The Power Game of Batteries

Fast Reading

• Automakers are no longer satisfied with purchasing a battery that can be directly installed in vehicles from suppliers, but hope to participate more deeply in the development, manufacturing and supply of batteries.
• The exploration of new cooperation models between automakers and battery manufacturers is not just a mutually voluntary commercial arrangement, but also aligns with the expected development direction of the industry, which forms the natural opportunity for its emergence.
• Since automakers have voluntarily taken over the right to define batteries, they must extend the whole-vehicle quality control to the entire battery chain, and bear unshirkable responsibility for the reliability, safety and full-life-cycle maintenance of the battery system.

On September 4, Xiaomi announced a strategic cooperation on "Dragon Armor Battery" with Sunwoda Power and CALB; Li Auto increased its capital contribution to Sunwoda Power by 2.65 billion yuan, becoming its second largest shareholder. The Li Auto i9 released on September 16 also sent a new signal: the first batch of models will use CATL batteries, and will switch to Li Auto's self-developed batteries after the production capacity ramp-up is completed. On September 17, He Xiaopeng, Chairman of XPeng Motors, stated that starting from this year, XPeng will independently develop batteries (the cells will still be provided by suppliers).

Three different automakers have made the same choice.

These actions almost occurred within the same time window, pointing to the same change: automakers are no longer satisfied with purchasing a battery that can be directly installed in vehicles from suppliers, but hope to participate more deeply in the development, manufacturing and supply of batteries.

Batteries have become the focus of competition because they affect several core issues that vehicle manufacturers care most about: cost, product differentiation and supply security. They account for about 30% to 40% of the total vehicle cost, and directly affect range, charging speed, safety and vehicle architecture.

After new energy vehicles become the mainstream, batteries are no longer an ordinary procurement item, but increasingly become the core component of the competitiveness of complete vehicle products.

All Arrows Point to the Same Direction

Veteran media personality Hu Xijin recently wrote an article on social media, stating that during a conversation with an industry insider from an automaker, the person told him that "de-CATLization" is a trend, because "CATL has taken away all the profits and squeezed downstream automakers."

Hu Xijin suggested that CATL should proactively consider its relationship with all domestic electric vehicle manufacturers.

In fact, the move of automakers to re-engage in the battery sector is not a new idea that emerged this year.

As early as 2022, Zeng Qinghong, then Chairman of GAC Group, sighed at the World New Energy Battery Conference that complete vehicle manufacturers seemed to be "working for CATL." Since then, automakers including GAC, Changan, Great Wall and Geely have successively supported second-tier suppliers, built battery factories, and tried to reduce their dependence on a single battery enterprise.

From 2023 to 2024, this exploration extended from procurement strategies to systematic layout: Changan launched its Golden Shield Battery, GAC's In-Power Battery Plant was put into operation, and Zeekr released its Golden Brick Battery. By 2024, more than 10 automakers have announced plans for self-developed battery packs or cells.

The eagerness of automakers to try is no accident. It is worth noting that almost all of this round of actions take place between "automakers + battery manufacturers", and few of them actually break ground to build their own factories. This may not only be because the cost calculation does not add up.

There is a market opinion that instead of letting each automaker rebuild the battery production line, it is better for battery manufacturers with technical accumulation to make full use of their production capacity.

If this judgment holds, then the exploration of new cooperation models between automakers and battery manufacturers is not just a mutually voluntary commercial arrangement, but also aligns with the expected development direction of the industry, which forms the natural opportunity for its emergence.

Batteries are the largest single cost item for complete vehicles, and the price war continues to compress the profit of automakers. It is not difficult to understand that automakers want more initiative in this part of the cost.

But the other half of the change is even more important: more and more automakers are beginning to realize that they are ultimately responsible for the vehicles they sell. When a battery malfunctions, users will not go to the battery manufacturer, but turn to the brand logo on the front of the vehicle.

To fulfill this ultimate responsibility, batteries can no longer be treated as outsourced parts that only need to pass the acceptance check. This is the real starting point for automakers to be willing to go a step further and participate in the definition and development of batteries.

Power battery is an industry that highly relies on scale, R&D and manufacturing experience. Stable products cannot be obtained simply by handing over the formula to the factory — process deviations in links such as coating, winding or lamination, and electrolyte injection may all affect the consistency and stability of cells. The superposition of R&D capabilities, process accumulation, yield control and scale effect forms the advantage of leading enterprises that is difficult to be quickly replicated.

A more practical approach is to transform the originally highly concentrated supply system into a diversified combination: retain the primary supplier, introduce the second and third suppliers, carry out joint R&D on some models, and then make gradual switches when necessary.

