Author | Yu Mi

On September 4, Xiaomi announced the “Dragon Battery” strategic cooperation with Sunwanda Power and China New Aviation; Li Auto increased its investment in Sunwanda Power with 2.65 billion yuan, becoming its second largest shareholder. The Ideal i9 released on September 16 brings another new signal: the first batch of models use CATL batteries, and after the production ramp-up is completed, they will be switched to Ideal self-developed batteries. On September 17, He Xiaopeng, chairman of Xpeng Motors, said that starting this year, Xpeng will make its own batteries (the cells will still be provided by suppliers).

Three different car companies made the same choice.

These actions almost occurred in the same time window and pointed to the same change: car companies are no longer satisfied with buying a battery that can be installed in the car from suppliers, but want to get more involved in the development, manufacturing and supply of batteries.

The reason why the battery has become the focus of competition is that it affects several things that vehicle companies care about most: cost, product differentiation and supply security. It accounts for about 30% to 40% of the total vehicle cost, and directly affects battery life, charging speed, safety and vehicle architecture.

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

▌All arrows point in the same direction

Hu Xijin, a senior media person, recently wrote on social media that when communicating with a car company industry insider, the other party told him that “de-CATL” is a trend because “CATL has taken away all the profits and squeezed downstream car companies.”

Hu Xijin suggested that CATL should proactively think about its relationship with domestic electric vehicle companies.

In fact, the idea of ​​car companies returning to batteries is not an idea that only appeared this year.

As early as 2022, Zeng Qinghong, then chairman of GAC Group, lamented at the World Power Battery Conference that OEMs seemed to be “working for CATL.” Since then, car companies such as GAC, Changan, Great Wall, and Geely have successively supported second suppliers and built battery factories in an attempt to reduce their dependence on a single battery company.

From 2023 to 2024, this exploration will extend from procurement strategy to systematic layout. Changan will launch the Golden Bell Battery, GAC Yinpai Battery Factory will be put into production, and Ji Krypton will release the Golden Brick Battery. By 2024, more than 10 car companies have announced plans to develop self-developed battery packs or cells.

The eagerness of car companies to try is no accident. It is worth noting that this round of action almost all occurs between “car companies + battery factories”, and few companies actually break ground to build factories on their own. This may not be just cost accounting.

There is a market opinion that instead of asking every car company to rebuild its battery production line, it is better to let battery factories with accumulated technology use their full production capacity.

If this judgment is true, then the exploration of new cooperation models between car companies and battery manufacturers will not only be a commercial thing, but also step in the direction of industry hope. This is the natural opportunity for its emergence.

The battery is the single largest cost item of the vehicle, and the price war continues to compress vehicle profits. It is not difficult to understand that car companies want more initiative in this account.

But more important is the other half of the change: more and more car companies are beginning to realize that they are ultimately responsible for the cars they sell. If something goes wrong with the battery, what the user is looking for is not the battery factory, but the sign on the front of the car.

To take over this responsibility, we can no longer treat the battery as an outsourced part that can be completed after passing the inspection. This is the real starting point for car companies to take a step forward and participate in the definition and development of batteries.

Power batteries are an industry that highly relies on scale, R&D and manufacturing experience. In battery production, it is not possible to obtain stable products by handing over the formula to the factory – process deviations in coating, winding or lamination, liquid injection, etc. may affect the consistency and stability of the battery core. The superposition of R&D capabilities, process accumulation, yield control, and scale effects create advantages that are difficult for leading companies to quickly replicate.

A more realistic approach is to change the original highly centralized supply system into a diversified combination: retain the main supplier, introduce secondary and tertiary suppliers, carry out joint research and development on some models, and gradually switch when necessary.

Automakers don’t necessarily need to make all their own batteries right away, but they want to have alternative options and no longer have just one answer when negotiating with suppliers.

▌N ways of holding hands between car companies and battery manufacturers

The actions of Ideal, Xiaomi and Xpeng are superficially different:

Some invest in battery companies, some jointly develop with suppliers, and some propose self-development but not self-made batteries. What they all point to is the change in the division of labor between vehicle companies and battery companies.

