Germany and China: More Betting on Batteries

More betting on batteries: Germany and China

Billion-Euro Package Mobilizes German Battery Sector” was the headline of a recent piece of infrastructure analysis by Wood Mackenzie.

It is not surprising to hear that Germany would be at the forefront of a new emerging technology, something that Germany has managed to do again and again for decades – especially in any kind of automobile-related technology. Earlier in November the Ministry of Economy announced a Euro 1 billion fund for battery cell development – covering both automotive and energy-sector applications. The European Commission’s analysis says the battery sector will be worth nearly $300 billion a year by 2025, according to Reuters. Germany wants to be the big European player in this market, and draw in the jobs that should be associated with the manufacturing side of the market. The first of multiple expected partnerships drawing on the fund involves German battery maker Varta and the Fraunhofer Institute. Varta hopes to use the funding to expand its production from large energy storage systems at one end, and small hearing aids at the other, into batteries for electric cars. The article notes that BASF, Ford-Werke, and Volkswagen all may also tap into the fund as they seek to expand their presence in the market. So, good for Germany: as Infrastructure Ideas and many others have been signaling, energy storage is already and will continue to be one of infrastructure’s fastest-growing segments for decades to come.

Sounds good. There is, however, a problem. The second part of the headline above goes on with: “But analysts warn the money is nothing compared to Asia’s battery war chest.” Too little, too late, is the risk. A Wood Mackenzie analyst notes that while it is great that German battery companies are looking to move forward, the issue is that all big German car manufacturers are already using batteries, and those batteries are coming from Asia, from China, Japan or Korea. $1 billion sounds great, to help kick-start German battery manufacturing, but it is peanuts compared to what Asian players are already investing in the sector. And almost all of their investment is going into China. CATL (Contemporary Amperex Technology Co. Limited) has been the big player in China, though recently BYD – the market leader in electric buses – announced they would build the largest EV battery plant in China for $1.5B, while Korea’s LG Chem announced a similarly-sized new plant investment, also in China. These are big investments. Between them the two new plants should have capacity to build 67 GWH of battery capacity annually. In fact, the biggest announced plans for making batteries in Germany itself is not from Germany but from… China. CATL has said they will invest $280 million for a plant supplying BMW. And in the background, three Chinese EV raised just under $2 billion between them in the last quarter – NIO, Guangzhou Xiaopeng Motors, and Zhejiang Dianka Automobile.

What to take away from this? The energy-storage business continues to grow at tremendous rates. Whether manufacturers are targeting automakers or electric generators and grids, a ton of money is going into expanding battery-making capacity. And that rapid growth in volume is directly driving continued rapid cost declines. Energy storage systems combined with renewable generation capacity are already in some places cheaper than alternative and traditional means of producing electricity. The time is fast approaching when renewables plus storage will be cheaper than coal-based and natural gas-based power in the majority of grids.

The other geographic take-away? China went from a small player in traditional power systems to a global leader in renewable energy. China has by far the world’s largest markets for both wind and solar generation. And several Chinese firms rank in the top 10 of global suppliers of wind turbines and solar cells. Now as the energy storage business grows in volume and in relative importance within infrastructure, expect China’s market, and Chinese firms, to be even more dominant players here. In electric vehicles, it’s too early to tell whether China’s lead in batteries will translate into a large share of global EV car manufacturing or not. It’s not too early, however, to see that China will be a global leader, if not the global leader, in EV bus manufacturing.

Still, good for Germany. It would be unimaginable for Germany to be absent in one of the fastest-growing, engineering-intensive segments of infrastructure, and the new incentive plan will help. And let’s not give up by any means on the several strong US players in this business too. China’s volume leadership in energy storage, in aggregate, may be unassailable, but the battery business is also materially different than that of renewable power generation. There is much greater diversification in the possible applications of energy storage systems, and this is a business which will have more important sub-segments than the more monolithic wind and solar businesses have.

Let the race continue! And may all users win.

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