Leoch reprint

Issue 114

Winter 2019/20

Dong Li and the future of battery giant Leoch T

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IN PR

Bringing the industry together

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PROFILE: DONG LI, LEOCH BATTERY

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rom a start-up turnover in the tens of thousands of dollars to revenues of some $1.5 billion last year is quite an achievement for anyone. And to do it in just 20 years makes this story of China’s, Leoch Battery, and its founder Dong Li, seem more like a story from Silicon Valley than a lead battery firm that has become one of the largest in the country.

The ‘Leoch’ name is a combination of the word ‘Leo’ for lion and ‘Ch’ for champion, the name having an international flavour, says Dong Li. Kicking it off with an investment of just Rmb2 million in 1999 (then around $240,000), the company has more or less doubled its revenue every subsequent year for the first five years.

It was $1 million in year one, $2 million in year two, $4 million in year three, $7 million in year four and in year five reached $15 million.

Last year, in its 20th year, the company brought in $1.5 billion, Dong Li says.

It’s now the fourth or fifth largest lead battery maker in China, and tops, or comes near the top. in many areas of global lead battery supply. Dong Li says it was the top global supplier of network power batteries and telecoms batteries in the first half of 2019; in automotive and UPS exports it came second; and in all other major areas of supply, such as SLI and motorcycle, E bike, EV, railway and aftermarket batteries, Leoch was one of the top three or four Chinese companies.

It has plants in the UK, US, Germany, Spain, Italy, Greece, Singapore, India, Australia, Sri Lanka, Turkey and South Africa, and employs 11,000 people.

But in the beginning, it wasn’t even batteries that Dong Li was interested in.

Championing the case for lead — but now lithium too Dong Li, chairman and founder of Chinese battery giant Leoch, spoke to Debbie Mason in London this October about the rise and rise of his firm — and the way ahead for the industry.

Roots

As so many stories out of China begin, this one also has its roots in the pastoral past. Most people lived in the poor countryside and had to endure the turmoil of Mao Zedong and his Great Leap Forward, followed by the decade-long Cultural Revolution, which only ended in 1976 when chairman Mao died.

“Everybody was ordinary,” says Dong Li. “My mother was a teacher and my father worked for a trade union. No one had any money, no one worked for a private company — in those days you would ask what unit someone worked in, not which company.

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PROFILE: DONG LI, LEOCH BATTERY “We plan to become a battery company with two arms. Our lead arm will always be bigger, but we do have a plan to open a factory in Anhui Province to make 4GW of lithium batteries a year for three applications: telecoms, data centres and networks; starter batteries and motorcycles; and motive, slow-speed EVs and traction applications.”

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PROFILE: DONG LI, LEOCH BATTERY THE CHINESE RACE TO WORLD LEADERSHIP

Shenzhen had a population of just 52,000 in 1979, 40 years later it stands at just over 12 million roughly half as big again as the head count for London or New York City.

Since communist China’s first Five-Year Plan (1953-1957) began its mass movement towards industrialization, huge tranches of the country have been completely transformed from its original agrarian roots.

By the end of this first plan, official statistics claimed the country’s GDP had climbed by 57% since 1952 to Rmb107 billion ($15 billion).

But this was just the first tiny step before the gigantic leap that began in earnest with premier Deng Xiaoping’s opening-up reforms in 1978, which set the country on the path towards building the economy into today’s global giant.

Between 1978 and 2017, China hit an annual average growth of 9.5%, more than three times the world’s average. By 2017, GDP exceeded Rmb80 trillion ($11.5 trillion), the country’s National Bureau of Statistics says.

That massive growth couldn’t be sustained forever, but according to the NBS it’s still strong, running at an average of 6% a year.

The 1980s’ burgeoning of factories in southern provinces like Guangdong was the engine driving this enormous growth, and in that first five-year plan alone, secondary industry replaced primary industry as the largest contributor to GDP, accounting for 44% in 1960 from 21% in 1952, the NBS reckons.

