For BYD backed by Buffett, getting to the top spot isn’t easy
BYD’s challenge shows how difficult it is to produce batteries on a large scale – even if the technology is superior – and why this will become one of the main obstacles in the short term as demand increases.
Compared to the world’s largest battery maker, Contemporary Amperex Technology Co., BYD’s technology is more advanced with its Blade power pack, which it says can be used in select Tesla Inc. vehicles. The form factor innovation – or the shape, size and physical characteristics of the material – allows the heat to be dispersed more evenly, which is a big advantage, considering the risk of fire. Because it’s so long (about a meter, compared to about half that of competitors) yet narrow, it’s more space efficient and that ends up giving it a higher power density.
BYD’s battery parts materials are around 5% cheaper than CATL’s and these ensure it uses almost a quarter less electrolyte – the substance that allows electric current to flow from the anode at the cathode – and that it also costs less, according to analysts at UBS Group AG noted. This is what manufacturers around the world are arguing about.
Here’s the thing, though: the price of the battery pack or box is nearly 30% more than CATL. In addition, the manufacturing cost is 21% higher due to its architecture, according to UBS analysts. The blade uses the so-called stacking method for its electrodes, which means that the anode, separator and cathode are configured like a “game of cards”, as UBS puts it. CATLs, on the other hand, use the winding process, a tried and tested method that manufacturers have been using for some time. In the long run, stacked electrodes are likely to win because the energy is more evenly distributed. But right now it’s expensive.
The cost of technology and research and development is high, even as a proportion of sales compared to CATL. It is a good thing that the company has several grants and subsidies from the Chinese government. In 2021, it received 4.48 billion yuan ($650 million) and 2.26 billion yuan the previous year. BYD’s operating margin for batteries is lower than that of CATL and its South Korean counterparts. Nomura Holdings Inc. analysts expect it to follow this trend over the next five years.
Over the past four years, CATL, with nearly 40% of the global battery market, has grown at a much faster rate in terms of total battery capacity than BYD, with a 13% share. Even compared to South Korea’s LG Energy Solution, it was slower in generating gigawatt hours. It’s hard to go big if manufacturing costs are so high because it’s not easy to set up processes quickly. It is also likely to make it difficult to deploy cars and batteries on a massive scale overseas, not just in China and for large electric buses like BYD is currently doing.
All told, BYD’s potential for innovative and longer-term success comes at a high cost right now. These hinder its ability to scale as quickly as its larger counterpart. The trade-off between expense, technology and scale that BYD faces is a real wake-up call to all battery companies – and EV manufacturers – touting best-in-class technology that will break down barriers in the near term: now more than ever, it’s all about cost.
More from Bloomberg Opinion:
• Warren Buffett knows his EV batteries: Anjani Trivedi
• Did Buffett and Munger see BYD’s only problem? : Anjani Trivedi
• How Chinese car batteries conquered the world: Anjani Trivedi
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Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. Previously, she was a reporter for the Wall Street Journal.
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