SYLVIE DOUGLIS, BYLINE: NPR.
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DARIAN WOODS, HOST:
When the Inflation Reduction Act went into effect this year, it set big goals to build a cleaner “Made in America” economy. And that included building a larger car battery industry.
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PRESIDENT JOE BIDEN: Billions of dollars in investment to make electric vehicles and battery and electric charging stations across America, made in America – all made in America.
WAILIN WONG, HOSTS:
And if oil defined the economy and geopolitics of the 20th century, electric vehicle batteries could define the 21st century. And the company that’s on track to become today’s Standard Oil — the number one battery company that supplies batteries for a third of the world’s electric vehicles, from Tesla to Volkswagen — is a Chinese company that’s kind of under the radar flies. It’s called Contemporary Amperex Technology Ltd. or CATL. CATL is run by a guy named Zeng Yuqun, who has perhaps made electric vehicles affordable more than any other individual. Here’s Yuqun a few weeks ago saying there are more than 5 million new electric vehicles using batteries from CATL.
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ZENG YUQUN: (Non-English spoken).
WONG: This is PLANET MONEY’S INDICATOR. I’m Wailin Wong.
WOODS: And I’m Darian Woods. As world leaders gather in Egypt this week to confront the global climate crisis, we delve into the role of business. What can markets, companies and governments do to mitigate or even reverse this crisis?
WONG: On the show today – the man charging the world’s electric vehicle shift. How a mix of entrepreneurship, government support and economies of scale fueled the rise of CATL and transformed electric vehicles from a what-if to a top industrial priority.
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WOODS: At the age of 31, Zeng Yuqun decided to start his own company in southern China. With an engineering degree and about a decade of electronics experience, he made small lithium-ion batteries for portable devices like MP3 players. He named the company Amperex Technology Ltd. or ATL.
WONG: But first, Yuqun needed the technology to make the batteries. So he paid Bell Labs in the US $1,000,000 for a patent on lithium-ion batteries. But when he and his team made it…
HENRY SANDERSON: ATL found that getting the technology to work wasn’t as easy as they thought it would be.
WONG: Henry Sanderson is the author of Volt Rush – The Winners And Losers In The Race To Go Green.
SANDERSON: The battery expanded with repeated charging and also threatened to explode. They were worried, you know, it might end the company. And apparently they spent two weeks working overtime to overcome the difficulties of trying different electrolyte combinations with the battery. And finally they got it working. And once they did that, they lowered the cost of production pretty quickly.
WOODS: With the optimized recipe in hand, ATL grew rapidly, selling over a million batteries two years later. ATL soon became a supplier to Apple for iPods. And with the advent of smartphones, it’s time to rinse and repeat, right?
WONG: Well, in 2010, Yuqun was knocked on the door by a German car manager. This car manager, Herbert Diess, worked at BMW.
HERBERT DIESS: I wanted to convince at least a handful of people to get into batteries.
WONG: Herbert wanted to sell a hybrid electric car to China, but shipping car batteries is expensive. He also wanted to trigger competitive innovations. Herbert wanted a car battery company in China, but he said popularizing electric vehicles looks like a bumpy road for entrepreneurs like Yuqun.
DIESS: He was probably skeptical at first, and not everyone realized that EVs would be such a clear case.
WOODS: But electric vehicles had an ally – the Chinese government. Ilaria Mazzocco is a senior fellow at the Center for Strategic and International Studies, researching China’s green energy subsidies.
ILARIA MAZZOCCO: The Minister of Science and Technology at the time, Wan Gang, a former professor and engineer, really believed that electric vehicles would be the way to push the Chinese auto industry to overtake multinationals. By sort of betting on a new technology, everyone would end up on the same playing field, as opposed to some companies with 100 years of R&D and other companies with maybe 10 or 20 years.
WONG: So the Chinese government initially focused on demand. It began by providing EV subsidies to consumers in six cities — up to nearly $20,000 per vehicle.
