China’s battery giant CATL hit by profit fall

China’s CATL, the world’s biggest electric vehicle battery manufacturer, has suffered its first fall in quarterly profits in almost two years amid slowing growth in demand for EVs and intensifying competition.

In mixed results posted in a filing to the Shenzhen Stock Exchange on Friday, CATL also reported lower-than-expected full-year revenues, but an improved gross profit margin on its core battery business for 2023.

The results from the Tesla supplier, which is based in China’s south-eastern province of Fujian, offer a warning about the impact of softening demand for EVs in the world’s largest auto market.

Chinese sales of pure battery-powered vehicles and plug-in hybrids rose 36 per cent last year, down from a 96 per cent increase in 2022, according to data from the China Passenger Car Association.

CATL’s revenues were Rmb401bn ($56bn) in 2023, up 22 per cent year on year but missing analysts’ forecasts of Rmb411.1bn and much slower growth than the 152 per cent in 2022.

Fourth-quarter net income fell 1.2 per cent from a year earlier to Rmb13bn, CATL’s first quarterly profit decline since January-March 2022.

CATL enjoyed a 37 per cent share of the global EV battery market last year, 21 percentage points ahead of its biggest competitor, Chinese rival BYD, according to South Korea’s SNE Research.

However, CATL’s international ambitions are clouded by geopolitical tensions. In December, the company denied accusations its presence on a US military base posed “espionage threats”. There is also doubt about the future of a licensing agreement between CATL and Ford, under which the US automaker planned to use the Chinese company’s technology at a planned $3.5bn plant in Michigan.

CATL shares have fallen more than 15 per cent over the past 12 months, more than a 9 per cent drop in the broader mainland Chinese market, as the lithium-ion battery sector grapples with overcapacity and pressure to offer discounts to EV makers trapped in a price war in China.

Despite a dominant market position, CATL faced challenges from smaller rivals that sold their battery products at a lower price last year. Analysts at Morgan Stanley said the company was expected to weather the downturn with solid cash flow and greater economies of scale.

The brokerage upgraded its rating on the company to “overweight” from “equal weight” earlier this month, citing improved cost efficiency and easing price competition.

CATL’s full-year net profits were Rmb44bn, up 44 per cent from 2022. The gross profit margin of its core power battery business reached 22 per cent in 2023, up 5 percentage points from a year earlier.

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