Contemporary Amperex Technology Co. (CATL - 300750.SZ) Stock Analysis
CATL is the world's leading producer of EV batteries. Here's a closer look at the company and its investment potential.
Table of contents:
Quick Stock Overview
CATL by the numbers.
1. Executive Summary
A brief discussion of CATL and its potential appeal to investors.
2. Extended Summary
A more detailed explanation of CATL's business and competitive position.
3. Powering the Electrification of China
A success story built on China's push for electrification.
4. A Deeply Technical Company
How CATL's culture led by engineers made it successful.
5. CATL's Future
Technological breakthroughs create the next step of the company's growth.
6. Financials
Exponential growth, massive investment, and a reasonable valuation.
7. Conclusion
Quick Stock Overview
Ticker: 300750.SZ
Key Data
Industry: Batteries / Electric vehicles
Market Capitalization ($M): 159,240
Price to sales: 4.01
Price to Free Cash Flow: -
Dividend yield: 0.15%
Sales ($M): 39,674
Free cash flow/share: -
P/E: 40
1. Executive Summary
Electric vehicles (EVs) are a growing trend in Western countries, led by high-end car brands like Tesla and, more recently, Audi, General Motors, and many others. But the real EV revolution is happening somewhere else, in China.
With China representing by far the largest EV market, it is not surprising that the largest battery manufacturer in the world is from there as well.
Battery tech is an ultra-competitive sector. Any advance in battery chemistry allows for more range, safer design, and cheaper vehicles. This also means intense requirements for a high R&D budget and economies of scale to beat aggressive competitors.
By controlling 1/3 of the world market, CATL can reach a scale and capacity that none of its competitors can rival.
Its newest technology is truly groundbreaking and should usher a turn for EVs from expensive innovation to everyday life items, as it can greatly reduce the current limitations of EVs.
In parallel, CATL will be able to grow in other new markets, like grid-scale energy storage, other types of vehicles (delivery, trucks, ships), and battery recycling. It is also starting to produce outside of China, trying to capture the quickly growing European market.
The company has a lot of cash on hand and a reasonable debt load. It is also profitable and growing rapidly. While not cheaply valued, it is now priced at a much more reasonable level than it has been in years.
2. Extended Summary: Why CATL?
Powering the Electrification of China
CATL has emerged in less than a decade from a spin-off from a Japanese consortium to the company producing 1/3 of all lithium batteries made in the world.
Its initial success was built on the back of generous state subsidies, but it is now standing on its own.
A Deeply Technical Company
The company is atypical in China, focusing on R&D and innovation. Through its technical excellence, it has brought almost every car maker in the world onto its customer list.
Through a company culture of openness and operational excellence, CATL has been able to keep these relationships growing and become the world leader among battery manufacturers, beating its Korean (LG Chem), Japanese (Panasonic), and American (Tesla) competitors.
CATL's Future
CATL's R&D effort is paying off, and the company can now manufacture a revolutionary "million-mile" battery with twice the energy density of previous technology. This will accelerate the growth of the EV market and open new opportunities for trucks, ships, and utility-scale energy storage.
The company is also proactively adapting to looming metal shortages (lithium copper, cobalt, nickel) thanks to prescient investments upstream in the supply chain (mining, processing) and fully developed recycling processes.
Filling an EV Investment Gap
EV manufacturers have been the darlings of the investment community for several years, with valuations often soaring far beyond rational levels.
Today's market is becoming increasingly challenging for EV makers. EV adoption is expanding rapidly, but large numbers of new companies and new models are entering the market, generating unprecedented competitive pressure. It remains unclear, for example, whether specialist EV makers can compete with the economies of scale that legacy automakers can bring to bear as they enter the EV market.
It's not clear who will dominate the EV market, but CATL clearly dominates the battery market and is well-positioned to continue doing so. That could make CATL a better bet than any single EV maker.
Financials
Revenues and net income are growing at an accelerating pace. So are investments in R&D and CAPEX spending. The company's balance sheet is very solid, with a massive amount of cash on hand and a reasonable debt load.
Valuation is not cheap, but not outrageous either, considering the growth profile. It is, in any case, a lot more sensible than at its peak in 2021, 50% above the current valuation.
3. Powering the Electrification of China
From Humble Beginnings to Giant
CATL is a rather new company by today's tech industry standards. Compared to Google or Amazon, founded in the 1990s, or even Tesla in 2003, the CATL foundation in 2011 is downright recent.
The company is a spin-off of Amperex Technology Limited (ATL), which produced batteries for small consumer electronics and was founded in 1999. CATL would go on to focus on electric car battery technology. ATL was incorporated into a Japanese consortium in 2005 and sold its last ownership in CATL in 2015.
From this early start, the company has grown into a key supplier of batteries for a very large array of car companies, including BMW, Daimler, Hyundai, Honda, Stellantis, Toyota, Volkswagen, Volvo, and - maybe the most spectacular achievement - Tesla, a company normally obsessed by vertical integration of its supply chain.