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In six years, CATL has risen to become the world's largest power battery company, with a valuation of over 130 billion yuan. The reasons behind this include not only government industrial policy support, but also the assistance of China, the world's largest new energy vehicle market, the integration of resources across the entire industry chain, and heavy investment in technology research and development.

Ningde Times has too many customers and cannot supply them, "complained a small Sino Japanese joint venture leader in charge of new energy vehicles to Southern Weekend reporters. Despite their company's scale and size, they cannot obtain battery supply from Ningde Times. In the past, compared to component suppliers, vehicle manufacturers were the dominant force.

On April 4, 2018, Ningde Times New Energy Technology Co., Ltd. (hereinafter referred to as "Ningde Times"), headquartered in Ningde City, Fujian Province, China, successfully held a meeting and is about to raise 13.12 billion yuan through IPO, which will set a new fundraising record for private enterprises in China.

CATL is the world's largest power battery company in terms of sales, with a valuation of over 130 billion yuan in just six years, from scratch; It only took five months from submitting the prospectus to successfully passing the IPO.

Why was CATL able to quickly take the lead and become a giant in the field of power batteries in just six years?

Use Pruder to leverage the entire industry chain

The birth of the Ningde era originated from the return of Ningde native Zeng Yuqun to start a business.

In 1989, 21-year-old Zeng Yuqun graduated from the Department of Ship Engineering at Shanghai Jiao Tong University and was assigned to a state-owned enterprise in Fujian. Three months later, he resigned and came to a Hong Kong funded enterprise in Dongguan to work as an engineer for hard disk magnetic heads.

In 1999, Zeng Yuqun, together with the former company leader, registered and established Amperex Technology Limited (ATL) in Hong Kong, entering the consumer battery industry.

ATL initially chose polymer soft pack batteries and purchased the patent authorization for polymer lithium batteries from Bell Laboratories in the United States. Through experimental adjustments and improvements to the electrolyte formula, they developed a battery that does not inflate.

ATL caught up with the rapid popularity of the Chinese mobile phone industry in 2000 and initially set up a factory in Dongguan. In 2008, it opened the factory in Ningde, the hometown of Zeng Yuqun, investing $1.5 billion to build the world's largest lithium-ion battery production base.

Zeng Yuqun has long been a permanent resident of Hong Kong as a technology expert, but he has not forgotten his hometown. Ningde, located in eastern Fujian, is a typical "old, young, border, island, and poor" area. The arrival of Ningde's new energy has to some extent changed the appearance of this city.

After three years of establishing a factory in Ningde, ATL's power battery department was spun off and Ningde Times was established. Until March 2017, Zeng Yuqun served as the President, CEO, and Director of ATL; General Manager and Director of CATL.

Whether it's ATL or Ningde Times, their initial beginnings were built on a big tree. Becoming a battery supplier to Apple in 2004 was the starting point for ATL's leap in consumer battery products. Becoming a supplier to BMW Brilliance Automotive seven years later became one of the key factors for CATL to unlock the door to power batteries.

Based on the background of ATL Apple battery supplier, in 2011, BMW Brilliance took the initiative to come to the door and search for battery manufacturers for the pure electric vehicle, the Nuo 1E.

On March 21, 2017, at the launch event of the BMW Brilliance Auto Nano 60H, BMW Brilliance Auto President Wei Lande invited Zeng Yuqun to share the story of their cooperation.

Huachen BMW has submitted over 700 pages of power battery system requirements specification to CATL, detailing energy and power requirements under different working conditions, as well as hundreds of quality management requirements. Both parties have established a joint battery development team of over a hundred people, covering all key technical areas of battery packs such as battery cells, system architecture, mechanical design, testing and verification, and quality management.

After cooperating with BMW Brilliance Automotive, CATL has completed the entire process of power battery research and development, design, development, certification, and testing, and has also accumulated experience and brand endorsement for its future development. This was the only Chinese company to enter the power battery supply chain of multinational automotive companies at that time.

