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Tesla battery supplier CATL hits the milestone 1 trillion yuan market cap, endeavoring ambitious expansion plans.

Aron Chen

posted on June 11, 2021 9:44 amEditor : Wang Boyuan

Contemporary Amperex Technology (CATL), China's largest producer of automobile battery packs, has gained much attention from investors and media after it became the first 1 trillion yuan market cap company that listed on China's Growth Enterprise Market (GEM), a standalone board for small and mid-sized Chinese companies.

Shares of CATL have grown about 1700% in Shenzhen since its IPO in 2018, giving the company a market value of about 1.01 trillion yuan.

Driven by the technology breakthrough in the lithium-ion battery sector, CATL saws its first-quarter revenue (19.1 billion yuan), and profit (1.95 billion yuan) grow dramatically with year-over-year growth of 112.24% and 163.38%.

CATL's ambition is much more beyond maintaining its current lead. Reuter reported, "CATL is planning a major new automotive battery plant in Shanghai, continuing a fast pace of expansion that will cement its lead as the world's largest supplier."

CATL also announced a plan to build a USD 5 billion lithium-ion battery plant in Indonesia to further boost its production capacity, following an announcement to invest USD 2 billion into a plant in Germany that will supply BMW. The lithium battery plant will start production in 2024.

According to a report from SNE Research, the global EV battery energy consumption volume was 47.8 GWH in the first quarter. CATL batteries account for 31.5 percent of the total market share. "The use of CATL batteries surged 320.8 percent year-over-year to 15.1 GWh, its competitor LG Chem and Panasonic could not catch up with it at all," SNE Research noted in the report.

What differentiates CATL from its competitor is that it is the battery maker with the most significant number of relationships with carmakers, including Tesla, Daimler, BMW, Great Wall, Honda, Volkswagen, Hyundai, and Honda.

CATL's partnership with OEMs has continued to grow across multiple regions, especially those in the Chinese and European markets.

In August 2020, CATL, Chinese electric car manufacturer NIO, the Hubei Science Technology Investment Group, and a subsidiary of Guotai Junan International Holdings agreed to set up a battery asset company that focuses on offering BaaS (battery as a service).

Under the agreement, CATL supply the battery cells, and the four parties hold 25 percent each with an investment of 200 million yuan. Instead of purchasing a car with a battery, the joint venture lease client batteries through the BaaS service. BaaS enables customers to buy an NIO car without the battery pack, allowing Nio to reduce its vehicle price and make its car more attractive to price-sensitive clients.

 "Lithium-ion battery is the foundation that allow us to participate in vehicle design from an earlier stage, but I don't want to position CATL as pure manufacturer of electric vehicle. CATL can go much more beyond that. We are exploring new businesses including the recycling of batteries and energy storage. In addition, CATL want to play some role in autonomous driving sector, especially exploring the business opportunities in applications of autonomous driving technology for commercial vehicles," said Robin Zeng Yuqun, founder and CEO of CATL in a conversation with Neil Shen of Sequoia Capital at the 125th anniversary of Shanghai Jiao Tong University.

In April, National Development and Reform Commission, National Energy Administration released a proposal called for rapid development of energy storage, establishing an industrial standard and scaling up the commercialization of new energy storage technology to achieve the energy storage volume of 30 million KWH.

Zeng, 53, was born in China's Fujian province and graduated from Shanghai Jiao Tong University with a bachelor's degree in ship engineering.

In 2011, he rounded up some college at SAE Magnetics, convincing them to pool their savings and found ATL. At first, ATL primarily focuses on manufacturing hardware. Zeng changed corporate strategy and shifted the center of focus toward lithium-ion batteries after TDK Corporation injected capital into the company. Then, ATL made a technological breakthrough in lithium polymer through the partnership with Nokia Bell Labs. ATL took off and begun mass production of lithium-ion batteries after securing bulk orders from Apple Inc.

In November 2019, Panasonic said it has no plan to open a battery plant for Tesla in China, which gave the U.S electric vehicle maker options of shipping Panasonic batteries from the Nevada Gigafactory or finding a local supplier.

Nickel and cobalt are fundamental ingredients in the batteries that fuel EVs, but expensive cobalt boosts the cost of nickel-cobalt-aluminum (NCA) batteries or nickel-cobalt-manganese (NCM) batteries.

Tesla's CEO Elon Musk said that his company faced a growth hurdle because of the high production cost of batteries.

CATL makes nickel-cobalt-manganese (NCM) batteries and supplies lithium iron phosphate (LFP) batteries to Tesla. LFP batteries have no expensive metals like nickel or cobalt.

In order to lower the production cost of batteries, Tesla had signed a partnership agreement with CATL to produce LFP batteries in February 2020 for Tesla Model 3 manufactured at the Shanghai Giga factory.

The Tesla partnership is a tipping point for CATL as Tesla is increasing their production capacities to fulfill large Chinese clients' orders.

The surge in both CATL and Tesla's shares benefit from the policies that many countries worldwide call for a higher share of the electric car in total car sales as part of efforts to reduce carbon emissions and fight global warming.

According to a forecast by the China Association, sales of new-energy vehicles (NEV), including pure electric, purely electric, petrol-electric hybrid, and fuel-cell-powered cars, would rise 40 percent to 1.8 million units in 2021 Automobile Manufacturers (CAAM). 

China's State Council also set the targets for new energy vehicles, which will account for 20% of total new car sales in China by 2025 and account for the majority of sales by 2035.

Image Credits: Possessed Photography on Unsplash