What's wrong with me being a rich man?

Chapter 594 A single hair can affect the whole situation (5k)

Batteries are one of the three major components of new energy vehicles, or rather, they are the most important of the three.

Regarding range, safety, and the overall cost of the vehicle, the first thing the Silicon Carbon Group needs to do to lower the price of its vehicles is to reduce the battery procurement price from CATL.

However, even the suppliers themselves are unwilling to invest too much in the research and development of lithium iron phosphate, which is indeed a difficult situation.

After communicating with Zeng Yuqun, Yu Xing brought the news to a high-level meeting of the Silicon Carbon Group for discussion, and a serious expression, rarely seen in recent times, was seen on everyone's faces.

CATL is not a priority due to supply chain pressures; Beijing issued policies in April to guide technological direction, which is a policy-driven pressure; and BYD is mass-producing its second-generation ternary lithium batteries, which is a pressure from its competitors.

Even Tesla, now considered synonymous with electric vehicles globally, uses ternary lithium batteries, which is a source of market pressure.

If FMC's price increase truly becomes the trigger for a global wave of price hikes in the industry, lithium iron phosphate batteries will be in an extremely disadvantageous position.

Taking all factors into consideration, Silicon Carbon Group should follow market trends and bet on the development of ternary lithium batteries. Even if it is indeed somewhat lacking in its own testing standards, that is mainly a problem with the suppliers.

As the vice president, Cui Zhiyu read the atmosphere in the meeting room and bravely spoke up: "No supplier would make their own products poorly, and safety is of paramount importance. I think we can still expect CATL to make progress in this area. Energy density has already been improved by a lot, and the safety of the products will definitely need to be repeatedly verified."

Carbon Silicon Kyushu's lithium iron phosphate battery has a single cell density of 160Wh/kg and a system density of 130Wh/kg, which is equivalent to 8% of Tesla's ternary lithium battery. In other words, the system density of the first-generation ternary lithium battery was 162Wh/kg.

Currently, the density of ternary lithium battery systems that are mass-produced in China can reach 200Wh/kg, while Jiuzhou Battery's is only about 6.5% of that, which is not very acceptable.

Considering that range-extended vehicles are relatively less concerned about range, the battery capacity should still be maintained at 8%, which means that Kyushu Battery's new target should be 160Wh/kg.

An increase of 23% from 130 to 160 is not impossible; CATL believes it is achievable, but "it's a bit difficult."

The difficulty lies in considerations of funding, market, and competition. An even greater challenge is whether lithium iron phosphate batteries can continue to break through the 160 GHz barrier and upgrade further in the future.

The price of ternary lithium batteries can still rise; it won't stop at 200. If lithium iron phosphate batteries can't keep up, it means that all the initial investments in this area will be wasted, and the technology and brand will gradually become low-end.

This situation demands caution. For Silicon Carbon Group, persisting in its current course is somewhat risky, while following the market and supply chain is a minor mistake of conforming to the prevailing trends.

After Cui Zhiyu expressed his opinion, several others followed suit and expressed similar views.

The silicon carbon group has already invested a lot in research and development, and the proportion of its research and development related to the battery field is not small. The key issue is that this part of its efforts may be in vain.

Hu Zhengnan, the vice president of technology, glanced at his boss's expressionless face, pondered for a moment, and then posed a question: "Our testing standards are set and there. If the supplier's product does not meet them, or is slightly inferior, should we use it or not?"

Cui Zhiyu immediately said, "This requires us to communicate and develop together with our suppliers. President Yu is not insisting on using a particular direction, but rather on using products that meet that standard."

"In the industry, BYD is developing second-generation ternary lithium batteries. BYD itself started with the battery business, and it will be using this battery again next year. It is estimated that it will be unveiled at the Beijing Auto Show in the first quarter, and at the latest, it will be launched in the second half of the year." Hu Zhengnan calculated the time. "How should we view this technology and brand image? If we calculate based on one year, what will we do if the battery does not meet the standards by this time next year? Will we use it reluctantly, or continue to use the old battery?"

Upon hearing this, Yu Xing did not agree with the time limit and said, "The overall development of new energy still takes a while, and it also takes time for the technology to be transmitted to users' minds. It's not possible that we are only given one year, two years, or even three years."

