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China gives CATL, BYD and a fuel-cell startup a second wind

Battery makers' no-cobalt power packs gain advantage while Re-Fire finds durability

Re-Fire Vice President Audrey Ma with a 110kW hydrogen fuel cell system for commercial vehicles. Ma predicts some drivers will be more comfortable with fuel-cell vehicles than with EVs.

SHANGHAI -- In the ragged countryside of Tibet, three buddies in their 30s pondered their next move one afternoon in 2014 as their 5-year-old hydrogen fuel cell project with an automaker was coming to an end.

Robin Lin, the project leader, and his team were in Tibet, in China's southwest, as part of a 30-province tour they embarked on to test-drive a fuel cell-powered vehicle they were working on. They ended up spending six months on the road.

It was in Tibet that Lin, now the chief executive of Shanghai-based Re-Fire Technology, made up his mind to quit, one of China's biggest automaker, to chase his dream of reinventing fossil fuel-fired transport.

"Some alcohol was probably involved," Audrey Ma, the startup's vice president, said, "but Re-Fire was hatched that afternoon in 2014."

Ma sat down with the Nikkei Asian Review in early July.

Backed by the China Petroleum & Chemical (Sinopec) Group, the six-year-old startup is now the industry leader, accounting for about half the operating fuel cell vehicles in the country.

Lin has been involved in fuel cell research since graduating from university in 2004. His decision was not entirely alcohol-fueled. His company's scrapping of a project he was working on, in part due to a lack of demand, was a catalyst.

Re-Fire will commission its second plant in Changshu, near Shanghai, later this month, a 2 billion yuan ($285 million) investment that is to eventually allow the company to build 50,000 fuel cell systems a year.

The startup's first plant, in the southern province of Guangdong, has an annual capacity of up to 20,000 units. Re-Fire's hydrogen fuel cell system, preferred for its durability and fuel economy over battery cells, is mainly finding its way into commercial vehicles.

Re-Fire has stepped up its investments in recent months thanks to renewed policy support for developers of easier-on-the-environment New Energy Vehicles, including all electric and fuel-cell models.

Re-Fire Technology's headquarters and R&D center in Jiading, Shanghai. Re-Fire's latest investments will eventually allow it to build 50,000 fuel cell systems a year.

The government in 2019 reduced subsidies to NEV makers by up to half, fearing the generous incentives might throttle the industry's competitiveness. After the subsidies were trimmed, NEV sales last year fell for the first time, by 4%, to 1.2 million units.

In response to the drop in sales, Beijing in April this year reversed its earlier decision and announced it would roll back the subsidies gradually through the end of 2022, rather than scrapping them by the end of 2020.

But NEV sales took a 37.4% tumble in the first half of 2020 as the coronavirus claimed its toll.

Premier Li Keqiang on May 22 presented a government work report to the national legislature that assures the subsidy's extension. With Li's report, which prioritizes fuel cells as a strategic industry, manufacturers regained confidence and have been gearing up for future demand growth.

Analysts project NEV demand to grow as the costs between owning a NEV and an internal combustion engine vehicle narrow.

The government will also start implementing NEV production quotas next year. Automakers will be required to collect NEV points worth 14% of their total production volume in 2021, 16% in 2022 and 18% in 2023. Last year, China's sales of 1.2 million NEVs, mainly electric vehicles, accounted for about 5% of the nation's total car sales.

The "carrot and stick" policy is expected to stimulate the market, especially in regard to electric vehicles. China already accounts for half the global electric vehicle market.

This will have an effect on the country's demand for batteries. By 2025, that demand is expected to reach 205-gigawatt hours, up from 53-gigawatt hours in 2019, according to a forecast by Nomura Global Research in a June report.

China's largest battery maker, Contemporary Amperex Technology, better known as CATL, announced last month that it could produce a battery that could last 16 years and allow an EV to travel 2 million km on repeated charges.

That would be a remarkable life span. The warranty on Tesla's current Model S covers 241,000 km or 8 years.

The lithium-ion battery maker said it will invest 3.3 billion yuan to construct an innovation lab at its headquarters in Ningde, Fujian Province.

CATL is also expanding its global market share, currently at 18%, by supplying lithium iron phosphate batteries, also known as LFP batteries, to Tesla's Shanghai plant, according to news reports.

LFP batteries have one big advantage: They do not require expensive cobalt.

CATL is thus nudging into the Tesla-supplying duopoly of LG Chem, the world's largest EV battery maker with a 29% share of the global market, and Panasonic, No. 2 at 26%.

CATL's market appetite extends beyond China. The group is building its first overseas production facility, in Germany, as it is determined to feed growing demand in Europe.

BYD, another Chinese company, meanwhile, has released its "blade battery," which it says doubles a lithium-ion battery pack's space utilization, thus promising better energy density and safety features. The cobalt-free LFP battery, reportedly cheaper by about one fifth than nickel-content batteries, is installed in the Han, BYD's latest EV sedan, which has a cruising range of 605 km with a single charge.

"Given China is the largest global NEV market and [has] strong long-run growth potential, we believe foreign original equipment makers will continue to seek partnerships with domestic battery players, which could also benefit BYD," Daiwa Capital Markets said on June 29 in a research note.

BYD has released its "blade battery," which doubles the battery pack's space utilization, extending the range of EVs and improving safety.    © Reuters

Since China last July scrapped its recommended battery supplier list, foreign automakers have been forming partnerships with local battery makers. Notably, Volkswagen Group last month acquired a 26% stake in Gotion High-Tech for 1 billion euros ($1.1 billion). Japan's Honda Motor has also announced plans to invest in CSL.

Tu Le, managing director of Sino Auto Insights, warns that the industry's aggressive push to increase capacity could result in an overcapacity problem in the years ahead.

But analysts at Nomura and Daiwa believe demand will be sustained as technological breakthroughs and economies of scale bring down battery costs and raise energy density.

Based on a Nomura estimate, owning an electric vehicle already is 38% cheaper than owning a traditional gasoline-powered car over the course of 10 years.

"I am planning to buy an electric car later this year or next year," said Ni Tao, who owns a consultancy in Shanghai. Ni, who now drives a gasoline-fueled Japanese sedan, is convinced of Nomura's estimate.

Similarly, "the cost for fuel cell batteries is already at an acceptable level," Re-Fire's Ma said. Still, fuel cell vehicles lack the market penetration of EVs.

According to an estimate from Japanese research company Fuji Keizai, global sales of fuel cell passenger vehicles will reach 550,000 units in 2030, up from about 9,000 in 2019. "The sales volume in China was almost nothing up to last year but it will increase to considerable numbers 10 years later," Fuji researcher Masamichi Yamaguchi said.

In China, hydrogen gas for fuel-cell vehicles used to be categorized as an industrial gas. As such, refilling facilities could only be built in designated zones. It is now categorized as energy, which paves the way for the development of the sector, led by local governments that work with industry players like Re-Fire.

Beijing has a plan to increase the number of hydrogen filling stations to 1,000 and have 1 million fuel cell vehicles on the road by 2030. Automakers see promise. Toyota Motor in June announced it is partnering with Chinese automakers to develop fuel cell trucks and buses.

Ma, Re-Fire's vice president, believes fuel-cell vehicles' potential depends on the type of vehicle and how are willing drivers are to tolerate the limited range that EVs offer per charge. It's a matter of drivers finding their "comfort zone," Ma said.

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