Tesla Supplier CATL Smashes Profit Estimate as EV Sales Soar

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

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

Revenue came in at 328.6 billion yuan, up 152% and in line with analysts’ forecasts. CATL’s core power battery business, which in 2021 accounted for the majority of the company’s sales, generated margins of 17.2%, matching market estimates. Shares in CATL were 0.2% lower on Friday amid a broader EV rout sparked by a round of steep price cuts, which have stirred worries about overcapacity.

CATL commanded a 37% share of the global market for EV batteries in 2022, testimony to the popularity of its cheaper-to-produce lithium-iron-phosphate (LFP) batteries. In joint second place, with 13.6% each, are South Korea’s LG Energy Solution Ltd. and China’s BYD Co., the Warren Buffett-backed company that also makes cars, according to SNE Research data.

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 offered at annual parliamentary meetings in Beijing earlier this week said he viewed its leading position with “joy and worry.”

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CATL also reported a strong performance in its fast-growing energy storage segment, which generated revenue of 45 billion yuan, ahead of expectations. That’s an area of the business that billionaire Chairman Zeng Yuqun is taking a keener 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 is facing intensifying competition in the battery space. Those dynamics are in part being spurred by CATL itself, which reportedly has been offering discounts to some Chinese carmakers against the backdrop of tumbling prices for raw materials like lithium, where it has direct investments.

Citibank analysts led by Jack Shang said in a Feb. 20 note that they expect more competition “is likely the developing trend” this year. But they added that “our top pick remains CATL, which we believe is better positioned among the battery producers with lower costs.”

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Jefferies Financial Group Inc.’s Johnson Wan cautioned any price war could lead to earnings deterioration this year and next. He recommending focusing on leading battery makers like CATL as the supply chain consolidates.

Being the industry behemoth means CATL is particularly exposed to geopolitical risk, especially with the US seeking to limit reliance on Chinese companies in the EV supply chain and encouraging automakers to manufacture 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 EV battery plant that Ford will run and control in southwest Michigan has drawn scrutiny from Beijing, people familiar with the matter have told Bloomberg News, with officials concerned that competitive aspects of CATL’s technology could be given to or accessed by the American automaker.

Meanwhile, CATL is on a global expansion push, with 13 production bases around the world including in Germany and Hungary, according to its website, and five R&D centers. It’s mulling a Swiss GDR fundraise of up to $6 billion to fuel its many capital investments.

(Adds Friday share move.)