"State-Owned Giants Enter Battery Race, Invest in Lithium Pioneer"

As the "heart" of new energy vehicles, power batteries are becoming a focal point for the integration of state-owned enterprise (SOE) assets. It has been reported that FAW Group is planning to invest in LG Chem (Qingdao) New Energy Co., Ltd. (hereinafter referred to as "LG Chem Qingdao"), with the China South Industries Group Corporation (CSGC) and Dongfeng Motor Corporation participating simultaneously, to jointly create a leading state-owned power battery enterprise and promote the high-quality development of the new energy vehicle business of central enterprises.

Upon inquiry on Qichacha, a Chinese business information platform, it was found that LG Chem Qingdao is controlled by Tianjin LG Chem Battery Co., Ltd. (hereinafter referred to as "Tianjin LG Chem"), with a holding ratio of 68.7831%.

It is understood that LG Chem Battery is a veteran battery supplier with a history of 26 years, once known alongside BYD, BAK Battery, and ATL as the "four founders" of lithium batteries. However, with the frequent change of shareholders in Tianjin LG Chem and the continuous emergence of new competitors in the market, LG Chem Battery has gradually faded from the public eye in recent years.

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Zhang Xiang, Secretary-General of the International Intelligent Transportation Technology Association, said in an interview with journalists: "But with the joint efforts of the three major SOEs in asset integration, it is expected to maximize its industrial value."

As of the time of publication, the journalist has not received a response from FAW Group and Tianjin LG Chem regarding the investment matter.

The "national team" gathers

Recently, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) organized a meeting to promote the professional integration of central enterprises and a signing ceremony for key projects. At the meeting, 12 groups of 26 units signed professional integration projects, including the professional cooperation project in the field of power batteries among FAW Group, China South Industries Group Corporation, Dongfeng Motor Corporation, and China Chengtong Holdings Group Co., Ltd. (hereinafter referred to as "China Chengtong").

The journalist learned that LG Chem Qingdao is controlled by Tianjin LG Chem, which is a second-level subsidiary of China Chengtong.

Guo Xiangyu, Deputy Secretary of the Party Committee and General Manager of China Chengtong, stated: "China Chengtong will work closely with relevant parties to promote the implementation of the integration project, and support the central enterprises' new energy vehicle business to form a joint force with practical actions."Analysts believe that FAW Group's investment and control over Lishen Qingdao will make the latter more financially abundant and further strengthen its innovation and research and development efforts. "Through this professional integration, a platform for central enterprise power battery industry resources that synergistically implements national major strategies and undertakes strategic emerging industry tasks can be formed, further enhancing the innovation, research and development, control, and discourse power of the central enterprise new energy vehicle industry chain. This has an important and far-reaching impact on promoting the high-quality development of central enterprise new energy vehicles," said Wang Junzhi, deputy secretary of the party committee and director of FAW Group. Subsequently, FAW Group and all shareholders will strive to build Lishen Battery into a benchmark enterprise for central enterprise power batteries.

As the main force of China's economic development, central enterprises are pressing the "fast-forward button" of reform and running out the "acceleration" of reform this year.

Previously, industry insiders pointed out that more than 80% of the sales volume of automotive central enterprises, and even some up to 90%, come from joint ventures. Joint ventures have supported most of the scale profit and market share for automotive central enterprises, which is still in line with the past assessment of the State-owned Assets Supervision and Administration Commission (SASAC). This is because the SASAC used to assess business performance, which is sales volume and profit.

However, in the fiercely competitive new energy vehicle track, the model of relying on joint ventures as "cash cows" has gone forever.

During this year's two sessions, the SASAC once again sent a strong signal for the reform of automotive central enterprises. On March 5, 2024, Zhang Yuzhuo, the director of the SASAC, said that the three automotive enterprises directly under the central government will be separately assessed for new energy business, and the assessment will not focus on the current profit period, but will focus on the assessment of technology, market share, and development capabilities.

In the view of industry insiders, this assessment method will separate new energy business from joint venture business and fuel vehicle segments, and assess them separately, which will inevitably promote the deepening of reforms in investment structure, product structure, brand structure, corporate governance structure, and incentive mechanisms of the three automotive central enterprises.

With the encouragement and support of relevant departments, automotive central enterprises are accelerating the transformation to the new energy vehicle track. Public data shows that in 2023, FAW Group, Dongfeng Company, and Changan Automobile, the three automotive central enterprises, completed direct investment in new energy vehicles of nearly 36 billion yuan, with an investment proportion of more than 60%.

However, the three major automotive central enterprises still have room for development in the field of new energy vehicles. Data shows that in 2023, the total sales volume of the three companies accounted for about 30% of the entire automotive market share. The new energy vehicle sales of FAW Group, Dongfeng Group, and Changan Automobile in 2023 were 240,000, 480,000, and 520,000 respectively, accounting for 2.5%, 5.1%, and 5.5% of the national new energy vehicle market share respectively.

