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China’s Leading Position in EV Battery Equipment Industry
China’s Leading Position in EV Battery Equipment Industry
Electric vehicle (EV) battery equipment is one of the fastest growing equipment industries in the last five years. China is the world’s largest producer of EV battery equipment, with Wuxi Lead and Shenzhen Yinghe as the top two players. In this article, we will explore why the EV battery equipment industry is booming and why Chinese makers are taking the lead.
Why is EV Battery Equipment Industry Booming?
Global EV sales have seen rapid growth in the past few years and are expected to continue the uptrend in 2021E-25E with a compound annual growth rate (CAGR) of over 25%1. The EV penetration rate is forecast to increase sharply in the next decade in major markets such as Europe, China and the U.S., boosting demand for EV batteries as well as installations of EV battery equipment
Why are Chinese Makers Leading?
A typical EV battery production line consists of three parts as shown in Exhibit 1: front-end equipment of mixing, coating, rolling and slitting machines, middle-end of winding/stacking, assembling, tab welding, electrolyte filling and sealing machines, and back-end of formation, aging, grading and testing systems. Front-end equipment is similar to commodity with less entry moat in technology, while middle-end and back-end equipment is involved with knowhow to improve production efficiency, yield and accuracy. First-movers have competitive advantages to accumulate orders and capacities, generate knowledge from back and forth in production, and get more orders to build up capacities. What really matters is cost, or EV battery capital expenditure, which plays a vital role in battery makers’ cost control. Sometimes, cost matters even more than technology innovation in massive production.
The cost breakdown of a leading battery equipment maker Wuxi Lead shows that raw materials accounted for 85% of its whole production cost and labor accounted for 9%2(FY2019). Both the cost of production and labor is low in China, which provides Chinese manufacturers with competitive advantages. In China, metal products such as printed circuit board (PCB), capacitance and sensor are plentiful and cheap raw materials to equipment makers. The average manufacturing labor cost is only US$12k per year and the annual compensation to engineers is also as low as US$28k3 for Wuxi Lead.
In addition, EV battery industry clusters in China also help enhance Chinese equipment makers’ leading position. Chinese companies including CATL, Gotion, EVE energy and BYD accounted for over 75% of global EV battery capacities in 2019 (Exhibit 2). Compared to Korean or Japanese peers, Chinese battery equipment makers are much closer to downstream demand, which means they can promptly respond and upgrade products, improve production yield, and reduce cost thanks to economies of scale and shorter logistics distance.
In conclusion, the global EV sales growth prospect supports the long-term boom of EV battery and equipment industries. Chinese EV battery equipment makers are key beneficiaries as a result. They have built up their competitiveness thanks to low cost of raw materials, manufacturing labor and engineers, coupled with efficient collaboration with Chinese EV battery makers.
1 Source: BofA research, September, 2020
2 Source: Wuxi Lead annual report 2019, April, 2020
3 Source: Wuxi Lead annual report 2019, April, 2020
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