Behind the Mercedes explosion: The decision to tap a little-known Chinese battery maker

Industry

Behind the Mercedes explosion: The decision to tap a little-known Chinese battery maker

Published: 07 Sep. 2024, 06:00

SARAH CHEA
chea.sarah@joongang.co.kr

The burnt Mercedes EQE sedan is transferred for a thorough investigation in Incheon. [NEWS1]

[NEWS IN FOCUS]

Mercedes-Benz's ties with an obscure Chinese battery maker came under heavy scrutiny in Korea over the revelation that its EV at the center of a massive explosion in an underground parking garage used the supplier's battery.

The supplier is Ganzhou-based Farasis Energy, which was founded in 2009 and has a history of issuing recalls due to fire risks.

CCTV footage shows a Mercedes-Benz EV exploding in an underground parking garage in Incheon on Aug. 1. [YONHAP]

Mercedes EV owners claim that the German luxury carmaker deceived consumers by marketing some particular EVs as powered by batteries from Contemporary Amperex Technology (CATL), the world's largest battery maker in terms of shipments.

“It’s definitely an intention to deceive customers. How could a luxury brand like Mercedes use batteries from a brand that no one has heard of and never notify us?” said Jeon Kang-hwan, an owner of a Mercedes EQE 350+ who also heads an emergency committee of around 300 Mercedes owners who are preparing for a class-action lawsuit against the German luxury marque for consumer fraud.

“I would never have bought a Mercedes if I knew my car was powered by Farasis batteries or even if the automaker mentioned nothing about the battery brand,” Jeon said. “I purchased the car just because it was marketed as having CATL batteries.”

The decision to work with Farasis is born out of a stake acquisition as well as a supply deal with Daimler, the parent company of Mercedes, a move widely considered a cost-saving effort.

A Mercedes EQE sedan burst into flames in an underground parking lot in Incheon on Aug. 1, damaging as many as 880 vehicles parked in the garage and inflicting weeklong electricity and water supply outages on some 1,600 households. It later turned out that Mercedes used batteries from Farasis in all EQE models on Korean roads and in some higher-level EQS models.

The fire authorities conduct a joint investigation on burned battery modules from a Mercedes EQE EV that burst into flames in an underground parking garage in an apartment complex in Incheon on Aug. 1. [NEWS1]

Cost-saving approach

Mercedes’ selection of Farasis may have been made with the intention of reducing the cost of batteries, an expense that makes up 40 percent of an EV's price, experts say.

“A possible scenario is that Mercedes had to choose cheaper batteries as they spent a whopping amount of money when developing EVs in its journey to electrification,” said Lee Jung-doo, battery program director at the Korea Planning & Evaluation Institute of Industrial Technology (KEIT).

Farasis Energy produces high-performing nickel cobalt manganese (NCM) batteries, a sector in which Korean battery makers hold a firmer standing. Chinese-made batteries are known to be around 30 to 40 percent cheaper than domestically-produced batteries, mainly due to the easy accessibility of raw materials.

"Farasis is a company with a short history. It lacks capability or any kind of know-how in manufacturing batteries and managing quality,” said Lee.

More than 3,000 Mercedes EVs topped with Farasis batteries are currently on Korean roads, according to the Ministry of Land, Infrastructure and Transport.

Mercedes-Benz Korea CEO Mathias Vaitl speaks with the press after having a three-hour talk with residents of an Incheon apartment complex where a Mercedes EV exploded last month. The blaze sent 23 people to the hospital and damaged 880 vehicles. Some 1,600 households suffered either water supply or electricity outages for almost a week. [YONHAP]

Sacrificing quality

Mercedes faced an inundation of harsh backlash after it was disclosed that Farasis had a history of recalling its batteries due to defects attributable to the manufacturer.

China's BAIC Group in 2021 recalled around 32,000 models of two different EVs equipped with Farasis batteries over potential fire risks, citing battery defects. The cost of the recall, which is reported to have been up to 50 million yuan ($7 million), was covered entirely by Farasis.

“The number of intellectual property patents a company holds reveals its experience and accumulated know-how and efforts in research and development, which directly relate to its competitiveness,” said Professor Yoon Won-sub, who teaches energy science at Sungkyunkwan University. Yoon also heads a battery-dedicated research center jointly run by the university and Samsung SDI.

Farasis only holds 22 patents in the United States according to data from the World Intellectual Property Organization, compared to LG Energy Solution, which has 3,767 U.S. patents. Samsung SDI has 3,352, while CATL holds 2,649.

“Startups cannot compete in safety or features unless they develop new technology avoiding those patents.”

Farasis Energy was the world’s 10th largest battery maker, claiming 1.8 percent of the global battery market last year.

Regarding the quality issue, Mercedes-Benz emphasized that its partners are qualified to meet its high standards.

"Mercedes-Benz is only working with partners who fulfill our high standards to ensure consistent product quality,” a spokesperson for Mercedes-Benz Korea told the Korea JoongAng Daily.

“This includes a comprehensive selection process, continuous monitoring and support during the entire product life cycle."

As many as 880 vehicles were damaged due to a Mercedes EQE EV that burst into flames in an underground parking garage in an apartment complex in Incheon on Aug. 1. [YONHAP]

An intimate relationship with stakeholders

Mercedes’ relationship with Farasis is believed to have played a part in the supply deal.

The duo’s accord started in 2018 when Daimler, the parent company of the German carmaker, inked a 10-year supply agreement with Farasis.

Mercedes then acquired 3 percent of the Chinese battery company in 2020 in a deal reportedly valued at up to 900 million yuan ($126 million). Since 2022, Farasis has turned into the major battery supplier for EQE EVs.

“It could be Mercedes’ strategic approach to use Chinese batteries to target the Chinese market, the German brand’s largest market,” Lee from KEIT added.

“It’s a typical strategy used by European carmakers like Mercedes and Volkswagen; It’s similar to them using batteries from Korean brands when trying to sell cars in Korea.”

The focus on the Chinese market may be influenced by the automaker's stakeholders.

The Chinese BAIC Group is currently the largest individual shareholder of Mercedes, holding 9.98 percent of voting rights, while Tenaciou3 Prospect Investment Limited, owned by Geely Automobile Holdings Chairman Li Shufu, owns 9.69 percent.

BY SARAH CHEA [chea.sarah@joongang.co.kr]