Tesla supplier CATL smashes earnings estimates as EV sales soar

(Bloomberg) – Chinese company Contemporary Amperex Technology Co. Ltd. announced annual profits above estimates on stronger demand for cleaner cars, underscoring its dominance as the world’s largest maker of batteries for electric vehicles.

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The Tesla Inc. supplier on Thursday reported net profit for the 12 months ended Dec. 31 of 30.72 billion yuan ($4.4 billion), a 92.9% increase year on year. former. That beat analysts’ median estimate of 28.8 billion yuan, according to data compiled by Bloomberg, and was in line with CATL’s preliminary January forecast for profit of between 29.1 billion yuan and 31.5 billion. yuan.

Revenue came in at 328.6 billion yuan, up 152% and in line with analysts’ forecasts. CATL’s core electric battery business, which in 2021 accounted for the majority of the company’s sales, generated margins of 17.2%, in line with market estimates. CATL shares jumped as much as 3.3% on Friday despite a broader electric vehicle rout triggered by a series of steep price declines that raised concerns about overcapacity.

CATL held 37% of the global EV battery market in 2022, reflecting the popularity of its cheaper-to-produce lithium-iron-phosphate (LFP) batteries. In second place, with 13.6% each, is South Korea’s LG Energy Solution Ltd. and China’s BYD Co., the Warren Buffett-backed company that also makes cars, according to data from SNE Research.

The size and dominance of CATL – which recently struck a deal to build a factory with Ford Motor Co. in the United States – caught the attention of Chinese President Xi Jinping, who, in rare remarks during of annual parliamentary meetings in Beijing earlier this week, said he viewed his leadership position with “joy and concern”.

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CATL also recorded a strong performance in its fast-growing energy storage segment, which generated revenue of 45 billion yuan, beating expectations. It’s a line of business that billionaire chairman Zeng Yuqun has taken a growing interest in, recently calling for tougher standards – a move that could benefit his company at the expense of smaller rivals.

Read more: CATL chairman urges Beijing to review energy storage standards

Based in Ningde, Fujian Province, CATL faces growing competition in the battery business. That momentum is partly spurred by CATL itself, which reportedly offered rebates to some Chinese automakers amid falling commodity prices like lithium, where it has direct investments.

In comments to investors on Friday, the battery maker clarified that recent rebates to some automakers were aimed at sharing lithium mineral resources with strategic long-term customers.

What Bloomberg Intelligence says:

CATL’s battery profitability may recover further in 2023 thanks to lower material costs and greater economies of scale. We expect CATL’s battery sales volume to grow another 40-50% after more than doubling last year, fueled by strong demand for electric vehicles as China extends a zero purchase tax after the end of Covid-Zero.

– Steve Man and Joanna Chen, BI Automotive Analysts

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Citibank analysts led by Jack Shang, who maintains a buy rating on the stock, said CATL believed its competitive advantage over its peers was widening in comments during an investor call after the profits. “We prefer the CATL battery leader with strong pricing power and access to overseas customers,” Shang said in a note on Friday.

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Johnson Wan of Jefferies Financial Group Inc., which downgraded CATL, was unimpressed with margins in its battery business and expected pressure to come, he said in a note Friday.

As an industry giant, CATL is particularly exposed to geopolitical risks, especially with the United States seeking to limit reliance on Chinese companies in the electric vehicle supply chain and encouraging automakers automobiles to be manufactured in North America.

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CATL’s recent agreement with Ford to license its LFP battery technology for use in a new $3.5 billion EV battery factory that Ford will operate and control in southwest Michigan has caught the eye of Beijing, People familiar with the matter told Bloomberg News, with officials worried that competitive aspects of CATL’s technology could be donated or accessed by the US automaker.

Meanwhile, CATL is expanding globally, with 13 production bases around the world, including Germany and Hungary, according to its website, and five R&D centers. He is considering raising funds from the Swiss GDR of up to $6 billion to fuel his numerous capital investments.

(Updates with comments to investors in 8th paragraph.)

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