The sales of Brilliance BMW's pure electric car, the Zeno, are very limited. When the first model of the Zeno was launched in 2014, the purchase amount was only 170 million yuan. Afterwards, there were two companies that truly pushed Ningde Times towards supporting the entire vehicle industry. One was Zhengzhou Yutong Group Co., Ltd. (hereinafter referred to as "Yutong"), and the other was Beijing Plaid New Energy Battery Technology Co., Ltd. (hereinafter referred to as "Beijing Plaid").

From 2014 to 2017, Yutong ranked first among the top five sales customers of CATL for three consecutive years. Yutong's new energy buses have a market share of over 30% in the domestic large bus market, and it is not surprising that there is a large amount of battery procurement.

As the core component of new energy vehicles, the research and development, production, and sales of power batteries need to be based on the specific needs of the car manufacturer for a particular model, and developed together with the entire vehicle. Generally, after entering the qualified supplier directory, manufacturers will not easily change power battery system suppliers. Beijing Prude, as a third-party battery management solution company, is an important link in Ningde Times' layout of the power battery industry chain.

Prior to BMW Brilliance Automotive, ATL collaborated with car manufacturers through a joint venture model. In April 2010, Peking University Pioneer Technology Industry Co., Ltd. (hereinafter referred to as "Peking University Pioneer"), Dongguan Xinneng De Technology Co., Ltd. (ATL subsidiary), Beijing Automotive Industry Holdings Co., Ltd., and BAIC Foton Motor Co., Ltd. jointly invested in the establishment of Beijing Pried.

This cooperation is crucial in the development process of Ningde Times. Beijing Pride was its third largest sales customer in 2014 and 2015, and its second largest sales customer in 2016 and 2017, even though it only purchased battery cells from CATL instead of complete battery packs.

In the upstream of the industrial chain, Ningde Times has also had a layout for a long time.

Among the top five suppliers of CATL, a company called Qinghai Taifeng Xianxian Lithium Energy Technology Co., Ltd. (hereinafter referred to as "Taifeng Xianxian") ranked second and third in 2015 and 2016 respectively. CATL mainly purchases positive electrode materials from it.

Beida Xianxian is the controlling shareholder of Taifeng Xianxian and also the controlling shareholder of Beijing Plaid. On November 5, 2012, Taifeng Xianxian and Ningde Times jointly invested to establish Qinghai Times New Energy Technology Co., Ltd. (referred to as Qinghai Times), with both parties accounting for 25% and 75% respectively. This is the first production base of Ningde Times to go global outside of Ningde. In June 2015, Taifeng withdrew first, and Qinghai Times is currently the largest wholly-owned subsidiary under Ningde Times in terms of asset size.

Beida Xianxian was established on December 10, 1999, in cooperation with Peking University and Dongsheng Investment Co., Ltd. Its main business is positive electrode materials. It is one of the globally certified companies for positive electrode materials in Apple's mobile phone batteries. Similar to CATL, Peking University first benefited from the development of China's mobile phone battery business and then entered the power battery industry.

The business model of Beijing Prude is a division of labor cooperation in the industry chain, consisting of "Peking University Pioneer (battery positive electrode materials)+Ningde Times (power battery cells)+Prude (power battery system PACK)+BAIC New Energy (new energy passenger vehicle application) and Foton Motor (new energy commercial vehicle application)".

This model has been wanted by central enterprises for a long time. On August 18, 2010, 16 central enterprises directly under the State owned Assets Supervision and Administration Commission announced the establishment of the "Central Enterprise Electric Vehicle Industry Alliance" in Beijing, covering the three major fields of vehicles, batteries, and charging, attempting to unify the technical standards and specifications of electric vehicles, research and develop core common technologies, and promote the coordinated development of upstream and downstream enterprises in the industrial chain. The State owned Assets Supervision and Administration Commission has also allocated 1.3 billion yuan to support the construction of a common technology platform for electric vehicles.

But like many "industry university research cooperation" and "government industry university research cooperation" projects, this central enterprise alliance later fell through.

Firewall and protective wall

The rise of domestic power battery companies such as CATL cannot be separated from the protection of industrial policies.

According to the "Management Regulations for New Pure Electric Passenger Vehicle Enterprises" issued by the National Development and Reform Commission and the Ministry of Industry and Information Technology (MIIT) on June 2, 2015, new energy vehicles are included in the "Catalogue of Recommended Models for Promotion and Application of New Energy Vehicles" (hereinafter referred to as the "Catalogue") in order to apply for government subsidies for their automotive products.