MAZZOCCO: You know, they were mostly pilot programs at the city level. But, you know, in a broader sense, it just wasn’t that big. It was more of a pet project of the Ministry of Science and Technology.
WONG: Still, that helped convince Yuqun. He let Herbert know he was there. ATL soon spun off a new electric vehicle battery company, Contemporary Amperex Technology.
DIES: It worked. And I think it was to his advantage, too.
FOREST: Yes. I mean, obviously it did. You know, he’s a very, very rich man now.
WOODS: But you met him when he wasn’t quite a rich man.
DIESS: Oh, I think it was a pretty small company.
WONG: Herbert says Yuqun had the right ingredients to make it work – a great team and the right personal qualities.
DIESS: He has a good understanding of technology, physics and chemistry. So he knows what happens in the battery, how production works, how scaling works.
WOODS: And the latter – scaling – is extremely important because the manufacture of car batteries benefits enormously from the so-called economies of scale. Lithium-ion batteries have these huge upfront costs — research and development, deals to back up lithium and cobalt and nickel, huge machines that make the battery cells. But once you pay that upfront cost, the cost of making an extra battery isn’t too high.
WONG: And author Henry Sanderson says that when Yuqun looked at car batteries, size was the key to drastically reducing costs.
SANDERSON: The cost of lithium-ion battery packs fell about 89% in real terms between 2010 and 2020. And I would say CATL is one of the most important drivers of this cost reduction that we’ve seen in lithium-ion batteries. And again they took the existing technology and scaled it – from low volumes to high volumes.
WOODS: And then the Chinese government intervened again – this time on the supplier side. In 2015, only cars with Chinese-made batteries were eligible for EV subsidies.
SANDERSON: It was kind of a brutal protectionist moment, and I think probably quite crucial to CATL’s success, although I think CATL was concerned at the time — what happens if that policy is reversed and foreign batteries come back? You know, can they compete with these Korean companies?
WONG: The Chinese government’s support was a classic case of so-called infant industry protection. It works best when you have an industry that doesn’t make sense on a small scale. Businesses need protection to grow at scale and then hopefully stand on their own two feet.
And while examples of failed protectionism and wasted government resources litter the history books, CATL is a clear success story. CATL definitely benefited from the protection but also beat the Chinese competition through a combination of skill, luck and a commitment to grow and grow. In 2017, CATL became the world’s largest supplier of electric vehicle batteries.
WOODS: But Yuqun is forever paranoid about going soft. That year, he emailed staff saying that even pigs can fly in a typhoon. In other words, with a tailwind from government subsidies — you know, the typhoon — even bad companies can thrive. But he went on to ask what will happen to the pigs once the typhoon has passed?
WONG: Can you put them on with lipstick?
WOODS: You can put lipstick on a pig, but he won’t make it fly.
WOODS: It’s a wonderful painting with flying pigs.
WONG: In the years since then, the Chinese government has reduced protection and electric vehicles are very popular there. Every fourth newly bought car is electric. So Yuqun tries everything to make sure CATL doesn’t suck when the tailwind dies down.
SANDERSON: I think people misunderstand China in a way if they think it’s all state-owned. These are very nimble, enterprising companies in CATL. And they’re afraid of competition, and they’re afraid of dying – of going bankrupt. If you look at the solar industry, many Chinese companies have gone bankrupt. It’s not like they’re protecting all of their businesses. And so CATL lives with that fear every day.
WOODS: And of course, another rival now will be American companies, which are now empowered by the Inflation Reduction Act. The EV subsidies of up to $7,500 per vehicle have American sourcing requirements for parts like batteries. US policymakers have recognized that size matters for clean energy, and the country is now catching up.
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WONG: This show was produced by Brittany Cronin with technology by James Willetts. It was fact checked by Dylan Sloan. Viet Le is our executive producer and Kate Concannon is editing the show. THE INDICATOR is an NPR production.
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