When Cui Zhiyu heard his boss speak, he was greatly encouraged: "Yes, we are a range-extended vehicle, so we don't need to worry so much about battery upgrades. Next year's minor facelift will not require any changes to the battery. In two or three years, I don't believe CATL can't meet our standards."

Upon hearing this, Hu Zhengnan almost felt that his boss had already taken a liking to him.

He lowered his voice slightly and said, "Of course I believe CATL is determined to advance the technology of ternary lithium, but from a physical point of view, if I were a consumer, just myself and not others, I would still like to see lithium iron phosphate not only catch up in terms of density, but also continue to advance the development of battery standards."

“So, Mr. Hu, this is just your personal opinion,” Cui Zhiyu said. “Who doesn’t want the most ideal product? I also hope that Kyushu’s costs are low, its profits are high, and all users are 100% satisfied. But given the current market and industry, Mr. Hu, your idea is not commercially viable enough.”

Hu Zhengnan sneered twice and retorted sarcastically.

The two of them represent two opposing opinions, but Hu Zhengnan is in a weaker position, given the real pressure from industry and policy.

Seeing that the two were almost resorting to personal attacks, Yu Xing quickly slammed his hand on the table and announced the end of the meeting. He did not give a final conclusion, but only said one sentence: "Carbon Silicon Group is going to do business for the long term, so this matter needs to be considered from all angles."

Hu Zhengnan heard the word "long-term," while Cui Zhiyu received the word "comprehensive."

Their eyes met briefly in the air before they packed up their documents and prepared to leave.

“By the way, Mr. Cui,” Yu Xing suddenly called out to Cui Zhiyu, “you’re too good at arguing, you’ve been downgraded from T1 to T2.”

This is a job level that was just finalized recently.

Cui Zhiyu stopped in his tracks, taken aback.

After a few seconds of silence, he simply asked, "Mr. Yu, have you already made a decision?"

“I’d like to hear your thoughts,” Yu Xing said calmly. “But from my personal perspective, both ternary lithium and lithium iron phosphate are good, but I still want the Silicon Carbon Group to pursue something even better.”

Cui Zhiyu felt that this tendency was quite strong.

He said helplessly, "Mr. Yu, I think we need to be very careful about this issue. If we really invest in R&D in the battery field, CATL is a supplier and BYD is in the low-to-mid-range market. Both of them may have enough scale to share the costs in the future. Our products are positioned in the mid-to-high-end market, and our scale in this area is a significant disadvantage."

Battery selection and decision-making affect many aspects, including external market competition and internal company operations.

Yu Xing nodded: "That's why I want to hear your thoughts and opinions, to see which side is more appealing to me. Otherwise, it might have already been decided. I also want to see what the products Ningde has to offer are like. But from my personal perspective, I'm not very optimistic about this."

Cui Zhiyu asked, "Don't you trust Ningde?"

“It’s not that I don’t believe it, I just don’t want to place my optimism on other people’s efforts,” Yu Xing said. “You all have a point. CATL is about to start production of second-generation ternary lithium batteries at its headquarters. That will most likely be the commercial product on the market in the next two or three years. President Zeng will be coming to Lingang at the end of October. Let’s see how that product performs.”

Cui Zhiyu frowned and said, "This generation of products from Ningde... President Yu, we still have time to work together to improve the performance of its products."

Yu Xing asked, "Don't you trust Ningde?"

Cui Zhiyu shrugged. Judging from this situation, it seems that the Silicon Carbon Group has already taken one foot into the battery business.

After thinking it over, he asked, "Mr. Yu, if I were to evaluate the value of CATL's lithium iron phosphate technology now and consider a joint venture arrangement involving equity investment in this technology, could I upgrade from T2 to T1?"

Yu Xing replied, "Let's talk about it after we've made it."

Cui Zhiyu left the meeting room feigning dejection.

After taking a few steps, he quickly considered the impact of choosing the lithium iron phosphate route over silicon carbon. As he just said, if he made this choice, he would probably have to consider the future scale.

If you want to achieve scale, no matter how much you output high-end products, it will likely be limited. In the future, you still have to focus on the mid-range market.

By examining Mr. Yu's considerations from this perspective, we can assess most of the product positioning and planning.