Automakers do not necessarily need to manufacture all batteries by themselves immediately, but they hope to have alternative options, and hope that when negotiating with suppliers, they will no longer have only one single option.

N Forms of Cooperation Between Automakers and Battery Manufacturers

The actions of Li Auto, Xiaomi and XPeng seem different on the surface:

Some have invested in battery enterprises, some carry out joint development with suppliers, and some explicitly propose self-R&D without self-producing cells. What they point to together is the change in the division of labor between complete vehicle enterprises and battery enterprises.

In the past, in order to improve capacity utilization, battery manufacturers tended to supply the same type of cells to as many customers as possible. Standardization brings scale benefits, and also makes it easier for automakers to increase production volume quickly.

However, when market competition shifts from "whether there are electric vehicles" to "what are the differences between electric vehicles", a unified battery solution may not be able to meet all product objectives. Complete vehicle enterprises need to make different trade-offs between range, fast charging, space, safety and cost according to the positioning of vehicle models, and these trade-offs also need to enter the battery development process at an earlier stage.

Li Auto takes the lead in the R&D and manufacturing of battery packs, while the cells are manufactured by Sunwoda and CALB on a contractual basis. In order to deepen the bond with Sunwoda Power, Li Auto increased its capital contribution by 2.65 billion yuan and became its second largest shareholder. For Li Auto, capital investment is not only a way to add a new supply source, but also to establish a more stable cooperative relationship in product development and capacity coordination.

The division of labor of Xiaomi's Dragon Armor Battery also reflects a similar idea: Xiaomi leads the design and development of the battery pack, CALB customizes the electrochemical system and materials, Sunwoda undertakes the cell manufacturing, and the two battery enterprises have also set up exclusive production lines for the Dragon Armor Battery. This kind of cooperation is not a simple act of rebranding an existing battery, but allows automakers to participate in the definition, and requires the supply chain to coordinate around specific products.

From the perspective of industrial division of labor, this model brings new opportunities to second-tier battery manufacturers.

CATL has a huge customer base and production capacity foundation, and its standardized products can dilute costs on a large scale; for enterprises such as Sunwoda and CALB, deep participation in customized development for automakers may help them establish their position in specific vehicle models and product systems. For automakers, second-tier manufacturers also have more motivation to win orders, cooperate in customized development, and accept the cooperation mode where customers lead part of the product definition.

But this division of labor is not simply "automakers take the technology, battery manufacturers are responsible for production". The design and manufacturing of cells are highly coupled, and the electrochemical system, material ratio and process parameters must be repeatedly verified in mass production. The fact that automakers master the design goals does not mean they can bypass manufacturing experience; the fact that battery manufacturers accept OEM orders does not mean they only need to construct according to the drawings. Whether the product can meet the performance indicators ultimately depends on the coordination of design, process and quality control.

This also explains why there is not only one self-R&D route for automakers. Full-stack self-R&D and self-manufacturing require huge investment and sufficient scale; participating in shares of battery manufacturers can bind the capital relationship with the supply relationship; joint R&D and entrusted OEM allow automakers to master product definition while leveraging the manufacturing capabilities of suppliers; introducing second and third suppliers more directly increases the supply chain resilience.

Batteries are gradually changing from a relatively standardized outsourced component to a core product that complete vehicle enterprises hope to deeply participate in defining. The change is not only reflected in the different names on the procurement list, but also the starting point of product development and the boundary of responsibility are shifting towards complete vehicle enterprises.

There is another easily overlooked premise for this trend to emerge intensively at the moment: in terms of currently mass-producible battery technologies, major manufacturers have basically achieved technological parity, there are no irreplaceable barriers, and it is difficult to form a generation gap. Indicators that consumers care most about, such as energy density, fast charging rate and cycle life, are getting closer from mainstream manufacturers, and the real differences are more transferred to how complete vehicle enterprises define, match and use batteries.

In other words, the fact that automakers dare to take a step forward is not reckless advancement regardless of consequences, but a prudent decision after clarifying all the details: there are more optional partners, and the cost of replacement is lower. This is the time basis for their confidence, and also the inevitable trend of industrial development.

Take Back the Right to Define, and Also Take Over the Responsibility

When automakers have more control over batteries, it means that the responsibility for complete vehicle quality must also extend forward accordingly.

Under the traditional model, cells are delivered in a "black box" form: the material system and process flow are all in the hands of battery manufacturers, and the control of automakers stops at the factory acceptance. When problems occur, the boundary of responsibility is always vague.

