When the pandemic began, CATL, the world’s largest maker of batteries for electric cars, a Chinese company that is now worth more than General Motors and Ford combined, suddenly faced a crisis of its own.
A rival had released a video suggesting that technology used by the company and other manufacturers could set cars on fire. Mimicking a Chinese government safety test, the rival had hammered a nail into a battery cell, one of many in an electric car. The cell exploded in a fireball.
Chinese authorities quickly sprang into action, abandoning the nail test, according to documents seen by The New York Times. The new regulation, released two months later, cited who had prepared it: first, before the government vehicle testing agency itself, was the CATL.
The move did not expose the world to unsafe batteries — other countries do not require the nail test — but it did show China’s decision to create a corporate champion with an increasingly strong advantage over the future of automobiles.
CATL has given China an important lead in batteries for electric vehicles, a core technology for the overall green revolution. The company already supplies batteries to almost every car manufacturer in the world, such as GM, Volkswagen, BMW and Tesla.
CATL emerged as one of the biggest winners in the electric car boom, along with Tesla. The battery giant is a crucial link in a green technology supply chain increasingly dominated by China.
The country’s companies, especially CATL, have secured vast supplies of the raw materials used in the manufacture of batteries. That dominance has sparked fears in Washington that Detroit will one day become obsolete and Beijing may control American vehicles in the 21st century, just as oil-producing countries did in the 20th century.
Chinese government officials have ensured that CATL’s business remains in Chinese hands. They created a captive market of battery customers. And when CATL needed money, they were generous.
“CATL definitely seems to be the concept and creation of a master plan,” said Michael Dunne, a former GM Asia executive and now an analyst.
CATL is not owned by the government, according to its record, but investors linked to Beijing held shares during its rise, according to an analysis of the records by the Times. As well as a Chinese firm that included Hunter Biden, son of President Joe Biden, as a board member and shareholder.
From Detroit to Milan to Wolfsburg, Germany, auto industry executives who spent their careers trying to perfect pistons and gasoline injection systems are now obsessed with competing with an almost invisible but powerful industry giant.
“China’s problem with internal combustion engines was that they were always playing the catch-up game,” said Bill Russo, a former Chrysler director in China and now an electric car consultant in Shanghai. “Now the United States has to play this game with electric vehicles.”
coming out of the shadows
While Tesla and its expansive chairman, Elon Musk, symbolize the electric car boom, CATL — its legal name is Contemporary Amperex Technology Co. Ltd. — has been in the shadows.
Its founder and president, Robin Zeng, is one of the richest men in Asia, with a fortune close to US$60 billion (R$343 billion). Its huge headquarters, in the form of a gigantic lithium battery, and several of its biggest factories are in its hometown of Ningde, a former fishing village and military base in southeast China. The municipal government prevented access to a wide range of documents, especially from the early days of CATL.
After studying naval engineering at the University of Shanghai, Zeng went to work in battery chemistry for TDK, a Japanese company in China. In 1999, he joined a group of battery specialists who formed a company to supply lithium-cobalt batteries for cell phones, sound recorders and other consumer electronics. The team sold the company to TDK in 2005 for $100 million and continued to run it as a subsidiary.
The Chinese government, which has long identified batteries as a strategic industry, in 2011 took one of several steps to fuel a domestic industry. It demanded that foreign automakers looking to sell electric cars in China transfer crucial technology to a local company. Only then would the government give subsidies for the sale of its cars, which could reach $19,300 to buyers.
TDK allowed a group of Chinese investors led by Zeng to acquire 85% of the electric car battery start-up company in late 2011. They called it CATL. BMW, its first major customer, switched from A123, a Massachusetts and Michigan battery supplier.
Four years later, another group of Chinese investors bought the remaining 15% of TDK.
The financial terms of the sale are unclear, but Zeng and his partners reaped the rewards. TDK today has a market capitalization of US$16 billion (R$91.3 billion). CATL is worth nearly US$240 billion (R$1.37 trillion).
TDK referred the questions to CATL, which in turn said that only TDK could talk about how much was paid.
Beijing help
Beijing’s rules helped CATL to emerge as an independent company. So Beijing helped her take off.
