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Beijing's green car push helps Chinese battery makers reign

Technologically strong Japanese, South Korean rivals fight to stay relevant

China aims to have 5 million electric vehicles on the road by 2020. Chery Automobile's electric Tiggo Coupe Concept SUV, pictured above, at September's Frankfurt Motor Show.

TOKYO -- Chinese makers of lithium ion batteries for electric cars have snagged a nearly two-thirds share of the global market with heavy state support, and their spending shows no signs of slowing as they encroach on technologically advanced rivals from Japan and South Korea.

Electric rush

One such manufacturer, Contemporary Amperex Technology, or CATL, made waves recently with a medium-term plan calling for lifting annual output capacity to 50 gigawatt-hours' worth of the batteries by 2020 -- nearly double global demand. To that end, it is spending 10 billion yuan ($1.52 billion) to jointly build with automaker SAIC Motor a new plant with a 10GWh annual capacity.

Team China had a share of just over 60% of the global market for the batteries as of 2016, according to Japan's Yano Research Institute. Japanese counterparts were a distant second with slightly above 20%, while South Korean companies came in just shy of 10%. It appears that the top five makers of such batteries by shipment volume in 2016 were all Chinese, said Mitsutaka Fujita, a researcher at Tokyo-based Techno Systems Research.

Chinese manufacturers are competing to make major investments with an eye to the coming era of electric vehicles, blasting past Japanese and South Korean rivals in output capacity terms. Besides CATL, other top-five domestic players such as BYD are expected to lift output capacity to around 20GWh by 2020.

State backing

Powering this remarkable expansion strategy is the central government's promotion of green cars. Beijing wants to have 5 million green vehicles on China's roads by 2020. It has followed London and Paris in leaning toward dispensing with gasoline-powered autos, ensuring that the switch to electrification will gain speed.

China is already home to a leading 51% of worldwide electric passenger vehicle sales, or some 240,000 units, according to Japanese research firm Fuji Keizai. The majority of these are seen being outfitted with Chinese batteries, creating a tide of domestic demand that lifts the country's battery makers to worldwide prominence.

South Korean companies such as LG Chem and Samsung SDI have seen Chinese lithium ion battery plants struggle after opening a host of them in 2015. Beijing said in March it would subsidize research and development of high-performance batteries for some companies, but the South Korean makers were left off the list, and business from electric vehicle makers failed to grow thereafter. The benefits of Beijing's policy appear to be flowing solely to domestic manufacturers.

Technological race

Japan produced the first prototype lithium ion battery, with Sony the first to turn out batteries ready for practical use in 1991. Thanks to that, Japanese manufacturers hold a number of related patents, such as for raw materials, and possess advanced technology for heightening both safety and energy density simultaneously.

Japanese and South Korean companies effectively dominate the Japanese, American and European markets, key battlegrounds for technological competition for passenger cars. They hold significant leads in areas such as operating distance and battery safety. Until now, they have generally competed in different markets from Chinese makers.

Panasonic has made a particularly strong showing among Japanese groups, teaming up with American electric car maker Tesla to build a massive $5 billion factory in the U.S. state of Nevada. The Osaka-based company is pouring most of its capital spending into batteries, and plans to start up a new plant in China's Dalian this fiscal year.

A lithium ion battery pack for electric vehicles made by China's Contemporary Amperex Technology, or CATL.

But China's government is working to punch a hole in Japanese and South Korean rivals' lead in technology.

Snatching the throne

With its subsidies for battery research and development, Beijing has aimed to bring Chinese battery makers up to a level of quality that would attract Japanese and Western automakers. Chinese companies have succeeded in shaking Japanese and South Korean makers' dominance, with a case in point being Germany's BMW opting for CATL's batteries.

In August, a Chinese investment fund said it would buy a battery joint venture between Japan's Nissan Motor and computing company NEC. The move appeared aimed at absorbing Japan's advanced technology.

South Korean makers have abandoned their China offensive for the time being and switched their focus to Europe, where electrification is humming along. LG Chem and Samsung SDI will each invest 400 billion won ($353 million) in new battery plants in Poland and Hungary, respectively.

With batteries an increasingly important part of a vehicle's overall attractiveness, the surrounding industry has also grown. Japan is in danger of losing clout it if falls behind China in terms of technology and scale. Further advances will be indispensable, such as in solid-state batteries -- widely seen as the holy grail of the next generation of electric vehicles.

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