This Tesla-Supplying Battery Maker Has Lost Some of Its Power

The world’s largest EV battery maker is struggling to regain investor confidence after losing nearly $100 billion in market value in less than six months.

The market has cooled down thanks to China’s Contemporary Amperex Technology Co.

300750 2.77%

or CATL, because the high cost of raw materials has reduced the company’s profit margin. In the longer term, some investors and analysts question whether CATL’s growth will suffer as competitors expand rapidly and customers try to diversify their supply chains. are not.

As of Thursday, CATL stock has lost about 26% this year, making the company’s market value about $150.8 billion, according to FactSet, down from December’s record high of 249.5 billion USD. It is the main supplier of lithium-ion batteries to electric vehicle manufacturers like Tesla Inc.

TSLA -2.36%

and NIO Inc.

NIO 1.04%

Weaker investor sentiment was also reflected in CATL’s lower valuation. As of Thursday, the company’s stock traded at 37 times its earnings forecast for the next 12 months, according to FactSet. This is down sharply from a peak price-to-earnings ratio of more than 120 times in early 2021.

Mark Po, an analyst at China Galaxy International Securities in Hong Kong, said that if investors take a cautious view on the sector, there is “no near-term catalyst for stock price appreciation.” Such caution could be attributed to concerns about overcapacity across the industry and about CATL’s margins, he said.

Demand for lithium is expected to outpace global supply as consumers shift to battery-powered vehicles. With China now leading the way in processing key raw materials, the US government is looking to boost domestic production. Artwork: Carlos Waters / WSJ

While CATL stock has recovered some ground recently after bottoming in May, they have only recovered to levels reached in mid-April. CATL stock is Shenzhen-listed and accessible. with international investors through the Stock Connect trading link with Hong Kong. Holders include the KraneShares Electric Vehicle & Moving Futures exchange-traded fund.

Compared to its global competitors, CATL has been slow to pass on the rising costs of key raw materials such as lithium, nickel and cobalt to customers. Unexpectedly weak first-quarter results showed net income falling 24% from a year earlier to 1.49 billion yuan, or about $223 million.

Meanwhile, CATL’s gross margin, a widely watched measure of profitability, fell to 14.5% from 27.3%, according to Wind, a data provider. That’s a stumbling block for a business that has long had lower profit margins than its peers, including smaller domestic players like Gotion High-Tech. Co.

as well as international competitors such as LG Energy Solution Ltd.

in Korea and Panasonic Corporation of Japan Corp.

Market participants say future gross margins are unlikely to be as high as they used to be, even if CATL is currently bullish on batteries.

“In the long run, they can get back to margins up to around 20 per cent but they can be up to 20 per cent,” said Neil Beveridge, senior analyst at Sanford C. Bernstein, who is in charge of the global energy storage industry. certainly not this quarter.

CATL stock also took a hit amid a growing sell-off in Chinese shares and as China imposed strict pandemic restrictions in cities such as CATL’s hometown of Ningde and other central cities. auto manufacturing centers in Shanghai and Changchun. Those restrictions – some of which are now being eased – have disrupted supply chains and factory operations for CATL and automakers.

The competitive environment is also another headache: Competitors increase production capacity, while buyers are eager to diversify their battery sources. “Automakers don’t want to depend on just one supplier,” said Yale Zhang, managing director at Automotive Foresight, a Shanghai-based consulting firm for the auto industry.

CATL’s global ambitions may also pose challenges, amid US-China tensions. LG Energy Solution, announced this year, has emphasized that it is not a Chinese company, and US Secretary of State Antony Blinken recently highlighted EV batteries as an important part “of the economy.” 21st century that we cannot allow to become completely dependent on China. ”

In February, the US imposed export controls on some Chinese companies by adding them to the so-called “unverified list”. CATL stock sold off, though it was not named. CATL later said it does not use American technology to manufacture the batteries, and while its battery management system uses American semiconductors, it is working to supply these components locally. .

Advocates point to CATL’s size, technological capabilities and expansion plans, as well as the long-term growth potential of the electric vehicle market. They say CATL’s size – it holds nearly 35% of the global EV battery market, according to South Korea’s SNE Research – helps it control costs better than rivals.

“Longer-term, we think CATL’s leadership position remains intact in China and has strong upside potential in overseas markets,” said Nomura analyst Bing Duan.

A prototype model of a charged electric vehicle near CATL’s headquarters in Ningde, China, in 2020.


Image:

Bloomberg

Analysts polled by Refinitiv, another data provider, have on average a price target of close to 572 yuan per share, or the equivalent of about $85.55. Compared to Thursday’s closing price of 436.80 yuan.

Robin Zeng, billionaire founder and president of CATL, is optimistic about the prospects for the budding new energy industry. Also, he told investors recently, smaller battery makers lack disruptive technology and so they don’t stand a chance to change the global competitive landscape.

Write letter for Anniek Bao at anniek.bao@wsj.com

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https://www.wsj.com/articles/this-tesla-supplying-battery-maker-has-lost-some-of-its-power-11654164716?mod=pls_whats_news_us_business_f This Tesla-Supplying Battery Maker Has Lost Some of Its Power

Edmund DeMarche

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