CATL supplies car batteries to a third of the world's EVs : The Indicator from Planet Money CATL is a hugely important company that a lot of people probably haven't heard of. It's grown from nothing to become the world's largest EV battery supplier — with some strong help from the Chinese government along the way. This story of how EV batteries became cheap kicks off The Indicator's week on the climate crisis — how markets, government and businesses can deal with growing emissions.

How electric vehicles got their juice

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SYLVIE DOUGLIS, BYLINE: NPR.

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DARIAN WOODS, HOST:

When the Inflation Reduction Act was signed into law this year, it set big goals to build a cleaner economy that was made in America. And that included growing a bigger car battery industry.

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PRESIDENT JOE BIDEN: Billions of dollars in investments to make electric vehicles and battery and electric charging stations all across America, made in America - all of it made in America.

WAILIN WONG, HOST:

And if oil defined 20th-century economics and geopolitics, electric vehicle batteries may define the 21st. And the company that's on the path to be the Standard Oil of today - the number one battery company supplying batteries to a third of the world's EVs, from Tesla to Volkswagen - is a Chinese company that kind of flies under the radar. It's called Contemporary Amperex Technology Ltd., or CATL. CATL is led by a guy named Zeng Yuqun, who, maybe more than any other single person, has made electric vehicles affordable. Here's Yuqun a few weeks ago, saying that there are more than 5 million new electric vehicles using CATL's batteries.

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ZENG YUQUN: (Non-English language spoken).

WONG: This is THE INDICATOR FROM PLANET MONEY. I'm Wailin Wong.

WOODS: And I'm Darian Woods. This week, as world leaders meet in Egypt to confront the global climate crisis, we're looking at the role of economics. What can markets, business and governments do to mitigate or even turn this crisis around?

WONG: Today on the show - the man charging the world's switch to electric vehicles. How a mix of entrepreneurship, government support and economies of scale fueled the rise of CATL and turned electric vehicles from a what if to a top industrial priority.

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WOODS: At age 31, Zeng Yuqun decided to launch his own company in the south of China. With an engineering degree and about a decade's electronics experience, he'd make 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 U.S. $1,000,000 for a lithium-ion battery patent. But when he and his team got to making it...

HENRY SANDERSON: ATL found making the technology work was not as easy as they had thought.

WONG: Henry Sanderson is the author of "Volt Rush - The Winners And Losers In The Race To Go Green."

SANDERSON: The battery expanded when it was repeatedly charged and was also at risk of exploding. They worried, you know, it might spell the end of the company. And apparently, they spent two weeks sort of working overtime to overcome the difficulties of trying different electrolyte combinations with the battery. And finally, they got it to work. And once they had done that, they cut the costs of production quite rapidly.

WOODS: With the tweaked recipe in hand, ATL scaled up fast, selling over a million batteries two years later. Soon, ATL became a supplier for Apple for iPods. And with the rise of smartphones, time to rinse and repeat, right?

WONG: Well, in 2010, Yuqun got a knock at the door from a German auto executive. This auto executive, Herbert Diess, was working 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 car batteries are expensive to ship. Plus, he wanted to spark competitive innovation. Herbert wanted a car battery company in China, but he said, for entrepreneurs like Yuqun, popularizing EVs looked like a bumpy road.

DIESS: He was probably skeptical at the beginning, and it was not clear for everyone 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 who researches China's green energy subsidies.

ILARIA MAZZOCCO: The minister of science and technology at the time, Wan Gang, who was a former professor and engineer - he was really convinced that electric vehicles would be the way to get the Chinese automotive industry to leapfrog multinationals. By sort of betting on a new technology, eventually everybody would be sort of on the same playing field, as opposed to some companies having 100 years of R&D and other companies having maybe 10 or 20 years.

WONG: So first, the Chinese government focused on demand. It started giving consumers EV subsidies in six cities - up to nearly $20,000 per vehicle.

MAZZOCCO: You know, it was mostly pilot programs at the city level. But, you know, more broadly speaking, it just wasn't that big. It was more of a pet project from the Ministry of Science and Technology.

WONG: Still, that helped convince Yuqun. He let Herbert know he was in. Soon, ATL spun off a new EV battery company, Contemporary Amperex Technology.

DIESS: It worked. And it was also, I think, to his benefit.

WOODS: Yeah. I mean, obviously it did. You know, he's a very, very wealthy man now.

DIESS: (Laughter).

WOODS: But you met him when he wasn't such a wealthy man.

DIESS: Oh, I think it was quite a 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 technical, physical, chemical understanding. So he knows what's happening in the battery, how manufacturing works, how scaling works.

WOODS: And that last one - scaling - is super important because making car batteries benefits hugely from what's known as economies of scale. Lithium-ion batteries have these huge upfront costs - research and development, deals securing lithium and cobalt and nickel, huge machines that make the battery cells. But once you've paid those upfront costs, the cost of making one additional battery isn't too expensive.

WONG: And author Henry Sanderson says that, when Yuqun took on car batteries, scale was the key to dramatically reducing the costs.

SANDERSON: The cost of lithium-ion battery packs fell by around 89% in real terms between 2010 and 2020. And I would say CATL is one of the key drivers in that cost reduction that we saw in lithium-ion batteries. And again, they took existing technology and scaled it - taking it from low volumes to high volumes.

WOODS: And this is when the Chinese government stepped in again - this time on the suppliers' side. In 2015, only cars with Chinese-made batteries were eligible for EV subsidies.

SANDERSON: It was a sort of brutal protectionist moment, and I think probably quite key to CATL's success, although I do think CATL was worried at the time - what happens when this policy is reversed and foreign batteries come back in? You know, can they compete with these Korean companies?

WONG: The Chinese government support was a classic case of what's known as infant industry protection. It works best when you have an industry that doesn't make sense at a small scale. Companies need protection to grow to a larger scale and hopefully then stand on their own two feet.

And while examples of failed protectionism and wasted government funding litter the history books, CATL is a clear success story. CATL definitely benefited from protection, but also beat out Chinese competition through a combination of skill, luck and a commitment to grow and grow. In 2017, CATL became the biggest supplier of EV batteries in the world.

WOODS: But Yuqun is eternally paranoid about getting soft. That year, he wrote an email to staff saying that, in a typhoon, even pigs can fly. In other words, with a tailwind of government subsidies - you know, the typhoon - even bad companies can succeed. But he went on to ask, once the typhoon passes, what's the situation for the pigs that are left?

WONG: Can you put lipstick on them?

WOODS: You can put a lipstick on a pig, but it won't make it fly.

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WOODS: It's a wonderful image with flying pigs.

WONG: In the years since, the Chinese government has been reducing protection, and EVs are really popular there. One in four new cars purchased is electric. So Yuqun is trying everything he can to make sure that, when the tailwinds fall, CATL is not a pig.

SANDERSON: I think people misunderstand China, in a sense, when they think it's all state-owned companies. These are very nimble, entrepreneurial companies in CATL. And they do fear competition, and they do fear dying - going bankrupt. If you look at the solar sector, a lot of Chinese companies did go bankrupt. It's not as if they protect all their companies. And so CATL lives with this fear day in, day out.

WOODS: And, of course, now another rival will be American companies, now boosted by the Inflation Reduction Act. The EV subsidies of up to $7,500 per vehicle have American sourcing requirements for parts like batteries. U.S. policymakers have realized that scale matters for clean energy, and the country is now playing catch-up.

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WONG: This show was produced by Brittany Cronin, with engineering from James Willetts. It was fact-checked by Dylan Sloan. Viet Le is our senior producer, and Kate Concannon edits the show. THE INDICATOR is a production of NPR.

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