There have been more than one such industry disputes in the past few years: when a cell malfunctions, the complete vehicle manufacturer thinks it is a manufacturing defect, while the battery manufacturer thinks it is improper use condition or improper system design. The two sides hold their own opinions, leaving consumers in the middle, who are neither clear about the root cause of the failure, nor able to judge who should be responsible for the result. And it is often the consumers who end up paying for the problems.

The emergence of similar incidents exposes a structural defect: when the right to define, manufacture and integrate batteries is dispersed in different entities, the ownership of quality responsibility becomes an ambiguous account.

Nowadays, once automakers start to participate in battery design, definition and development, they can no longer treat batteries as outsourced parts that are completed upon delivery. Batteries are long-cycle products, and problems of today's cells may only be exposed three to five years later. In any case, the performance, safety and reliability of batteries will eventually be reflected on the complete vehicles.

As Liu Liguo, Senior Vice President of Complete Vehicle Electric R&D of Li Auto, said: "What consumers buy is a complete vehicle. If there is a problem with the battery of the car, who will users turn to first? They will definitely turn to the automaker. So no matter who manufactures the battery, the one who ultimately takes the bottom-line responsibility for user experience and safety must be Li Auto."

Indeed, consumers will not distinguish whether the problem lies in the cell, the battery pack or the complete vehicle control system. For users, what they purchase is an overall commitment made by an automotive brand.

It can be predicted that more automakers will take the initiative to take bottom-line responsibility for product safety like Li Auto in the future. This is not a nice gesture, but a practical matter that requires investment, time and risk-taking. But for consumers, this attitude is worthy of praise, and worthy of being followed by more peers in the industry.

Since automakers have voluntarily taken over the right to define batteries — setting the formula, structure and BMS algorithm on their own — they must extend the whole-vehicle quality control to the entire battery chain, and bear unshirkable responsibility for the reliability, safety and full-life-cycle maintenance of the battery system.

Specifically, this at least means three things:

First, build up verification capabilities — the consistency of cells, safety under extreme working conditions, and calendar life all need to be cross-verified with bench and real vehicle data at the complete vehicle level; second, refine the control granularity to the manufacturing process, and have traceable records from key process parameters to mass production consistency; third, include cells in full-life-cycle management, and the unified standards for battery health status, attenuation rules and maintenance policies will eventually be given by automakers. Taking back the right to define requires these supporting actions, and none of them can be missing to be complete.

The switching of the supply chain is never an action that can be completed overnight, and the change of market share and pattern always lags far behind the statements made at press conferences. But at least for consumers, this trend means that three core interests are guaranteed:

First, product performance is more in line with real needs. In the past, automakers might not have a deep understanding of batteries, and the coupling degree between batteries and the chassis architecture, thermal management system, operating conditions of complete vehicles was relatively limited. After automakers deeply participate in the development of cells and battery systems, a more comprehensive and accurate two-way interaction will be realized between the demands of complete vehicles and the key technical capabilities of batteries, and the matching degree between batteries and complete vehicles will inevitably be significantly improved.

Second, the supply chain is safer, the price is more reasonable, and the warranty is clearer. After breaking the dependence on a single supplier, automakers will be able to provide high-quality products for consumers under a safer supply chain system and a more reasonable competition mechanism.

Third, the car purchase and usage experience is better. With the maturity of the self-developed battery system, consumers will shift from "valuing the battery brand" to "valuing the experience" — focusing on whether the charging is fast, whether the range is reliable, whether the power loss in winter is serious, and whether the warranty service can keep up, rather than who the battery manufacturer is. This transformation will push market competition to return to the essence of products, rather than brand superstition.

Epilogue

The move of automakers to re-engage in the battery sector is not just to find a second supplier, nor just to reduce costs. As batteries are more and more deeply embedded in the performance, architecture and experience of complete vehicles, who defines the batteries is becoming a new adjustment of the power boundary between automakers and suppliers.

The end result of this transformation is most likely not that one party replaces the other, but the recalibration of industrial division of labor:

Automakers will further master the matching and product definition of batteries and complete vehicles, professional battery manufacturers will continue to give full play to their capabilities in cell R&D, process manufacturing and large-scale delivery, and the two sides will re-divide value and responsibility through deeper cooperation. On this basis, as the number of competitors increases, all enterprises in the supply chain will be promoted to reduce costs, innovate and improve services.

This is not a zero-sum game, but the only way for the industry to move towards maturity.

This article is from the WeChat Official Account "Snow Leopard Finance" (ID: xuebaocaijingshe), written by Yu Mi, and authorized for release by 36Kr.