Tesla supplier CATL smashes earnings estimate as EV sales soar

(Bloomberg) — China’s Contemporary Amperex Technology Co. Ltd. reported annual profits that beat estimates of stronger demand for cleaner cars, underscoring its dominance as the world’s largest maker of electric vehicle batteries.

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

Revenue totaled 328.6 billion yuan, up 152% and in line with analysts’ forecasts. CATL’s core Power Battery business, which accounted for the majority of the company’s sales in 2021, generated margins of 17.2%, in line with market estimates. Shares of CATL are up as much as 3.3% on Friday despite a broader EV routine prompted by a round of steep price cuts that have raised concerns about overcapacity.

CATL commanded a 37% share of the global EV battery market in 2022, demonstrating the popularity of its cheaper-to-manufacture lithium iron phosphate (LFP) batteries. The South Korean LG Energy Solution Ltd. shared second place with 13.6% each. 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 sealed a deal to build a plant with Ford Motor Co. in the US – has caught the attention of Chinese President Xi Jinping, who in rare remarks at the annual parliamentary meetings in Beijing Earlier this week he said he viewed his leadership position with “joy and concern”.

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CATL also reported a strong performance in its fast-growing energy storage segment, which posted sales of 45 billion yuan, beating expectations. It’s an area of ​​the business that billionaire chairman Zeng Yuqun is taking a greater interest in, recently calling for stricter standards — a move that could benefit his firm at the expense of smaller rivals.

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Based in Ningde, Fujian Province, CATL faces increasing competition in the battery space. This momentum is fueled in part by CATL itself, which has reportedly offered rebates to some Chinese automakers amid falling prices for commodities 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 long-term strategic customers.

What Bloomberg Intelligence says:

CATL’s battery profitability may continue to recover in 2023 due to falling material costs and greater economies of scale. We expect CATL’s battery sales volume to grow another 40-50% after more than doubling over the past year, fueled by robust EV demand as China post-Covid-Zero zero-rate Purchase tax extended.

– Steve Man and Joanna Chen, BI Auto Analysts

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Citibank analysts led by Jack Shang, who are maintaining a Buy rating on the stock, said CATL believed its competitive advantage over peers was increasing in comments during an investor call following the earnings. “We favor battery leader CATL with strong pricing power and access to overseas customers,” Shang said in a statement on Friday.

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Johnson Wan of Jefferies Financial Group Inc., which downgraded CATL, remained unfazed by its battery business margins and foresaw pressure, he said in a statement on Friday.

As an industry giant, CATL is particularly exposed to geopolitical risks, particularly as the US seeks to limit reliance on Chinese companies in the electric vehicle supply chain and encourages automakers to produce 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 electric vehicle battery plant that Ford will operate and control in southwest Michigan has come under scrutiny from Beijing, they said people familiar with the matter told Bloomberg News, with officials concerned that competitive aspects of the CATL technology could be leaked to or accessed by the American automaker.

CATL is now on a global expansion course with 13 production sites around the world, including Germany and Hungary according to its website, and five R&D centers. It is considering a Swiss GDR fundraiser of up to $6 billion to fund its many capital investments.

(Updates with comments for investors in paragraph 8.)

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