In the past, battery manufacturers tended to supply the same cell to as many customers as possible in order to improve production capacity utilization. Standardization brings economies of scale and makes it easier for car companies to increase volume quickly.

But when market competition shifts from “are there electric cars?” to “what are the differences between electric cars?” a unified battery solution may not be able to meet all product goals. Vehicle companies need to make different trade-offs between battery life, fast charging, space, safety and cost based on vehicle model positioning. These trade-offs also require early entry into the battery development process.

The ideal is to lead the R&D and manufacturing of battery packs by itself, while the battery cells will be manufactured by Sunwoda and China Innovation Aviation. In order to deepen its bond with Sunwanda Power, Ideal increased its capital by 2.65 billion yuan and became its second largest shareholder. For Ideal, capital investment is not only to add a source of supply, but also to establish a more stable cooperative relationship in product development and production capacity synergy.

The division of labor of Xiaomi Longjia batteries also reflects a similar idea: Xiaomi leads the design and development of battery packs, China Innovation Aviation customizes electrochemical systems and materials, and Sunwanda is responsible for battery cell manufacturing. The two battery companies have also set up exclusive production lines for Longjia batteries. Such cooperation is not about simply changing the brand of an off-the-shelf battery, but allowing car companies to participate in the definition and requiring the supply chain to coordinate around specific products.

From the perspective of industrial division of labor, this model has given new opportunities to second-tier battery factories.

CATL has a huge customer and production capacity base, and standardized products can dilute costs on scale; for companies such as Sunwoda and China New Aviation, in-depth participation in the customized development of car companies may help them establish their position in specific models and product systems. For car companies, second-tier manufacturers also have more incentives to win orders, cooperate with customized development, and accept a cooperation method in which customers take the lead in defining some products.

But this division of labor is not simply “car companies take away the technology, and the battery factory is responsible for production.” The design and manufacturing of battery cells are highly coupled, and the electrochemical system, material ratio and process parameters must be repeatedly verified in mass production. Just because a car company has control over the design goals doesn’t mean it can bypass manufacturing experience; just because the battery factory accepts OEMs doesn’t mean it only needs to build according to the drawings. Whether a product can achieve performance indicators ultimately depends on the coordination of design, process and quality control.

This also explains why car companies do not have only one self-research route. Full-stack self-research and manufacturing requires huge investments and sufficient scale; taking stock in battery factories can bind capital relationships with supply relationships; joint research and development and outsourcing OEMs can allow car companies to master product definitions while leveraging the manufacturing capabilities of suppliers; introducing secondary and tertiary supplies can more directly increase the flexibility of the supply chain.

Batteries are changing from a relatively standardized outsourced component to a core product that vehicle companies hope to be deeply involved in defining. Its changes are not just the names on the purchasing list, but the starting point and responsibility boundaries of product development are moving to the vehicle companies.

The reason why this trend is concentrated at present is because there is another premise that is easily overlooked: As far as battery technology that can currently be mass-produced is concerned, major manufacturers have basically achieved technological equality, there are no irreplaceable barriers, and it is difficult to widen the generation gap. Energy density, fast charging rate, and cycle life are the indicators that consumers are most concerned about. The answers given by mainstream manufacturers are getting closer and closer. The real difference shifts more to how the vehicle defines, matches, and uses batteries.

In other words, when car companies dare to take a step forward, it is not a reckless move regardless of the consequences, but a prudent decision after getting to know the details: there are more options available, and the cost of replacement has become lower. This is the basis for their confidence and the inevitable trend of industrial development.

▌Take back the right to define, but also take over the responsibility

Car companies have a tighter grip on batteries, which means that the responsibility for vehicle quality must also be extended forward.

Under the traditional model, batteries are delivered in a “black box” format: the material system and process flow are all in the hands of the battery factory. The control of the car company stops at the factory acceptance. If something goes wrong, the boundaries of responsibility are always blurred.

