2
Faced with the emergence of competitors, the increase in the price of lithium and geopolitical complications, the company is losing margin and market share.
Contemporary Amperex Technology (or CATL) is a Chinese company specializing in the production of batteries for electric cars which ranked first in the world for the fifth consecutive year with 38.6% of the market share, far ahead of its direct competitor, LG Energy solution, with an 18.2% share.
The company’s net profit jumped 2.9 times in 2021 compared to 2020 amounting to 2.47 billion dollars, in particular thanks to the strong growth of the Chinese market on electric and hybrid vehicles where sales have increased. multiplied by 2.6 in 2021. Such a success that CATL must increase its production capacity to meet the growing demand.
Only concerns remain
Despite the company’s apparent success, its profit margin has fallen from 34% in 2018 to 22% in 2021. CATL’s share price on the Shenzhen Stock Exchange has lost around 30% since the start of the year and the market capitalization fell for the first time in 10 months below the 1 trillion yuan mark.
According to analyst Johnson Wan, CATL has been a victim of rising lithium prices which the company is slowly passing on. He expects the margin could continue to deteriorate although an increase in volumes in the second half could offset the margin. He maintained the “hold” rating for the company’s stock.
For his part, Jack Shang, another analyst believes that the correction of the action is exaggerated given that despite the fall in the margin, the global evolution towards electric cars will benefit the company. He maintained his stock rating for the company.
Fierce competition
Another point of concern for the company, despite its progress, is the growth of competition in the national market and abroad. While in 2021 more than one in two batteries installed in an electric car in China came from CATL, the company failed to reach 50% in the first quarter of 2022.
At the same time, battery producers in South Korea continue to work directly with manufacturers to strengthen international production and obtain long-term contracts for the transition to all-electric.
Unlike LG, which is currently building factories with General Motors in the United States or with Hyundai Motor in Indonesia, political tensions between China and the United States are holding back CATL’s growth abroad.
The opening of the factory in Germany has thus been postponed for more than a year, certainly because of the concern of the European authorities vis-à-vis China. Admittedly, CATL only generates about 20% of its turnover abroad, but in order to ensure continued growth, even after the saturation of the Chinese market, the company will have no other choice. than to look internationally.