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Analysis EO
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Analysis EO
Aug 30, 2020 11:01 pm ·

The NCM811 Battery has Become CATL’s Largest Crisis

► As CATL has invested substantially in its R&D, especially for the NCM811, the negative evaluation might decrease its sales and further cause losses. ► Although the firm is trying its best to conduct innovation these years, it did not solve the key cause – battery materials. Not only do materials affect safety, but also the cost. According to SNE Research’s (动力电池市场调研) data installed base for global power batteries in the first half of 2020, LG Chem (LG化学) has overpassed CATL to become the top name globally. Specifically, its installed base has grown from 5.7GWh to 10.5 GWh, a growth rate of 82.8%, while CATL’s installed base has decreased by 28.1%, to 10 GWh. Moreover, the sales volume of electric cars in Europe overtook China’s in the first quarter of 2020. Nevertheless, these were not the worst things for CATL. Many electric cars have caught fire in the recent heatwave, and the main cause in many cases was the battery – the NCM811. Hence, NCM811’s technology has been negatively assessed by many voices among the public. Why has this negative evaluation of NCM811 resulted in CATL’s largest crisis so far? Due to CATL’s massive investments in the NCM811, such doubts could cause a considerable loss. Specifically, NCM811 was designed to rely greatly on Nickel (Ni), with the idea that the increased amount of Ni would lead to greater safety. In fact, using over 80% of Ni does enhance the energy density, but the lower content of Cobalt (Co) and Manganese (Mn) may also negatively affect the battery’s stability. To handle the issues in its battery, CATL has made many efforts in its R&D. Even if the COVID-19 has exerted an unfavorable effect on its revenues, it has still maintained its R&D expenditure ratio to operating income, at around 6.5% in the first half of 2020. However, its net profit decreased to CNY 1.38 billion, a 24.3% slip compared with last year. To improve its battery safety and reliability, CATL has been actively enhancing its products during these six years. To be more precise, it has recently developed a new technology called Cell to Chassis (CTC), which combines battery cells and chassis to reunite electric machines, electric control and the high-voltage system. This technology might help to extend the electric car’s mileage to 800 kilometers. However, although these innovations have helped improve CATL’s batteries' energy density, they did not solve the battery's fundamental security problem. In other words, materials are still the most critical factor in battery's security issues. Additionally, the material affects the cost of batteries. For instance, Co is necessary for the power battery, but it has a pretty low output, which means higher prices. Hence, to lower the cost of batteries, producers are set on finding a substitute. While facing its 'NCM811 crisis,' CATL is expected to conduct three methods. Firstly, it will do more research on material innovation. Specifically, there are a few materials available to make batteries with, and producers should be able to find a cheaper and safer material. Secondly, the firm could develop another critical technology for the electric car, which can then replace the NCM811. Seeing the sequence of releases, from CATL's 111, 523, 622 to 811 recently, it is not hard to imagine that the battery maker will release a new one in the upcoming future. Last but not least, CATL could transfer its investment route to other industries. Since setting up, CATL has deployed a comparatively comprehensive industrial chain, which increases a synergistic effect. Except for its crucial technology such as NCM811, it could also keep an eye on its operating businesses. The charging businesses could be seen as an example, as there are more and more policies to support the construction of charging piles. In a word, the frequent accident happened in electric cars has attracted a crowd of people’s attention, and the safeness of power batteries could not be ignored. As CATL has put great efforts into its NCM811 technology, this question could lead to a financial loss for it. As a result, the firm must handle the primary cause – material innovation. Except for finding a better material, it could also try to replace the NCM811 with another model or invest in other businesses.