New energy vehicles with batteries outside the catalog cannot receive subsidies, and foreign battery companies are excluded. This protective policy has built a protective wall and firewall for domestic advantageous battery companies such as CATL.

Previously, foreign battery companies had already entered the Chinese market.

Since 2014, power battery companies such as Samsung SDI, LG Chem, and SK have entered the Chinese market on a large scale with lower cost and higher efficiency ternary lithium batteries as entry points. In 2015, Samsung SDI and LG Chem completed and put into operation their battery factories in Xi'an and Nanjing respectively. Many mainstream domestic independent car companies, including FAW, SAIC, BAIC, Changan, Great Wall, Chery, etc., have become their partners to purchase power batteries from Korean companies.

Power batteries need to be mass-produced and installed in automobiles to better promote technological development and reduce costs. The market environment of China's scale is not available in other countries' automotive markets.

After policy adjustments, the landscape of China's power battery industry quickly changed. Jianghuai, SAIC, BAIC and others have replaced foreign batteries with domestically produced ones. At the end of 2016, Beijing Electric Control Aisikai Technology Co., Ltd., jointly invested by BAIC Group, Beijing Electronics Holding Co., Ltd., and South Korean SKI in 2013, ceased production, while LG transferred its Nanjing factory and Samsung SDI Tianjin factory, struggling to maintain.

In the acquisition of Beijing Plaid, CATL received 437 million yuan in cash and 71.25 million shares (5.58%) of Oriental Precision Industry, rather than ATL.

In order to enjoy national subsidies and policy support, CATL must cut off its ties with foreign investment.

On March 24, 2016, Dongguan Xinneng De Technology Co., Ltd. (ATL subsidiary), the original shareholder of Plaid, transferred 25% of Plaid's shares to CATL for a transfer price of 67.5 million yuan. Three months later, Dongfang Jinggong released its acquisition and restructuring plan.

The shareholders of ATL Company are mainly TDK (a Japanese listed company, stock code 6762T), TDK Hong Kong Company Limited (a subsidiary of TDK), and Valiancy Limited, holding 41.80%, 57.58%, and 0.62% of the shares, respectively.

Ningde Times' explanation is that, according to the strategic adjustment of ATL's parent company TDK, ATL gradually withdrew from the new energy vehicle power battery business since 2015. In October 2015, ATL transferred 15% of its equity in Ningde Times Limited to Ningbo Lianchuang. After the equity transfer was completed, ATL no longer directly or indirectly holds equity in Ningde Times.

Afterwards, government subsidies and state-owned capital began to flood into Ningde Times. From 2015 to 2017, Ningde Times received a total of 1.063 billion yuan in government subsidies, most of which came from Ningde City.

In 2015, China Development Fund invested a total of RMB 690 million in Ningde Times' subsidiaries, Ningde Times Lithium Power and Qinghai Times, through the "transparent stock and actual debt" approach, with an average annualized return of 1.2% on investment.

The China Development Fund is a policy oriented investment entity officially registered and established by the China Development Bank in August 2015. It mainly supports the construction of key projects in areas determined by the state, in order to stabilize economic growth, stimulate investment, strengthen structural adjustment, and promote transformation and upgrading.

In June 2016, CATL established a subsidiary in Liyang City, Jiangsu Province, with a planned investment of 10 billion RMB to build a lithium battery factory with an annual production capacity of up to 10 GWH. The Jiangsu Zhongguancun Science and Technology Industrial Park Management Committee has provided a 200 million yuan, five-year loan with an annual interest rate of 3% to Jiangsu Times, a subsidiary of CATL.

Establish good relationships

With the gradual decline of subsidy policies from the government, CATL quickly opened strategic cooperation and capital binding with major domestic vehicle companies in order to form an industrial closed loop.