Once again, the "pioneer" of lithium batteries carries expectations

In fact, this time the purchase of the "pioneer of lithium batteries" has also become an important part of the development and growth of the new energy vehicle segment of automotive central enterprises."Currently, the battery industry places a great emphasis on economies of scale, and the concentration is quite high at present. For instance, abroad, Panasonic dominates the Japanese market, while LG and Samsung in South Korea are almost in a monopolistic position. At present, there are many battery suppliers in China, and the competition is still fierce," Zhang Xiang told the reporter, "National asset integration is very advantageous as it can coordinate uniformly, balance the interests of all parties, and thus grow and strengthen. The value of assets after integration is even greater."

According to data from Qichacha, in terms of enterprise stock, there are currently 15,000 power battery-related enterprises in China. In terms of regional distribution, Guangdong has the most with 4,849 enterprises, accounting for as high as 32.1% of the total national stock, followed by Hunan with 2,980 power battery-related enterprises, accounting for 19.8%, and Jiangsu ranks third with 1,206 power battery-related enterprises.

It is understood that with the increasing global demand for new energy vehicles, power batteries, as core technology, are facing dual challenges of supply chain security and technological upgrades. This integration will not only help optimize the supply of upstream resources but also promote the further enhancement of power battery enterprises in terms of technological research and development, manufacturing capabilities, and market competitiveness. So, will the purchased Lishen Battery have a chance to break through under the halo of the three major state-owned automobile companies?

Let's go back to 1997 when Tianjin Lishen was jointly established by the Tianjin Municipal Government and several state-owned investment institutions. The company's technology source is the 18th Research Institute of China Electronics Technology Group Corporation (hereinafter referred to as "CETC 18th Institute"), which developed China's first lithium-ion battery in 1995 and is one of the output bases of China's lithium battery technology. With the support of funds and technology, Tianjin Lishen became the largest domestic investment scale and the highest level of automation lithium battery production enterprise as soon as it was established.

At this time, the "big brother" Motorola had just begun to prevail in China, and the rising Motorola became the first major customer to help Lishen open up the market.

Before 2015, Lishen Battery was firmly in the top five of the industry, but the major shareholders went through several changes, frequent changes. From the earliest CETC 18th Institute to Tianjin State-owned Assets, and then to China National Offshore Oil Corporation (CNOOC) and back to CETC, the company's strategy was unclear, and research and development investment and capacity expansion lagged.

In addition, Lishen Battery's aggressive expansion plan was also hindered by funding issues, causing the company to miss the golden period of development.

The reporter checked the official website of Tianjin Lishen and found that Lishen Battery currently has three types of products: polymer batteries, cylindrical batteries, and square batteries. However, square batteries are mainly used for drones and mobile power supplies. Cylindrical batteries are mainly used for electric four-wheeled vehicles, electric two-wheeled vehicles, and other products.

In addition, according to incomplete statistics, Lishen Battery has tried to go public seven times since 2006 but failed. In fact, after experiencing a period of rapid development, the power battery industry pattern began to solidify. According to data from the China Automotive Power Battery Industry Innovation Alliance, in 2023, there were 52 power battery enterprises in China's new energy vehicle market that achieved vehicle matching, a decrease of 5 from the previous year. Among them, the top 3, top 5, and top 10 power battery enterprises accounted for 78.8%, 87.4%, and 96.8% of the installed capacity, respectively, while in 2022 they were 78.2%, 85.3%, and 95%, respectively. It can be seen that the concentration of the power battery market is further increasing.

However, even with increasing industry challenges, Lishen Battery has been actively developing in recent years, trying to regain its glory. In terms of production capacity, since 2021, Lishen Battery has successively started the construction of Chuzhou, Wuxi, and Tianjin Binhai bases, with a total investment of more than 36.4 billion yuan and a planned power battery capacity of 84GWh. The company plans to achieve an overall annual production capacity of more than 125GWh by the end of the "14th Five-Year Plan" and an annual production capacity of 400GWh by 2030. According to the company's previous plan, Lishen's power battery sector will apply for an IPO in the second half of 2024 and achieve a listing on the A-share market by 2025."Through integration, as the scale expands, the competitiveness will also be stronger. After 'Lishen' grows in scale, its R&D capabilities will be stronger, procurement costs will be lower, and profits will be higher," said Zhang Xiang. "Moreover, for the original equipment manufacturers (OEMs), the supply of batteries will also be more stable."

Nowadays, it has become a major trend for vehicle manufacturers to develop their own batteries. Many car companies are laying out their own battery industries, accelerating the research and development and industrialization of battery technology through investment and joint ventures. Against this backdrop, the three major state-owned automotive enterprises have chosen Lishen Battery, also valuing its profound technical accumulation—the latest release of semi-solid-state batteries with an energy density as high as 402Wh/kg, and the extensive customer resources accumulated over the years.

Some industry insiders believe that Lishen Battery, as a key force in the transformation of the three major state-owned automotive enterprises to new energy, is both an opportunity and a challenge. However, to maximize the value of integration, it is necessary to first address the current issues faced by the company due to changes in major shareholders and strategic uncertainty, such as insufficient R&D investment.