack category, they all have leading safety features.
Q22: Tesla said it will cooperate with Korean company to build batteries and that the cost will fall more than 4,000. Does this have an impact on you? There are news on Taiwan company that can already mass produce solid state batteries. What do you make of that?
CATL CEO: Musk told me Tesla wants to make batteries. From what I understand, their technology roadmap will not have an impact on us. Also, we are exploring how to make better batteries together as to serve new energy business.
Actual solid state battery needs to use lithium metal to make anode. Only then can you increase energy density. Currently, automotive solid state batteries cannot compete with our lithium-ion batteries. We hope they will put more effort so they can compete with all solid state battery that our team is developing.
Q23: Are there any new developments in IP dispute with TAFEL?
CATL deputy GM, board secretary: We have initiated a lawsuit against TAFEL for patent infringement at Fujian high-court and Fuzhou intermediate court. The courts have accepted our documents and are being processed.
Q24: How is European factory developing? When do you plan to start production? What is NMC811 share among shipped batteries at the moment? Can CTP be used on 811 batteries? How much can it increase battery pack’s energy density?
First, the progress on European factory has been stalled due to pandemic. We want to start production next year.
Second, currently NMC811 makes around 20% of ternaries. Battery innovation is made of structural and chemical part. CTP belongs to structural innovation. Whether it is LFP or NMC811, in future our new packs will all be made on CTP. Energy density corresponds to vehicle’s requirements for battery pack. If they let us design our own battery pack, we can achieve energy density over 250 Wh/kg.
Q25: Panasonic built a factory to supply an auto giant, but has not seen profit in years. There is even a chance that it will give up. If future auto industry takes the same road as smart phone industry with one-strong-many-weak setup, how will CATL avoid being exploited by its customers?
CATL independent director: Advanced technology is an essential element for EV battery industry, because technology products can bring market success to a client. So it is not about being exploited or not, it is about successful partnership. For that reason, we have always insisted on investing a lot in technology as to make clients’ products more popular, more profitable, which is the successful partnership that we mentioned.
Q26: In 5–10 years will batteries become standard products or non-standard products? Will future bring several strong players or one super strong and many strong players?
CATL vice-chairman: In future, EV batteries will have different products for different application scenarios and positions as to meet the demand. It is impossible to have a unified product standard for commercially used vehicles scenarios, while it is not probable that different personal car OEMs will have a unified product standard. There is a trend that a single OEM develops EV product as standard product on a single platform and on that platform it develops several types of packs among standard battery packs, thus achieving product specific economies of scale.
Original source: http://www.xchuxing.com/article-52821-1.html
English translation/edit: MoneyballR
