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The global EV battery leader Contemporary Amperex Technology (CATL) is expanding its modular battery swapping business called EVOGO overseas in Europe and the US markets. The current announcement comes after the battery leader decided to start the swap business in January 2022. The EVOGO service, launched in 10 cities across China, allows users to swap their EV vehicle batteries in under a minute. The 26.5kWh LFP Choco-SEB battery packs made by CATL are compatible with the swap stations for electric vehicles (EVs).
CATL, founded in 2011, has a market share of roughly 35% and provides solutions and services for new energy requirements across the globe. The product range includes power battery systems, energy storage systems and lithium battery materials. They supply to customers like Tesla, BMW, Mercedes-Benz, Nio and Xpeng. Ningde-based CATL is beginning the construction of a $7.35 bn facility in the Hungarian city of Debrecen by end of 2022. The plant will have a capacity of 100 gigawatt-hour (GWh) and is expected to be completed by 2027. The company is in a partnership with Mercedes-Benz Group AG and will also supply batteries to Volkswagen AG, BMW and Stellantis NV.
“We are starting to evaluate the potential cooperation with many partners. We need to understand the detail in practice. There are many things we consider. Product technology is one thing, another is the business case, the regulation, the local rules, and also other factors we need to think of as well,” noted Li Xiaoning, executive president of overseas commercial application at CATL, in an interview.
Business Model of CATL
CATL more than doubled its profit in Q2 ended June 30 2022, booking a profit of $ 974.61 m (6.68 bn yuan), up 164% from last year. The surge in profits came after the Chinese government provided incentives to absorb the impacts of lockdown due to its stringent zero-Covid policy. However, the rising metal prices, especially lithium, reduced the profit margins on EV batteries, dropping to 15.04% in Q2 from 22% at end of 2021. CATL produces both types of EV batteries comprising, NCM (lithium, nickel, cobalt and manganese) and LFP (lithium, iron and phosphate).
The battery supplier maintained its lead in the industry with the production of 70.9 GWh batteries or a market share of 34.8 % as per a report by Seoul-based SNE Research. LG Energy Solution comes in second with a market share of 14.4 % and ahead of BYD, which takes the third spot with a market share of 11.8 %. The three companies together hold 61% market share for all EV batteries. “From Jan to May in 2022, the amount of energy held by batteries for electric vehicles registered worldwide was 157.4GWh, a 77.3% increase compared to the same period of the last year. Since the 3rd quarter in 2020, the market has continued this upward trend,” as per the SNE report.
The company’s gross margins fell below 20% on a half-yearly basis for the first time, coming in at 18.7%, for the first sixth months of 2022. Profit margins for the power battery division also decreased from 23% to 15% during the period.
CATL stock movements
CATL startled investors in early 2022 by reporting a 24% decline in Q1 earnings and a 41% decline in underlying profit for the three months ending in March 2022. The company revealed a 1.79 bn yuan ($251 m) derivatives obligation in Q1 but made no mention of its source. The Shenzhen-listed CATL shares have now gained about 50% since the dip in May 2022 as the company announced expansion plans in the mainland as well as outside China.
The steep input costs, with expenses soaring 198% over during the first six months of 2022, have pushed CATL to strengthen its position with suppliers to avoid any roadblocks in its expansion and keep the spiralling costs under some control. Global lithium prices have surged 280% in 2021 and 127% in Q1, 2022, according to Benchmark Mineral Intelligence.
CATL, in June 2022, priced its stock offering at 410 yuan per share. The company started a private placement of A-shares with a greenshoe option that raised $6.7 bn or roughly 45 bn yuan. The proceeds are going to be used for expansion, upgrades and R&D.
Listed on the Shenzhen stock exchange, CATL has a market capitalization of 1.02 tn yuan ($143 bn). The stock has shed over 15% of its value over the past year. CATL has a PE ratio of 55.66 and a forward PE ratio of 45.73. The price-to-book ratio of the company stood at 7.13.
Expansion and competition
CATL has invested heavily in battery projects in China’s Shandong and Fujian provinces with a total investment of $3.8 bn (27 bn yuan). It is now also working on investing $1.9 bn (14 bn yuan) for a battery plant in the Henan province. More recently, the company announced plans to build a second European plant in Hungary by investing $7.2 bn in partnership with Mercedes-Benz. It is now considering a third manufacturing facility, an announcement of which is expected soon.
The battery maker is also scoping at least two locations in Mexico to potentially start supplying Tesla Inc. and Ford Motor Co. The company is considering two cities near the Texas Border, with a potential investment of $5 bn and a capacity of 80 gigawatt-hour factory. With the increasing demands for EVs in the market, CATL has wanted to expand in the US as well for a long time, however, the rising tensions between Washington and Beijing have complicated the plans. The company is under tremendous pressure from its competitors as LG Energy Solution Ltd, Samsung SDI Co. and Panasonic Holdings Corp, which have confirmed deals with automakers in the US.
The global battery leader is also pushing the boundaries in the upgradation of technology as well. CATL launched Qilin, the third generation of its CTP (cell-to-pack) technology, in June 2022. CTP provides record-breaking volume utilization efficiency of 72% and an energy density of up to 255 Wh/kg. With a range of over 1000 kilometres (620 miles) on a single charge, the battery is 13% more powerful than the one planned by Tesla.