The growing manufacturing industry also gave birth to China’s lead acid battery behemoths, such as Camel in 1980, Tianneng, in 1986, and Narada a bit later, in 1994. And Leoch in 1999.

“Life was changing in the south and in 1992 it inspired me to move to Shenzhen, where I began to work in a textiles factory.”

“We all had to survive on ordinary food — each person had a ration coupon for 100 grams of meat per month, which meant our family had to make do with 600 grams a month.

“But this is why I believe today the Chinese view on hardship is that you can ‘make do’. We are good at managing on limited resources, we are used to having to do without, and for this reason things like the US trade war will not matter to China.”

Born in 1966, Dong says his childhood was no different from anyone else’s and in 1984 he went off to the former Chinese capital city of Xi’an, the home of the famous terracotta army, where he attended the North-

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west Textile University and got his first degree.

“I then went to the foreign languages university to get a degree in English, and at the same time taught at the Textiles University,” he said.

It was here that he gained respect for the UK’s wool manufacturing industry and found out about the universities of Leeds and Manchester, which taught their textiles courses using textbooks that he later used to teach his own students.

A teaching career was considered a good one, but Dong, with his 60 yuan ($8.50) a month pay packet, which doubled in the second year, had bigger ambitions.

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PROFILE: DONG LI, LEOCH BATTERY “I always thought I needed to make more,” he says. “I could see my destiny and always wondered what my apartment would look like when I was older — surely better than the dormitory I lived in, with three of us per room, shared bathroom facilities and the freezing cold winters and sweltering hot summers, with no heating in the winter and no air conditioning in the summer.”

Nowhere in China was poorer than

the southern regions, which would later boom as a result of what became known as China’s second industrial revolution.

At this time, people in the south were looked down upon, Dong says. “They were so poor — they couldn’t even afford decent shoes and just wore cloth slippers. They had no spare coats or trousers, they had to wash them and wait for them to dry because they didn’t have a spare set.

“Then suddenly, in 1988, as I was graduating, the economy boomed — and they started wearing Nike trainers and jeans. We couldn’t believe it — before, the girls at our university wouldn’t look at us because they were so poor — but now they weren’t looking at us, they were looking at Cantonese boys.

“Life was changing in the south and in 1992 it inspired me to move to Shenzhen, where I began to work in a textiles factory.”

It was during this second industrial revolution in the 1980s that China became the world’s largest producer and exporter of textiles, the largest producer and importer of cotton and the largest producer and exporter of furniture and toys.

Dong Li began in the textile factory as a supervisor. His living conditions were still basic and he was working for 18 hours a day. He says he learned Cantonese practically in his sleep, with the television blaring out soap operas in Cantonese that somehow seeped into his brain while he was unconscious.

“I told my boss I would be able to speak Cantonese within three months or I’d leave. After one month I could understand it and after two I was beginning to speak it,” he says.

“My pay went up to HK$1,000 ($130) a month, then after three months it went up by another HK$500.”

Batteries beckon

“We started to realize the battery business had a future. At the time we had no strategy at all, but the buying power in that sector was already much better than it was in the clothing industry. So with no plan, we spent Rmb30,000 ($4,300) on a small domestic battery trading company.”

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While Dong Li was spending 18 hours a day in his textile factory, his brother had found work in the battery industry in the north of China.

“We started to realize the battery business had a future,” Dong Li says.

“At the time we had no strategy at all, but the buying power in that sector was already much better than it was in the clothing industry.

So with no plan, we spent Rmb30,000 ($4,300) on a small domestic battery trading company.”

By 1994 the two brothers — Dong Li’s brother is now Leoch’s chief technology officer — had made enough money to set up a battery assembly company, at a cost of Rmb200,000 ($28,500). They hired eight staff.

“But in China image is very important, and when Chinese businessmen came to see our factory, they saw how unimpressive it was and refused to buy our batteries,” he says. “This is

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PROFILE: DONG LI, LEOCH BATTERY LEOCH INTERNATIONAL EXPANSION

Leoch International says it began operation and delivery of lead acid batteries from its two Vietnam manufacturing plants in the second half of 2019,.

