Battery technology gives China an opening in electric vehicles

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This is the final part of an FT series analysing how the electric vehicle market is rapidly taking off

This summer the Chinese electric vehicle maker BYD shipped its red Tang sport utility vehicles to Norway, the country which has seen the quickest uptake of battery-powered cars.

Named after the Chinese dynasty, the cars are powered by BYD’s homemade lithium batteries, a technology it hopes will become a key platform for the global car industry.

BYD’s first Norwegian customer, Per Lian, a salesman at a building ventilation company, says Norwegians would have no qualms buying Chinese cars given the cheaper cost and decent range.

“We understand the Chinese will come and take a big part of the cars in Norway,” says Lian, who drives around 4,000 kilometres a year for his job “I feel the quality is good. Most important are the prices — if you want to buy a Tesla it is maybe double.”

FT Series: the EV revolution

Features in this series will include:

Part 1 Why the revolution is finally here

Part 2 How green is your EV?

Part 3 Will Americans ever buy electric vehicles?

Part 4 Batteries and China’s bid to dominate

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Founded in 1995 to make lithium batteries for consumer electronics, BYD has developed into one of the biggest producers of batteries for electric vehicles. In recent years, it has also developed its own vehicles which have prospered in the Chinese market. BYD is now the world’s second-largest producer of electric buses and the fourth-largest maker of electric vehicles.

Key to BYD’s success has been the company’s battery technology, which is pushing the cost of electric cars below their fossil-fuel powered peers, hastening a turning point in the global car industry. Known as the “blade” due to its long thin shape, BYD’s batteries use some of the most abundant materials in the world such as lithium and iron while avoiding controversial metals such as cobalt and nickel that are used by many of its rivals. For the same space, the blade battery holds 50 per cent more energy than similar battery chemistries, according to BYD.

BYD’s push into overseas markets is a fascinating test of how the new EV industry will develop — one that could hold big advantages for China.

For much of the last century, the biggest auto companies depended on the prowess of their combustion engines. Mercedes-Benz and Daimler grew out of their early engine designs, while Volkswagen spent years using the slogan “the power of German engineering”.

Chinese companies are now dominant in the production of batteries used in electric vehicles — with BYD being one of the most prominent. The question is whether they can translate their position in batteries into a significant share of the global car market.

American investor Warren Buffett and BYD founder Wang Chuanfu attend a news conference in Shenzhen city in 2010
Warren Buffett’s Berkshire Hathaway bought a 10 per cent stake in Wang Chuanfu’s BYD for $232m in 2008 © Kin Cheung/AP

“It’s easier for Chinese EVs to be successful than Chinese internal combustion cars because European and American automakers have a long history in making engines, it’s hard for Chinese automakers to catch up overnight,” says Ji Shi, an analyst at Haitong International Securities in Hong Kong. “But EVs are different because they are simpler in terms of their structure and Chinese automakers have better supply chains in terms of batteries.”

BYD’s journey so far has already generated a fortune for BYD’s founder Wang Chuanfu and early backer Warren Buffett. Since Buffett’s Berkshire Hathaway bought 10 per cent of BYD for $232m in 2008 its shares have risen by over 3,000 per cent, making Buffett’s stake now worth $6.9bn and one of his most successful investments after Apple.

In addition to its plans to export cars, BYD has held talks to supply its batteries to Tesla, according to two people familiar with the matter, and has created a joint venture with Toyota. That could make it one of the most valuable battery suppliers, and further entrench Chinese dominance of the electric car industry.

“We’re just in the early stages of China becoming an export car market, selling cars overseas, especially electric cars,” says Sam Jaffe, managing director of Cairn Energy Research Advisors. “And BYD is in a very good position. These batteries bring mass market EVs much closer to fruition more quickly.”

Wang Chuanfu, the Chairman and President of Chinese Automaker BYD delivers a speech during Auto China 2018 motor show in Beijing
BYD founder Wang Chuanfu was described as a mix between Thomas Edison and former General Electric chair Jack Welch © Roman Pilipey/EPA-EFE

Faith in the founder

A decade ago, it was far from certain that China or BYD would be successful in batteries and electric cars. The Toyota Prius hybrid was going from strength to strength and Japan’s Panasonic dominated the global battery industry. The hundreds of Chinese battery makers across the country were considered only capable of providing low-grade batteries for mobile phones and laptop computers.

Yet Buffett was among the few who believed in the potential of the company, based on belief in Wang, the BYD founder who Buffett’s right-hand man Charlie Munger described as a mix between Thomas Edison and former General Electric chair Jack Welch.

Munger was first alerted to BYD by Li Lu, a Chinese-born hedge fund manager. Li was a former student leader of the 1989 student demonstrations in Tiananmen Square, who was named to Beijing’s most-wanted list after the military crackdown. He fled to France and then the US, and ended up studying at Columbia University.

Chinese student leaders (L-R:) Chai Ling, Wang Dan, Feng Congde and Li Lu swear to remain in Beijing’s Tiananmen Square throughout June, 1989.
Chinese student leaders including Li Lu, right, during Beijing’s Tiananmen Square protests in 1989. After fleeing to the US, Li became an early investor in BYD © Reuters

Li became a committed value investor after listening to a class Buffett gave at Columbia and became friends with Munger before setting up his own fund. Munger first invested in BYD via Li’s fund, which still owns 6 per cent of BYD’s Hong Kong-listed shares, according to Refinitiv.

“I so rarely hold a company like BYD that goes to a nosebleed price, that I don’t think I’ve got a system yet. I’m just learning as I go along,” Munger said in February.

Most electric car batteries outside China use cobalt and nickel in their cells, which is increasing concerns about a shortage of raw materials. Over 60 per cent of the world’s cobalt comes from the Democratic Republic of Congo, while nickel is mostly mined in Indonesia, where mines destroy biodiverse rainforest and processing plants run on coal-fired power.

Nickel prices have risen 25 per cent over the past year while cobalt prices are up 59 per cent, adding further cost pressures to carmakers.

Diagram explaining how a lithium-ion battery works plus the difference between a typical electric vehicle battery and a blade battery

BYD’s batteries overcome one of the sourcing issues that is causing problems for many of its rivals. It has mastered a type of lithium-ion technology that was invented based on concepts discovered by the Nobel Prize winner John Goodenough and Indian-born scientist Arumugam Manthiram at Oxford and Texas universities in the late 1980s. Crucially, these so-called LFP batteries use only lithium, iron and phosphate, materials that are all abundant in the earth’s crust; they do not require nickel or cobalt.

When the chemistry behind these batteries was discovered, Manthiram says the practical applications for the material were thought to be low, due to its low conductivity and limited ability to store energy. The first lithium-ion battery that was commercialised by Sony in 1991 for use in its camcorders used a lithium and cobalt chemistry. Later nickel was added to lithium-ion batteries to increase the battery’s power, especially for use in cars.

But BYD has increased the amount of energy that the batteries can hold by overhauling the engineering. While most car batteries contain cells placed together into a module and then a pack, BYD has built simple, long thin battery cells and placed them directly into a battery pack.

A BYD Tang vehicle on sale at the company’s showroom in Beijing, China
Chinese electric car maker BYD is shipping its red Tang sport utility vehicles to Norway © Qilai Shen/Bloomberg

At 96cm long and nine centimetres wide, BYD can pack 50 per cent more cells into the battery pack compared to conventional LFP batteries, according to the company. As a result, BYD says its Tang EV in Norway can reach a range of 400km on one charge – similar to a standard range Tesla Model 3 car.

The batteries can also be easily recycled and can last for over 1m kilometres of driving,…



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