EV Sales Soar As Tesla Supplier CATL Smashes Profit Estimates

The Modern Amperex Technologies Co. of China. Ltd. announced yearly results that exceeded expectations, helped by a robust demand for cleaner vehicles, highlighting its leadership as the largest producer of battery packs for electric vehicles worldwide.

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The Tesla Inc. supplier announced net profits of 30.72 billion yuan ($4.4 billion) for the year ended December 31, an increase of 92.9% over the prior year. According to information collated by Trade Algo, it exceeded expert projections of 28.8 billion yuan and was in line with CATL's January preliminary estimate of profit within 29.1 billion to 31.5 billion yuan.

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The final 328.6 billion yuan in revenue was up 152% and in line with analyst expectations. In line with market expectations, CATL's core rechargeable battery pack business, which in 2021 made up the majority of the company's revenues, generated margins of 17.2%.

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The fast-growing energy storage market for CATL, situated in Ningde, Fujian, performed well, generating revenue of 45 billion yuan, above forecasts. The business's billionaire chairman, Zeng Yuqun, has recently called for stronger regulations in that sector, which could help his company at the expense of smaller competitors.

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Due to the popularity of its less expensive to build lithium-iron-phosphate (LFP) batteries, CATL held a 37% percent of the worldwide market for EV batteries in 2022. According to SNE Research data, China's BYD Co. and South Korea's LG Energy Solution Ltd., which is funded by Warren Buffett and also produces automobiles, are tied for second with 13.6% each.

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Chinese President Xi Jinping has expressed concern about CATL's size and dominance in a rare speech at the annual parliamentary gatherings in Beijing earlier this week. He described his perspective of CATL's position as the industry leader as "pleasure and fear."

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The worldwide battery market is another challenge CATL must overcome. These dynamics are partially being driven by CATL, which has apparently been providing discounts to Chinese automakers due to falling pricing for raw materials like lithium, in which it has direct investments.

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More rivalry is "certainly the developing trend" this year, according to Citibank analysts led by Jack Shang in a report published on February 20. Nonetheless, they went on to say that CATL remained "our top pick, since we think it to be better positioned among battery makers with reduced prices."

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Johnson Wan of Jefferies Financial Group Inc. issued a warning that any price war might cause profitability to decline this year and the following. As the supply chain becomes more consolidated, he advised concentrating on top battery manufacturers like CATL.

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Due to its size, CATL is particularly vulnerable to geopolitical risk, especially in light of US efforts to reduce reliance on Chinese firms in the EV supply chain and promote North American manufacturing.

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Beijing has expressed concern over the possibility that competitive aspects of CATL's technology could be given to or accessed by the American automaker, according to people familiar with the situation. Beijing has expressed concern over CATL's recent agreement with Ford Motor Co. to license its LFP battery tech for use in a new $3.5 billion EV battery plant that Ford will operate and control in southwest Michigan.

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According to its website, CATL has 13 production facilities worldwide, including ones in Germany and Hungary, as well as five R&D facilities. It is considering raising up to $6 billion in Swiss GDR to support its numerous capital investments.