CATL Dominates the Battery Industry
COVID-19 and China
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Contemporary Amperex Technology Co., Ltd. (CATL) 宁德时代 (300750:SZ), is currently China's – and the world’s – largest automotive lithium-ion battery maker.

Although CATL doesn’t have a 100-year track record of reliability like Panasonic, and isn’t based in a rich, developed country like LG Chem, and it isn’t backed by Warren Buffett like BYD, in less than ten years, CATL has nevertheless beaten its competitors in the race to the top.

CATL company management and success story

Besides the company’s management, several other factors have contributed to CATL’s rise as a global EV battery manufacturing star.

The company was founded in 2011 in Ningde, Fujian province, China. Since then, it has moved to lead in the manufacturing of lithium-ion batteries for electric vehicles and energy storage systems, as well as battery management systems. The company’s headquarters is in Ningde, but it also operates manufacturing bases in Qinghai and Liyang. Moreover, CATL has three main research and development (R&D) centers, which are based in Ningde, Shanghai and Berlin.

Zeng Yuqun, a 50-year-old engineer, is the company’s founder and CEO. For most of his career, he worked on lithium-ion batteries for consumer electronics, including the iPhone, at Amperex Technology Co. (ATL) – a subsidiary that he helped found from within Japan’s TDK Corp., formerly known as Tokyo Denki Kagaku Kōgyō K.K. (Tokyo Electric Chemical Industry Co., Ltd.).

Zeng decided to start CATL in 2011, while he was still the president of ATL. This decision marked a gamble on the direction of Chinese government policy in the EV industry.

According to Bloomberg Intelligence, in 2011, there were only 1,014 alternative-energy vehicles sold in China. He was essentially betting that the lithium-ion battery business for cars would flourish, creating a replica of ATL focused on a vehicle market that barely existed.

His prediction proved right. Since then Chinese government has provided generous incentives for consumers buying new energy vehicles (NEV). For example, in 2016 and 2017, government subsidies for the NEV industry may have totaled almost USD 12 billion (CNY 83 billion), according to an estimate from Cui Dongshu, secretary-general of the China Passenger Car Association, reports Xinghua news.

In addition, government policies also encouraged foreign carmakers to use domestically produced car batteries. Even though there is not a written rule banning non-Chinese suppliers from providing batteries for foreign brands produced in China, carmakers are seeking domestic battery suppliers because of concerns that models built with foreign brands will be ineligible.

“The premise is that locally produced cars in China are obligated to use local batteries,” Jochem Heizmann, chief executive of Volkswagen Group China, said to Bloomberg, last year.

Furthermore, the NEV industry in general, and CATL specifically, also benefitted from an aggressive government policy to acquire the minerals needed for battery makers and provide them to NEV manufacturers.

According to the Institute for Energy Economics and Financial Analysis' report, China is securing supplies of key materials such as lithium, nickel and rare earths, and its mining companies are estimated to be responsible for 62 percent of the global supply of cobalt.

Another reason for CATL’s dominance in the market is due to the company’s technological background, procedures and R&D investments. The company’s CEO is an experienced engineer who previously worked in Japanese corporations. In addition, CATL started cooperating with western partners as soon as it was founded.


Research-and-development staff comprise a fifth of CATL’s 18,000-plus workforce. The company spent USD 96 million (670 million yuan) on research during the first half of last year, or about 11 percent of revenue, according to its prospectus. BYD, China's largest maker of NEVs, spent USD 396 million (2.76 billion yuan) – 6 percent of revenue, according to the company.

As a result, CATL made itself into an emerging battery giant by combining the Chinese government’s NEV industry policy with the technological background and experience of the company.

The company’s current market development

Currently, CATL has a leading share of the Chinese electric vehicle market. The company holds strategic agreements with automakers, including state-owned SAIC Motor Corp., electric bus manufacturers Yutong and Geely, which own the Volvo and Lotus brands, among others.

The company also has supply agreements with foreign car manufacturers such as BMW, Honda, Hyundai, Nissan, Toyota and Volkswagen. The rapid development of global new-energy vehicle industries, combined with market development and increased production and sales capacity, helped to drive CATL’s growth and strategic agreements.

In 2018, CATL became the most valuable company on China’s Nasdaq-like ChiNext stock exchange upon listing in June of the same year. The IPO, backed by Goldman Sachs, saw CATL selling off 217 million shares – 10 percent of the company, at an initial USD 3.92 (CNY 25.14) each.

In 2019, the company posted a net profit of USD 489 million (3.5 billion yuan) during the first nine months of the year, a rise of 46%, according to the data released by the company. In addition, during that period, the US-based business magazine Fortune placed CATL at number 4 on its Future 50 list, which ranks the companies around the world with the highest long-term growth potential.

Last month, Tesla Inc., which now produces electric vehicles from its China Gigafactory 3, signed a battery supply agreement with CATL. Reuters reported that CATL has signed a 2-year deal with the US-based electric vehicle maker. Tesla will decide the volume of battery purchases between July 2020 and June 2022, as per its own requirements.

According to China EV market specialist Victoria Li from Smartkarma, Tesla’s orders might increase CATL’s net profits by no more than 25 percent in 20201E. This is due to the negative outlook for China’s new energy vehicle demand in 2020-2021E. She estimates that China’s NEV sales will decrease by 10 percent  year-on-year in 2020, due to the full-year effect of low government subsidy and a negative impact on production facilities from the coronavirus. In other words, at the beginning CATL’s net profits will increase due to the demand side effect from Tesla orders. However, as the coronavirus shows its impact on the economy – reduced production facilities and decreasing demand from people – this increase will not last long. This leaves an expected growth of approximately 25 percent  in CATL’s revenues.

Furthermore, the stock trades valuation de-rating might be triggered by weak NEV sales data –  CATL’s weaker-than-expected market share gain, and less-than-expected Tesla orders.

Editor: Luke Sheehan

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