Alternatively, silicon carbide could also sell batteries to external parties. Although it has disadvantages as an OEM, silicon carbide is willing to help new projects such as NIO and XPeng with patents and joint procurement, so this possibility may not be out of the question in the future.

This direction is not unsolvable, but rather it presents higher requirements.

When Cui Zhiyu arrived at his office, he was somewhat surprised to see Hu Zhengnan, with whom he had argued earlier, waiting for him there.

"President Cui, I was a little emotional just now, I'm sorry." Hu Zhengnan took the initiative to apologize.

"Oh, Mr. Hu, I was just thinking of inviting you to dinner tonight." Cui Zhiyu shook hands repeatedly. "It's not our fault. Disagreements among senior executives are mostly due to the boss's lack of integrity." Hu Zhengnan smiled upon hearing this and suggested that they have dinner together that evening to discuss the matter further.

After thinking it over, Cui Zhiyu decided not to tell Hu Zhengnan about his final conversation with the boss. He wanted to see what kind of products Ningde could bring by the end of October.

Yu Xing hadn't originally planned to entrust Cui Zhiyu with the task of evaluating the value of CATL's lithium iron phosphate technology, but he didn't expect Cui Zhiyu to be so quick-witted.

He remembered the matter again in the evening, picked up his phone and called Xu Xin, wanting Today Capital to help evaluate the value of CATL's investment.

"This direction..." Xu Xin hesitated after hearing President Yu's request, "Is choosing silicon-carbon the right approach?"

“I think there’s no problem,” Yu Xing replied. “There are two plans now, but it will probably be difficult to get a product that satisfies me by the end of October. If the product does not meet our standards, we have no objection to internal implementation.”

Upon hearing this, Xu Xin didn't seem as puzzled as she was about the internal workings of silicon carbide.

She doesn't understand technology, but since Mr. Yu said so... it should be fine, right? He knows a bit more than she does now.

Xu Xin stopped considering the technical aspects and instead thought about the other party's requirements, pondering, "CATL's revenue this year is estimated to be around 70 billion, which is a hurdle, but its valuation increase this year should be quite high."

"This is your own doing. The higher the sales volume of silicon carbon, the higher the valuation of CATL will rise."

"They used to mainly make batteries for buses, but thanks to your silicon carbon technology, they have now successfully entered the passenger car market, and their market prospects have suddenly improved. I was talking about this with someone last week."

“There will be a round of valuation for CATL at the end of this year or the beginning of next year. If it weren’t for the sales of silicon carbon this year, we would estimate it to be 20-25 billion RMB. But with your outstanding performance, it could be 35-40 billion RMB.”

Xu Xin is quite familiar with CATL's situation: "Its current revenue is almost entirely based on lithium iron phosphate. If you want it to contribute its technology as equity in a joint venture, it won't be cheap. It would cost at least 20 billion RMB. But if it's a license, the price will be much lower, at least half off."

She added, "If CATL's ternary lithium batteries can improve, this part of the technology might become cheaper, but your timeframe is quite tight."

“If ternary lithium batteries are showing signs of improvement, the value of lithium iron phosphate technology will not be low either.” Yu Xing mentioned a piece of supporting information: “The Ministry of Industry and Information Technology may have a new policy in January next year, which will allow buses to use only lithium iron phosphate batteries.”

Xu Xin exclaimed in surprise, "Huh? Buses can only use lithium iron phosphate? Then... then lithium iron phosphate technology is the entry barrier in this field, and it's going to appreciate in value!"

She did not doubt Mr. Yu's source of information.

“If we go into a joint venture, we can consider making an agreement that silicon carbon will not be included in the bus battery business,” Yu Xing pondered. “That way we can discuss its technological value.”

Xu Xin then asked, "You won't enter the bus battery business? So you'll enter the passenger car battery business? Otherwise, why would you impose such specific restrictions?"

Yu Xing was stumped by the question: "Um..."

Xu Xin then asked, "Would CATL be willing to cultivate potential market competitors?"

Yu Xing thought for a few seconds and said, "Since CATL is confident in the future of ternary lithium in the passenger vehicle market, it should not be worried about the possibility of us using lithium iron phosphate in this regard."

“If we could simply use contracts to constrain the possibility of competition, I believe anyone would be willing to do it.” Xu Xin paused, then smiled. “Fortunately, President Yu, you are not a simple person.”

