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cruiser51

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1934

25/04/22

14:37

Post #: 61002892
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Originally posted by terryl ↑

CATL's dominance in EV batteries challenged by emerging rivals

Margins narrow on higher lithium costs as geopolitics loom large

China's growing electric vehicle market has buoyed CATL over the years. © Reuters

TAKASHI KAWAKAMI AND KOTARO HOSOKAWA, Nikkei staff writersApril 23, 2022 06:01 JST

GUANGZHOU/SEOUL -- Contemporary Amperex Technology's grip on the electric vehicle battery market is starting to slip despite record profits last year, as rivals gain ground and U.S.-China tensions cast a shadow over plans to expand overseas.
Contemporary Amperex Technology, or CATL, ranked first in the world in automotive batteries for the fifth straight year in 2021, according to its annual report published Thursday. Net profit jumped 2.9 times last year to 15.9 billion yuan ($2.47 billion) on a 2.6-time increase in sales to 130.3 billion yuan, both breaking records.
The company held a 38.6% global share in automotive batteries in 2021, up 12.6 points from the year before, according to Tokyo-based Techno Systems Research. LG Energy Solution remains a distant second, with an 18.2% share.
CATL's strength stems from China's growing market for electric cars, hybrids and other so-called new energy vehicles. Sales of these vehicles increased 2.6 times in 2021, and CATL is expanding output capacity to tap the surging demand.
But concerns loom despite the company's success.
CATL's profit margin for its mainstay automotive battery business fell to 22% in 2021 from 34% in 2018. Its stock price has declined around 30% since the beginning of the year on the Shenzhen Stock Exchange, and its market capitalization fell under the 1 trillion yuan mark for the first time in 10 months Wednesday.
Johnson Wan, a Hong Kong-based analyst at Jefferies, wrote in a Friday note to clients that CATL's margin "fell victim to the higher upstream prices."
Wan predicted that the margin "could continue to worsen as high lithium prices are slowly being passed through while price hikes still need to catch up." While a volume increase in the latter half of the year could possibly offset the decline in margin, he maintained a "hold" rating for the company's stock for the time being.
On the other hand, Jack Shang at Citi said the recent correction in stock prices stemming from rising raw material costs is "overdone" given that the company will likely benefit from a global shift toward electrified vehicles in the long run. He reiterated his "buy" rating for CATL on Friday, and kept it as the top pick among peers.
A CATL factory under construction in Germany. The company is trailing South Korean rivals in building new production capacity overseas. (Photo courtesy of CATL)
Growing competition at home and overseas is another major headache. CATL accounted for over half of automotive batteries installed in China in 2021. But it fell short of the 50% mark in January-March of this year, as rivals BYD and China Aviation Lithium Battery, or CALB, gained ground.
Meanwhile in South Korea, battery producers are working with automakers to bolster international capacity and to score long-term contracts to tap the rapid global shift toward EVs.
LG Energy is jointly building three factories in the U.S. with General Motors, and has partnered with Stellantis in Canada and Hyundai Motor in Indonesia. SK Innovation is building a battery plant in the U.S. and in Turkey through a joint venture with Ford Motor.
Political tensions between China and the U.S. loom large as well. Speculation that the U.S. will impose sanctions against CATL spread in February, leading the company to issue a statement dismissing the "malicious" rumors.
The Chinese government has supported EV-related companies as part of its goal to turn the country into an automotive powerhouse. CATL's growth could trigger greater economic security concerns in the U.S. and Europe moving forward.
The opening of a new CATL factory in Germany has been delayed by over a year to the end of 2022. European authorities may have hesitated to give the green light over concerns related to China, according to one industry insider.
CATL only makes about 20% of its revenue overseas, and will need to expand globally to ensure sustained growth even after the Chinese market is saturated. The company will build more production facilities abroad and create a system for training employees outside China, an executive said.

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The last paragraph:
'CATL only makes about 20% of its revenue overseas, and will need to expand globally to ensure sustained growth even after the Chinese market is saturated. The company will build more production facilities abroad and create a system for training employees outside China, an executive said.' and the events of the last week in Lubumbashi are part of the puzzle.

AVZ Price at posting: $1.09 Sentiment: Buy Disclosure: Held
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