September 26, 2019 10:45 AM, EDT

China Battery Giant Shrugs Off Headwinds With $1.4 Billion Plan

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China’s top maker of electric-vehicle batteries plans to spend $1.4 billion (10 billion yuan) building its first factory in the southwest of the country, adding to ambitious plans for the next decade even as the short-term EV outlook gets buffeted by subsidy cuts and demand uncertainties.

Contemporary Amperex Technology Co. will build the facility in Sichuan province, an outpost of China’s car industry, it said in a statement. The first phase will be ready within 26 months from the start of construction, and the second phase two years after that, it said.

China Battery Giant

“Sichuan is an important base of the auto industry in the west, with a broad consumer market, a strong industrial base, and strong technological innovation,” the company said in the statement. It didn’t give details on how much or what type of batteries the plant would produce.

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China’s EV supply chain is enduring some pain after years of rapid expansion. Sales of new energy vehicles fell a second straight month in August after the government reined in generous subsidies amid a broader collapse in car demand. The travails of NIO Inc., including cost overruns, major recalls and a worse-than-expected quarterly loss, have stoked concerns of a bubble bursting in the sector.

The Sichuan project is “yet further aggressive expansion by China’s largest cell manufacturer,” Caspar Rawles, analyst at Benchmark Mineral Intelligence, said in a Wechat message.

CATL, which supplies carmakers including Volkswagen AG and Toyota, is adding to its ambitious pipeline of projects. Its planned capacity, including a project in Germany, already totals more than 120 GWh by 2022, according to BloombergNEF. That outstrips Tesla Inc. and its partner Panasonic on 105 GWh. CATL’s announcement also highlighted some of the risks facing producers, noting that competition in the battery market is “becoming increasingly fierce.”

China is the dominant force in the battery supply chain, and some 70% of new battery capacity will be housed there over the next decade, Rawles said. That will feed government goals to switch 60% of auto sales to battery power by 2035.