She cautioned, "CATL needs financing. Part of the valuation for the next round of financing is supported by Silicon Carbon Group. A joint venture plan is negotiable, but Silicon Carbon can also negotiate with other battery suppliers."

Xu Xin believes that there is more than one battery supplier in China. CATL was only established in recent years, and Guoxuan High-Tech is also a strong supplier.

Yu Xing laughed and said, "President Xu, you're so naughty."

Xu Xin scoffed, "I don't believe you didn't think of that."

Yu Xing said sincerely, "I really didn't expect that."

Xu Xin said firmly, "You'll have thought of that sooner or later!"

Yu Xing: "..."

"My opinion is just a general one. I'll have someone come up with a detailed assessment, and then I'll ask Liu Wanying to take a look at CATL's next round of financing. She could also participate," Xu Xin said. "It would be beneficial for everyone to cooperate. New energy is just starting out, so it's not advisable for us to fight amongst ourselves. In fact, we shouldn't fight too fiercely."

Yu Xing agreed with this and mentioned it to Xiao Ying when he got home that evening.

Liu Wanying had already received a call from Xu Xin and had given the matter some thought.

She was focused on another aspect: "Did you consider this part in the funds raised from your IPO? I did the math, and the funding needs for the second-phase factory, the Ningbo factory, new cars, and technology research and development are all very large."

The IPO of Silicon Carbon Group involves the sale of 20% of its equity.

Based on Goldman Sachs' conservative valuation of $80 billion, that's $16 billion.

“We have definitely considered it,” Yu Xing said. “Today, Mr. Xu believes that the technology from CATL is worth around 2 billion yuan. If we split it 50/50, we would need 300 million US dollars in funding, which is higher than I expected. Therefore, I am not satisfied with Goldman Sachs’ valuation.”

If they can IPO at a market capitalization of $100 billion, they can get $20 billion, which will make them much richer instantly.

He added, "I think a market capitalization of tens of billions of dollars is achievable."

Companies like XPeng and Li Auto had similar market capitalizations in their early IPOs, but the listing environment and market conditions for silicon carbide are different, so their market capitalization performance really depends on the reaction of the capital market.

If the IPO is postponed to later next year, and the company weathers the doubts surrounding the subsidy reduction and continues to achieve steady sales growth, its market capitalization will certainly be better.

However, funding is needed to accelerate development in areas such as new factories, R&D, and battery collaborations.

After weighing the pros and cons, Yu Xing still believed that it would be better to go public sooner.

Liu Wanying rubbed Yu Xing's shoulder and sighed, "It's close to being a case of 'one move affecting the whole body,' not to mention that your company is becoming more and more... more and more complicated. I've noticed that before Kyushu went public, you guys seemed to be more pure."

Back then, the silicon carbon group was just using money to build cars; everyone was aiming for that goal. Now, with issues like open-source ecosystems, battery choices, and new factory construction, the pressure from all sides seems to be even greater.

Yu Xing laughed and said, "Many people might want to consider things like silicon carbide, like Li Bin and He Xiaopeng. They definitely want to look at sales figures like silicon carbide to decide their direction."

Liu Wanying shook her head: "You seem to be enjoying yourself, but going public isn't always a good thing. You should think more carefully and consider allocating some of the funds from Europe."

"Well, joint ventures can also find other sources of funding; there are quite a few solutions." Yu Xing said, mentioning his previous encounter with Huishan Dairy in Beijing and then bringing up the issue of alfalfa.

Liu Wanying joked, "Why are you so petty? Someone shakes your hand, and you go back and check their financial statements."

“We’re just sitting around doing nothing anyway. Their financial report says they produce 100% of their own batteries, doing what their competitors can’t do,” Yu Xing said. “You see, when we make decisions about batteries, we have to weigh all sorts of advantages and disadvantages. And then the price of raw materials in the industry suddenly goes up. How come they manage to save money so perfectly?”

Liu Wanying's eyes flashed, and she smiled, "We can find out by checking. It's that simple, that simple."

Yu Xing said, "This is simple? You seem to be enjoying yourself."

Liu Wanying nodded: "If there's a problem with the alfalfa, then we'll resolve this dilemma ourselves. Let Huishan Dairy transfer the money to you."

(End of this chapter)