After clipping Alibaba, China sends subtle warning to CATL, questions sustainability of EV battery manufacturing boom

China has raised concerned on overcapacity as domestic EV battery manufacturers continue to expand amidst a slowing EV market.

According to a statement published by the official Xinhua news agency last Tuesday, President Xi Jinping expressed that he is “both pleased and concerned” about CATL’s position as the world’s No.1 EV battery manufacturer.

"Emerging industries must do a good job in planning, figuring out how big the market is and where the risks are," said Xi on the sidelines of China’s annual session of parliament, according to national news agency Xinhua.

"They should avoid marching ahead alone in an invincible fashion, only to be caught out by others and fail in the end."

Xi also expressed the importance of a prudent industrial policy, and the need to balance between development and security.

CATL’s dominance has also been criticised by domestic car manufacturers.

Zeng Qinghong, Chairman of Guangzhou Automobile Group, the local partner of Toyota and Honda, and also the owner of Triumpchi brand, recently said sarcastically that he is an employee of CATL.

“With batteries now taking up 60 percent of the cost of each vehicle, how am I not actually working for CATL?” he asked.

Growth in China’s EV car market, the largest in the world, has slowed following the expiry of decade-long subsidies. The market has not contracted, but demand is not where many manufacturers are projecting.

Sales data may still show growth but that’s because Tesla has triggered a price war, which prompted other EV manufacturers to also slash prices in a bid to sustain sales. This is obviously not sustainable and hides the fact that China’s EV sector is overheating, prompting President Xi’s comments on overcapacity of EV battery manufacturing plants.

China controls 60 percent of the world’s EV battery supply. Plants are still being expanded and by 2025, total manufacturing capacity will grow 6 times to hit 3000 GWh, according to estimates by China’s state-owned Economic Daily.

The aggressive expansion hinges upon markets outside of China absorbing the output but USA’s Inflation Reduction Act will only subsidise EVs if the vehicle’s raw materials / parts are made by a friendly trade partner.

Others say that CATL’s licensed battery manufacturing deal with USA’s Ford has raised some concerns about core Chinese technology benefiting American interests, as USA bans export of core semiconductor technology to China.

Against this backdrop, President Xi may want to tighten control over CATL’s business dealings.

Two years ago, China introduced measures to rein in its homegrown Internet companies. It was concerned that these companies may have become too powerful, and the crackdown on Alibaba and Jack Ma was meant to send a message to other Chinese Internet companies.