Analysis EO
Analysis · 2
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Analysis EO
Aug 2, 2020 05:27 am ·

CATL’s Capital Operation Helping it to Expand Downstream Market

► Before 2018, CATL was cooperating with auto firms to conduct investments. However, after 2018, it began to concentrate more on energy storage firms. ► With the strengths in R&D and industrial chains, the battery maker has shown an increasing trend in its operating incomes in the last five years. In its evolution from start-up to listed firm, CATL has attracted more and more investors. It is worth mentioning that the firm has raised CNY 19.62 billion from 38 investors, including UBS, JPMorgan and Hillhouse Capital in this July. With sufficient capital to start new things, CATL has set up an investment platform, a firm named CATL New Energy Industrial Investment Firm (宁德时代新能源产业投资有限公司). It is not surprising that CATL is running an investment platform, as it is good at operating capital means, judging from its development history. In early 2009, the power battery firm worked with Foton Auto (福田汽车) and BJEV (北汽新能源) to establish a firm called Pride Power (普莱德) – a battery firm which helps CATL work in the industrial battery chain. Moreover, it has cooperated with Shanghai Automotive Industry Corporation (上汽集团) to set up two new energy firms in 2017 and established the Dongfeng Shidai (东风时代) with Dongfeng Electric Car (东风电动车) in 2018. These investments allowed CATL to arrange its downstream market at the initial step. Except for cooperating with auto firms, CATL has utilized these capital sums to expand downstream markets such as electric charging and energy storage firms. For instance, it invested in Shengde (盛德新能源) – a solar charging firm for the angel round – and Hello (哈啰换电), an electric car charging firm for strategic investment. However, most of its investments were in the energy storage industry, with eight related firms by the middle of 2020. Specifically, it has raised CNY 200 billion to support the R&D in the energy storage battery in 2020. The battery maker put so much money in the energy storage firms due to the lower costs in lithium batteries, and there would be more rooms for the energy storage market to grow. As Guoxin Securities (国信证券) said, the market size of the energy storage market should soon be CNY 650 billion, and it will also reach CNY 120 billion by 2030. Thanks to CATL’s investments in the energy storage sector, the ratio of this sector’s operating income to the total has increased from 0.57% to 1.33% in the last two years. Nevertheless, most of its operating income is still from the primary sector – the power battery system, which benefitted from the new energy cars’ favorable policies. Additionally, the penetration rate of global new energy cars was merely 2.5% in 2025, implying a considerable development room in the future. It also expects that the ratio of China’s sales volumes in new energy cars to global volumes would increase to 25%. Furthermore, the rate of Chinese power batteries’ shipments to worldwide shipments also rose from 50% to 60.68%. Regardless of good market conditions, CATL has its own competencies to help grow up rapidly. To begin with, it has a completed R&D system. For example, it has an engineering research center of energy storage technology, Fujian lithium-ion battery laboratory and a test verification center authorized by China National Accreditation Service for Conformity Assessment (中国合格评定国家认可委员会). Moreover, its R&D staff has increased from 119 to 142 in the last two years, which has occupied 38.87% of the total employees in 2019. Secondly, the firm is actively arranging its upstream and downstream industrial chains. With power batteries as the core business, CATL has upstream industries in raw materials minerals and battery materials, downstream industries with battery recycling and operating companies. This one-stop industrial chain would help it to lower the costs of raw materials and expand the growth space in its businesses. Compared with better-known competitors, CATL’s operating income started from a lower level but gradually increased in the last few years. CATL, EVE Energy (亿纬锂能) and Guoxuan High-tech (国轩高科) are all specialized in battery manufacture. However, Guoxuan High-tech has shown a dramatic decrease in its operating income, which was 11.29 times smaller than CATL in 2019. This might be due to its low R&D expenses, where CATL’s input amounts in R&D were averaging 5.92 times larger in the last three years. In a word, CATL is good at capital operation, which helps it to acquire firms and expand the downstream market. Also, it benefits from the national policies, the battery firm could take full advantage of its R&D and industrial chains, generating more operating income. With its concentration on the energy storage industry, this sector may account for more percentages of the overall revenues in the upcoming future.

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Mar 12, 2020 12:00 am · 36Kr

Blindly "bundling" Tesla may not be a good strategy

Analysis EO
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Analysis EO
Mar 11, 2020 02:58 pm ·

CATL Dominates the Battery Industry

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.

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The dark moment of China's power battery industry