CATL batteries require easy supplies of lithium and cobalt. Chinese firms rushed to secure cobalt in places like the Congo, where huge deposits have already been exploited by an American company. This year, CATL acquired a quarter of the Kisanfu cobalt reserve, one of the largest in the world, in Congo, for US$137.5 million (R$785 million).
Zeng also got raw material close to home.
Corporate records show that a year after setting up CATL, Zeng had created a subsidiary in western China’s Qinghai province. Qinghai had something Zeng needed: salt lake beds with thick lithium-laden underground mud. The government wanted to develop the poorest regions in the west of the country. CATL has signed contracts for the richest lithium deposits, according to people informed about the company.
The Chinese government helped. In 2015, he unveiled the Made in China 2025 plan, a guide to achieving independence in the great industries of the future, including electric cars, within a decade.
Chinese development banks, which lend to government-backed projects that would be too risky for local banks, have provided an additional $100 million for CATL projects in Qinghai, according to documents. The Qinghai provincial government provided approximately US$33 million from 2015 to 2017, CATL records show. The Qinghai government did not respond to requests for comment.
In a written response to questions, CATL said its investments “guarantee the stability of raw material supply and avoid large price fluctuations.”
With subsidies and a protected internal market, CATL became extremely profitable. The car industry considers after-tax profit margins of at least 5% of sales a success. CATL’s margin last year was 11%. Despite this profitability, the company continued to receive government subsidies last year equivalent to one-fifth of its net income.
The effort has also turned China into an electric car battery giant. China has 14 times the capacity of the US to manufacture batteries, according to Benchmark Mineral Intelligence consultancy in London. She projects that China will continue to lead even after the US strengthens, including projects like Toyota’s North Carolina factory announced in early December that would have seven times the capacity of the US in four years.
betting on batteries
CATL’s initial public offering in 2018 made Zeng and two CATL vice presidents rich. Together they own 40% of the industry. Other early investors, some with deep political connections, also fared well.
An even older investor in CATL was a Chinese private equity company linked to Hunter Biden.
The firm, known as BHR, purchased a 0.4% stake in 2016, paying approximately $15 million (BRL 85.65 million). In 2019, when BHR applied to sell the stake, it was valued at around US$76 million (R$434 million).
Biden left BHR’s board in April 2020, according to Chinese corporate records, and no longer has any proprietary interest in BHR, according to his lawyer, Chris Clark.
It is unclear whether Biden won the CATL deal, and Clark declined to comment further. Another BHR board member — who, like Biden, owned 10% of the firm — received a payment of approximately $230,000 (BRL 1.31 billion) from the deal, said the board member, who asked not to be named. . Jonathan Li, chief executive of BHR, did not respond to phone calls and email inquiries.
When asked about the investments, CATL quoted its IPO prospectus, saying, “All investors acquired their stakes based on the common rules for private equity raising activities.”
help with fire
CATL holds a third of the global market for batteries for electric cars. Its biggest global rival is LG, with a share of a quarter. At one point, CATL also faced a tough rival at home.
Shenzhen-based BYD boasted of a famous investor, Warren Buffett. Unlike CATL, which invested heavily in lithium-cobalt batteries, BYD bet on traditional lithium batteries.
Last year, BYD questioned the safety of cobalt batteries. She produced video of a test similar to one used by Chinese regulators until recently to determine the safety of a battery cell: hammering a nail into it.
BYD declined to identify the manufacturer. The cell’s lithium-cobalt chemistry was similar to that used by CATL, as well as by South Korean companies.
Chinese regulators did not respond to requests for comment on why they abandoned the nail test two months later. They replaced it with a test of whether an entire battery could contain a fire for five minutes — similar to that done in other countries. CATL said what counts is the security provided by the entire battery system.
For now, CATL is building a large factory more than three times the size of Tesla and Panasonic’s electric car battery giant in the Nevada desert. CATL’s giant factory in Fuding, northeast of Ningde, is one of eight that CATL is building today, for more than $14 billion. The company armed small armies of construction workers to erect buildings 15 meters high and steel walls, larger than five football fields.
Yu Bin, a concrete worker in Fuding, said he recently worked 20 hours straight to finish a roof. “The lights from the cranes light up the night,” he said.
Translated by Luiz Roberto M. Gonçalves
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