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Electric cars in China

Panasonic braces for all-out battery war with Chinese rivals

Beijing policy change set to give foreign makers a better competitive edge

Chinese carmaker BYD showcases one of its electric models at the Beijing Motor Show. (Photo by Akihide Anzai)

TIANJIN, China -- Japanese industrial conglomerate Panasonic is gearing up for a decisive battle for dominance of China's huge electric-vehicle battery market against fast-growing local rivals, as an impending policy shift by Beijing appears set to improve the competitive environment for foreign makers.

Panasonic is the world's largest supplier of electric-vehicle batteries and plans to remain so, despite what is sure to be a tough challenge from Chinese makers that are rapidly expanding production capacity.

Japanese and other foreign makers have been at a significant competitive disadvantage in China due to Beijing's policy of exclusively subsidizing electric vehicles with batteries made by Chinese companies on its "whitelist." But with that policy effectively ended in 2016, and a new subsidy system that appears to apply to vehicles with batteries supplied by non-Chinese makers, the stage is set for a showdown between Chinese and foreign makers for market share. 

In addition, China's new electric vehicle quota system, to be introduced in about a year, could shake up the electric vehicle sector and bolster the clout of battery makers. Both Japanese and Western automakers plan to dramatically expand production and sales of "new energy vehicles," such as electric cars and plug-in hybrids, in 2019.

Securing enough batteries to power electric vehicles is a life-or-death matter for companies selling cars in China. Yet the formidable challenges of the market offer potentially enormous business opportunities for battery makers like Panasonic.

Chinese manufacturers are coming up with their own aggressive investment plans, however. 

One such fast-growing company is Tianjin Lishen Battery, headquartered in Tianjin, a two-hour drive from Beijing. 

Founded in 1997, Tianjin Lishen, a subsidiary of a state-owned enterprise, has supplied batteries for computers and smartphones manufactured by global consumer electronics makers, such as Apple, Dell, Samsung Electronics and Huawei Technologies. It entered the vehicle market in 2012, with sales of batteries for electric buses. Its growth has since been on a sharp upward trajectory.

Like other suppliers, Lishen seeks to position itself to capitalize on China's new quota system to be introduced in 2019 for electric vehicles. The system will require that new energy vehicles make up a certain proportion of each automaker's total output.

While Lishen does not supply batteries to any Japanese carmakers at the moment, it may be in talks for such a deal, according to an official at the company.

In 2017, it had capacity to produce 10 gigawatt-hours of batteries for cars and electric devices. It plans to ramp up capacity to 30gwh in 2020 and to 60gwh in 2025 to meet surging demand for electric car batteries.

Meanwhile, China's largest battery maker, Contemporary Amperex Technology, or CATL, has announced a bold plan to expand its output to 50gwh in 2020. CALT clearly has its sights on global carmakers that are preparing to scale up their electric vehicle businesses.

By comparison, Gigafactory, a high-profile venture between Tesla Motors and Panasonic to produce lithium-ion batteries in the U.S. state of Nevada, has 35gwh of capacity.

But Panasonic has no intention of giving up its position as the No. 1 player in the global battery market. President Kazuhiro Tsuga is calibrating the company's battery strategy to meet an expected explosion of demand in the coming years.

"When a full-fledged EV boom begins, we will need huge battery production capacity, probably 10 times larger than that of the Gigafactory," Tsuga said of the project, which has cost the company around 200 billion yen ($1.82 billion). "That is when we will face the real battle. We need to prepare ourselves so that we will be able to win."

The company's new car lithium-ion battery plant in China's northeastern city of Dalian came fully onstream in March. Batteries made at the plant will initially be shipped to North America, but the company will start supplying them to a local joint venture partner as early as this year, according to Motoshi Hisada, a Panasonic executive in charge of the car battery business.

Radical changes in the competitive landscape have meant most Japanese battery makers have been forced to repeatedly recast their strategies in recent years. Nissan Motor and NEC have sold their rechargeable electric battery joint venture to a Chinese private equity firm. GS Yuasa dissolved its lithium-ion battery joint venture with German auto parts maker Bosch and Japanese trading giant Mitsubishi Corp.

Panasonic, for its part, has started reducing the risk of depending too much on its business with Tesla by exploring a new battery partnership with Toyota Motor.

At the Beijing Motor Show, or Auto China 2018, from April 25 to May 4, Toyota announced it would launch a new Chinese-made electric vehicle in the local market in 2020.

Such moves reflect the high expectations of Japanese carmakers for rapid growth of the Chinese market for cars fully or partially powered by electric motors. Honda Motor has also unveiled plans to roll out over 20 electric and plug-in hybrid models by 2025.

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