Is CATL losing its spark? Dimming prospects overshadow record profits

Battery maker CATL has reported a record net profit of more than 30 billion yuan but the road ahead will not be so smooth as EV makers seek to diversify their supply.

Photo from CFP

Photo from CFP

By TAO Zhixian


EV battery maker CATL reported a record net profit of 30.7 billion yuan (US$4.5 billion) for 2022, close to double the previous year’s total. Revenue came in at a hefty 329 billion yuan, two and half times 2021’s previous record. 

Battery sales increased by 116 percent to 289 GWh, nudging CATL's market share up to 37 percent, the highest in the world for the sixth year in a row.

Earnings proved to be much better than expected and provided some reassurance after a disappointing fourth quarter. In the last three months of last year, both revenue and profit grew at the slowest pace in almost two years, despite booming EV sales.

While there is no denying the enormity of CATL’s achievements so far, the road ahead is very much uphill.

Diminishing power

In the age of vertical integration and localized supply chains, EV makers have become more cautious in their sourcing. The trend is toward arrangements with multiple suppliers rather than signing exclusively with just one battery maker, usually CATL, Samsung or LG.

EV makers aren’t entirely keen on trusting their futures to the demands of the big battery powers, so it’s not uncommon to see OEMs setting up partnerships with the big three's competitors. Some are even investigating their own battery technology. 

Volkswagen buys from at least half a dozen battery companies including CATL and is the largest shareholder in Gotion High Tech. Gotion’s business is mainly research and development, along with the production and sales of batteries. Its products include integrated charging piles, battery management systems and energy storage groups.

BYD, which vies with Tesla for the title of the world's largest EV maker, has a sizeable battery business.

Indeed, the rise of so many rivals threatens oversupply. More than 4,000 GWh of capacity, ten times 2022 production, has already been planned for 2025. But EV sales in China are not likely to maintain their 2022 level of growth.

Miner insecurity

For some time it has been widely believed that cutting-edge technology would enable CATL to maintain its margins, but this has proved to be little more than wishful thinking.

Lithium carbonate prices increased tenfold since 2021, breaking through “the unimaginable 500,000 yuan a ton” level at one point, but have since fallen back to around 350,000 yuan a ton. This has driven CATL’s gross margin down from a high of 26 percent to a paltry 14 percent in Q1 2022. CATL's rather obvious response was to increase prices. An overall 2022 margin of 20 percent is still nothing to be sneezed at in any industry.

To secure its lithium-carbonate supply, CATL offered an astronomical 6.4 billion yuan last November to take over a bankrupt lithium miner Sinuowei, which owns 25 million tons of lithium ore. The deal was approved in January. CATL is widely believed to have overpaid. Lithium prices have since fallen, and Sinuowei is being investigated for a multitude of regulatory offenses.

Meanwhile, CATL has been securing its own lithium mines. In April last year, Yichun Shidai New Energy Resources, a subsidiary of CATL, paid 865 million yuan for the exploration rights to a lithium mine in Jiangxi province.

Recycling is not enough

Another dubious investment was in a battery recycling project. CATL chairman Robin Zeng has said that recycled materials from retired batteries will meet most market demand by 2035. Battery recycling is prospering through the rapid decommissioning of first-generation electric cars, but still falls a long way short of meeting demand.

CATL has agreed to pay 23.8 billion yuan to build a 500,000-ton battery recycling facility in Guangdong. Guangdong Bangpu Recycling, yet another subsidiary of CATL, is to fund and construct the facility in Foshan.

China already has the capacity to process 1.5 million tons of used batteries a year but recycles less than a fifth of that amount. The country retired only 320,000 tons of batteries in 2021, and that amount is only expected to hit 780,000 tons in 2025.

It's worth noting that CATL’s debt-to-asset ratio is at 70.6 percent the highest since its IPO. CATL shares closed at 392 yuan on Monday, 30 percent lower than the highs of last summer.