Investor relations director Joyce Lam said the two factories would more than double the company’s total overseas production capacity as it looks to further its business expansion in abroad.

“With the new plants, we will be able to offer our overseas customers the most cost-effective battery solutions by eliminating market uncertainties such as trade barriers and fluctuations of raw material prices in the People’s Republic.

“In addition, the released production capacity in our Chinese plants will serve to support growing demand in the domestic market.”

Stricter regulations and higher labour costs have caused a trend of Chinese companies opening manufacturing facilities in its neighbouring Asian countries in recent years.

The company has also expanded its reach into Europe, with the addition of DBS Leoch (formed in January 2019) from a restructuring of DBS Energy) in the UK, Leoch Nordeuropa in Germany, Leoch Italia and Leoch France.

when we realized that selling overseas would be the way to get around that — so we started selling them to countries such as Egypt, the Middle East and Thailand.”

The export business worked, and the rest is history.

Leoch now operates a total of 105 production and testing lines around the world, in factories that cover an area of more than 1 million square metres. The company also has three dedicated R&D centres in Guangdong, Anhui and Jiangsu provinces, and a small lead battery recycling facility in Anhui.

And when it comes to exports, while supplying major proportions of the world’s demand, Leoch sells 85% of its batteries in China. Of the 15% going abroad, just 20% goes to the US — another reason, Dong Li says, for Leoch not to worry about trade spats.

This is why the company is concentrating on developing other technologies rather than its declining trade with rival economies.

And lithium too

Dong Li is confident that lead will maintain its position of supremacy in energy storage despite the growing competition from other chemistries, especially lithium ion. But he recognizes that lithium should not be ignored.

“Lithium will take a lot of market share but it will not kill lead because of cost and recycling issues,” he says.

“The environment, safety and lithium resources will all create problems that lead batteries don’t have.

“We plan to become a battery company with two arms. Our lead arm will always be bigger, but we do have a plan to open a factory in Anhui Province to make 4GW of lithium batteries a year for three applications: telecoms, data centres and networks; starter batteries and motorcycles; and motive, slow-speed EVs and traction applications.”

The company is also considering a lithium battery recycling plant — “but the technology is still not very mature, and we need better technology and government permission first,” he says.

But while Leoch does intend to bring lithium on board as one arm of its business, what it seems more intent on is doing is competing with it in the form of bipolar technology, in which it has already invested with bipolar firm Gridtential.

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Leoch’s factory in Zhaoqing

“Bipolar is challenging but it’s moving,” Dong Li says. “The technology is there, and we are trying to commercialize it in China — for EVs, hybrids and data centres.”

Leoch has joined battery firms Power-Sonic, Crown Battery and East Penn Manufacturing, and venture capital and investment firms 1955 Capital and The Roda Group, in investing in Gridtential’s Silicon Joule technology.

The bipolar battery firm says it rivals lithium technology with benefits such as longer cycle life and greater energy and power density, yet maintains the cost, safety and recycling advantages of lead batteries.

Longer term

According to Dong Li, the global market for lead acid batteries is $45 billion a year. By 2025, it will have reached $50 billion, he believes. Lithium is going to grow much faster, currently $30 billion and more than trebling to $100 billion by 2025, he says.

“But there are other markets for lead with bipolar,” he says. “In the next 1520 years, bipolar will be made for hybrids, and 48V is the future. We will also be seeing bipolar in networks, starting and motive applications.

“Step by step we want to do something for the industry and its people, the community and the world. A gangster will try to make money by whatever means he can, but we believe it’s better to drive a steady, healthy, strategic business.

“We want to be an organization with a strategy that we drive forward towards a specific target without the distraction of short-term gain over longer term goals.

“Our biggest competitor is ourselves. We have to keep improving, we have to keep a broad product range so we remain apart from the others, and we have to find the best processes to keep it all going and maintain the value of our supply.”

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