In 2016, CATL signed strategic framework agreements with Changan Automobile and Dongfeng Motor Group to invest 102.4 million yuan in Beijing New Energy Vehicles. In 2017, both Changan Automobile and SAIC Group invested in CATL. In May 2017, CATL and SAIC Group's wholly-owned subsidiary, Shanghai Automotive Group Investment Management Co., Ltd., jointly established two new energy enterprises: CATL SAIC Power Battery Co., Ltd. and SAIC CATL Power Battery System Co., Ltd.

At present, it maintains long-term strategic cooperation with leading vehicle companies in the industry such as Yutong Group, SAIC Group, BAIC Group, Geely Group, FAW Group, CRRC Group, Dongfeng Group, and Changan Group; Entering the supply system of foreign car companies such as BMW and Volkswagen.

Since 2015, China has been the world's largest market for new energy vehicles for three consecutive years, with annual sales increasing from 331000 units to 777000 units. Correspondingly, in 2015, 2016, and 2017, CATL's power battery system sales were 2.19GWh, 6.80GWh, and 11.84GWh, respectively.

According to GGII statistics, CATL's power battery system sales have ranked among the top three global power battery companies for three consecutive years, and in 2017, it ranked first in global sales.

BYD, which was originally ranked first, has limited incremental growth due to its batteries being only self-produced and sold. Perhaps realizing this huge mistake, on March 31, 2018, Shen Xi, Deputy General Manager of BYD's Lithium Battery Division, stated that BYD is in the process of divesting its power battery business and that its power battery company will be independently listed in 2022-2023.

In addition, Panasonic's battery sales growth mainly comes from Tesla, and the growth rate is far lower than that of the well connected CATL.

Of course, development is not necessarily the faster the better, and integrating the industrial chain is not an easy task. In March 2018, Watma, which ranked fourth in global sales of power batteries, was found to have outstanding payments to suppliers and overdue debts, and had to offset supplier debts through inventory sales and fixed asset sales.

Wotma has formed the "China Wotma New Energy Vehicle Industry Innovation Alliance" with its own power battery business as the core, attempting to unite upstream and downstream enterprises in the industry chain. Through its affiliated company New Wotma Power, it has targeted the purchase of vehicles from vehicle manufacturers and required them to purchase batteries from Wotma, which has boosted Wotma's performance. However, the result is a large amount of hoarding of vehicles.

Another company, Guoxuan High Tech, which is very similar to CATL, is also building the upstream and downstream of the industrial chain and investing in Beijing New Energy, but its size and scale are not as large as CATL.

A person in charge of the battery system laboratory of a joint venture car company told Southern Weekly reporters that CATL's technological research and development strength is indeed leading among domestic peers, especially in the most intuitive technical capabilities such as battery energy density and charging speed, which are the key factors for it to gain recognition from vehicle manufacturers and investors.

This is inseparable from ATL's early accumulation and sharing of battery technology, as well as Ningde Times' own investment in technology research and development. From 2015 to 2017, the R&D expenses of CATL accounted for 4.93%, 7.27%, and 8.02% of the annual operating revenue, respectively.

CATL conducted two rounds of equity financing in late 2015 and the second half of 2016. The first round of financing had a scale of 3 billion yuan and a post investment valuation of 21 billion yuan. Eventually, multiple institutions including China National Investment Corporation Innovation, Bohai Huamei, Junlian Capital, Seven Wolves Capital, Guangzhou Yuexiu Industrial Investment Fund, Strait Industrial Investment Fund, Guangfa Xinde, Yuanda Capital, Shenzhen Venture Capital, and Yicun Capital invested in the project; The second round of financing had a scale of 8 billion yuan and a post investment valuation of 80 billion yuan, ultimately exceeding the fundraising limit. Multiple institutions including Guotou Innovation, Shenzhen Venture Capital, CMB International, Guangfa Xinde, and Seven Wolves Capital invested in it.

The head of the battery system laboratory of the aforementioned joint venture car company believes that regardless of whether the policy is reversed or not, the development trend of new energy vehicles is certain. With the support of capital, the scale effect of CATL will push it to a more leading position, unless there is a sudden revolutionary shift in power battery technology.

However, Beijing Pride opened up a channel through capital and technology cooperation and sold it at a good price in 2017. In April 2017, Dongfang Jinggong (002611. SZ) acquired 100% equity of Beijing Plaid for 4.75 billion yuan.

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