There have been more than one such industry disputes in the past few years: there is a problem with the battery cell, the vehicle manufacturer believes it is a manufacturing defect, and the battery manufacturer believes it is due to improper use conditions or system design. Both parties insist on their own opinions, and consumers are caught in the middle. They neither know the root cause of the fault, nor can they judge who is responsible for the results. And it is often the consumers who end up paying for the problem.

The occurrence of similar incidents has exposed a structural flaw: when the rights to define, manufacture and integrate batteries are dispersed in the hands of different entities, the ownership of quality responsibilities becomes confusing.

Nowadays, once car companies start to participate in battery design, definition and development, they can no longer regard the battery as an outsourced component that is completed upon delivery. Batteries are long-term products. Today’s batteries may have problems only three to five years later. But no matter what, the performance, safety and reliability of the battery will eventually be reflected in the entire vehicle.

As Liu Liguo, senior vice president of vehicle electric R&D at Li Auto, said: “Consumers buy a complete vehicle. If there is a problem with the battery of the car, who will the user turn to first? It must be the car company. So no matter who produces the battery, it must be Li Auto that ultimately guarantees user experience and safety.”

Indeed, consumers will not distinguish whether the problem lies in the battery cells, battery packs or the vehicle control system. For users, what they purchase is the overall commitment made by a car brand.

It is foreseeable that in the future, more car companies will take the initiative to ensure product safety like Ideal. This is not a pretty gesture, but a matter of spending money, time, and risks. But for consumers, this attitude deserves praise and deserves to be followed by more peers.

Since car companies have taken the initiative to take away the right to define batteries—define their own formulas, structures, and BMS algorithms—they must extend vehicle quality control to the entire battery link and assume unshirkable responsibilities for the reliability, safety, and life-cycle maintenance of the battery system.

Specifically, this means at least three things:

The first is to build verification capabilities – the consistency of battery cells, safety under extreme working conditions, and calendar life all need to be cross-verified with bench and actual vehicle data at the vehicle level; the second is to refine the control granularity to the manufacturing process, from key process parameters to mass production consistency, and have traceable records; the third is to include battery cells in full life cycle management, battery health, attenuation patterns, and maintenance policies, which ultimately need to be unified by car companies. With the right of definition back, these are the supporting actions, and even one of them is not complete.

Supply chain switching is never something that can be accomplished overnight, and changes in market share and structure always lag far behind the announcements 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, car companies did not necessarily have a deep understanding of batteries, and the coupling between batteries and the vehicle’s chassis structure, thermal management system, operating conditions, etc. was also relatively limited. After car companies are deeply involved in the development of battery cells and battery systems, a more comprehensive and accurate two-way interaction will be achieved between vehicle needs and key battery technical capabilities, and the matching degree between batteries and 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 reliance on a single supplier, car companies will be able to provide consumers with high-quality products under a safer supply chain system and a more reasonable competition mechanism.

Third, the car buying and using experience is better. As the self-developed battery system matures, consumers will shift from “recognizing the brand” to “recognizing the experience” – whether the charging is fast, whether the battery life is solid, whether there is a lot of power loss in winter, whether the warranty service can keep up, rather than who the battery manufacturer is. This change will prompt market competition to return to the essence of products rather than brand superstition.

▌結語

Car companies are returning to batteries not just to find second suppliers, nor just to reduce costs. As batteries become more and more embedded in the performance, architecture, and experience of the vehicle, who defines the battery is becoming a new power boundary adjustment between car companies and suppliers.

The endgame of this revolution will most likely not be who replaces who, but the recalibration of the industrial division of labor:

Car companies have further mastered the matching of batteries and vehicles and product definitions, while professional battery manufacturers continue to leverage their capabilities in battery cell research and development, process manufacturing and large-scale delivery. The two parties have redefined values ​​and responsibilities through deeper cooperation. On this basis, as the number of competitors increases, companies in all supply chains will be driven to reduce costs, innovate and improve services.

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

END