China’s CATL, the world’s top manufacturer of batteries for electric vehicles and a key part of Beijing’s drive to dominate the EV supply chain, has achieved a market valuation of $12.3bn in a trading debut as it seeks to expand production.
Shares in the company rose 44 per cent — the maximum allowed for a stock debut in China — to Rmb36.20 on Shenzhen’s stock exchange on Monday. CATL sold a 10 per cent stake at Rmb25.14 a share in an initial public offering last week.
Investors’ strong response to the group’s IPO underlines traders’ receptivity to the electric car story as China pushes consumers and vehicles groups toward this standard. Beijing has set aggressive EV quotas on carmakers as part of its plan to reduce use of the combustion engine.
The deal priced at 17.6 times forward earnings, at a slight premium to peer Panasonic, which trades at 15 forward earnings, but sharply cheaper than BYD’s P/E of 37.4.
Based in the eastern Chinese city of Ningde, CATL’s customers include Volkswagen, BMW and Nissan as well as a number of Chinese automobile companies such as Yutong, the world’s largest electric bus manufacturer.
It became the world’s largest manufacturer of EV batteries last year, with shipments of 12 gigawatt hours (GWh) in 2017, according to consultancy Shenzhen Gaogong Industry Research. One gigawatt is enough to power 100m lights, according to the US Department of Energy.
“CATL is currently the only Chinese company which can compete with overseas companies such as LG and Samsung SDI in the electric vehicle battery market,” analysts at Chinese brokerage Ping An said in a report.
CATL said it planned to use most of the Rmb5.46bn ($853m) raised through its IPO to build a 24GWh factory with the aim of attaining production capacity of 50GWh a year by 2020.
The company said it was seeking a $20bn valuation late last year, but scaled back the plan after Beijing cut subsidies for electrical vehicle purchases.
The company has lowered battery prices to gain market share following the subsidy reduction, reducing profitability, founder Zeng Yuqun said last month. Rising costs of battery materials such as lithium lowered CATL’s margins by 10 percentage points last year to 35 per cent.
CATL reported net profits of Rmb4bn in 2017, up 31 per cent year on year. Battery technology is critical for the success of EVs, since they are the costliest and heaviest component of the car. A battery pack with a range of 500km costs about $20,000, compared with the $5,000 cost of a gasoline engine, according to analysts at Bernstein.
With the help of subsidies for consumers, Chinese electric car sales grew 72 per cent to 580,000 last year, making it by far the world’s largest EV market. China also accounts for about 99 per cent of the world’s stock of electric buses and two-wheeled electric vehicles.
Source: FT.com
