King Ning doesn't roll, he is going to change lanes
原创首发 | 金角财经（ID: F-Jinjiao)
Author | Yingbao
CATL breathed a sigh of relief.
On April 15, CATL announced its results for the first quarter of 2024. According to the financial report, the company's revenue during the reporting period was 79.77 billion yuan, a year-on-year decrease of 10.41%, and the net profit was 10.51 billion yuan, a year-on-year increase of 7%, exceeding the market expectation of 10.01 billion yuan. As of the end of the first quarter, the company's net operating cash flow was about 28.4 billion yuan, a year-on-year increase of 35%.
Although the growth rate of net profit is not as fierce as that of the same period last year, the securities industry still believes that the performance reflects the company's upstream and downstream bargaining power and cash scale advantages. During the same period, Morgan Stanley, an international investment bank, and Moody's, a credit rating agency, raised their target prices and credit ratings for CATL respectively.
Under the siege of public opinion that "King Ning has stalled", the good news gave CATL a little breathing space. However, in the context of the gradual weakness of the domestic power battery market and overseas policy headwinds, it is not a long-term solution to save profits by tightening the belt.
CATL may need to change direction.
Tighten your belt to get by
CATL has an AB side.
On the one hand, revenue declined. Since the third quarter of 2022, its revenue growth has slowed down for five consecutive quarters, and the fourth quarter of 2023 has begun to decline year-on-year for two consecutive quarters, and this is the only time since its listing that it has fallen by more than 10% year-on-year.
On the other hand, market capitalization and market share have rebounded. As of the close of trading on April 17, the market value of CATL was 862.168 billion yuan, although there was a gap of more than 700 billion yuan from the peak of 1.6 trillion yuan, but compared with the lowest level of 619.165 billion yuan in the past three years, more than 200 billion yuan had been regained.
From January to February 2024, CATL's global power battery market share was 38.4%, up 5 percentage points year-on-year, and from January to March, its domestic market share was 48.9%, up 4 percentage points year-on-year, and it has the opportunity to return to its glory days of 50%.
The fragmented data points to the fact that CATL's efficiency has been achieved through cost reduction. Morgan Stanley also said that confidence in the former comes in part from low prices, and that "although the battery prices of major global companies are higher than CATL, they may achieve higher profit margins".
One of CATL's cost-cutting practices is to reduce inventory.
The high inventory pressure earlier has affected CATL's capacity utilization. In the first half of 2023, its battery system capacity was 254GWh and production was 154GWh, while the capacity utilization rate was 60.5% compared to 81.25% in the same period last year.
CATL has improved inventory utilization and turnover by strengthening inventory management and flexibly adjusting purchase volumes in response to seasonal fluctuations. As of the end of 2023, its inventory was 45.434 billion yuan, a year-on-year decrease of 40.7%, a significant decrease from 76.669 billion yuan at the beginning of the year. It is estimated that its inventory during the period of high lithium prices has been basically cleared.
Another approach is to build more efficient production lines.
At present, the battery production line of 2-3 GWh per line has developed widely over time, and the production efficiency is more suitable for the production scale with an annual output of less than 100 GWh, which can no longer meet the scale of CATL's 400 GWh. Continuing to use the old production scheme will lead to a further imbalance between production costs and benefits.
CATL has developed a new generation of production lines. According to the financial report, the company's capital expenditure intensity has dropped from more than 300 million yuan per GWh in 2020 to less than 150 million yuan per GWh in the first half of 2023.
According to this development pattern, it is estimated that the new production line will save CATL about 40% of capital expenditure. Its average operating costs and capital expenditures will also fall to US$55 per kWh and US$30 per kWh in the next few years – 50% or more less than the world's major EV battery companies.
However, the 7% increase in net profit in the first quarter of this year has not kept pace with the pace of cost reduction. CATL, which alleviated the spending problem, was also constrained by more factors and failed to get out of the internal friction of the price war.
The price war intensifies
The source of the battery price war is the overcapacity of lithium batteries caused by the decline in market demand.
From January to May 2023, the cumulative output of domestic power batteries will be 233.5GWh, but the cumulative installed capacity will be 119.2GWh, and the demand will only account for half of the production capacity. In June of the same year, Zhu Huarong, chairman of Changan Automobile, pointed out that it is expected that by 2025, the domestic demand for power batteries will be 1,000GWh, but the overall production capacity of the industry has reached 4,800GWh. In February 2024, the industry's monthly loading capacity was only 18GWh, the lowest in nearly a year.
Industry giants can't escape the whirlpool of the times. CATL's installed capacity peaked in early 2021 and then fell overall, falling to a recent low of 7.17GWh in January 2023 and rising to 15.54GWh in March 2024. It is worth noting that in the past year, it has maintained a slight gap of about 3-6GWh with BYD's installed capacity. When facing consumers, CATL has been bitten tightly and has not opened a bigger position in terms of seizing demand.
Overcapacity has led to a decline in the price of lithium carbonate (a raw material for batteries), forcing the market circulation price of batteries to fall, further compressing the profitability of battery manufacturers.
At the beginning of 2023, the price of lithium carbonate was 500,000 yuan/ton, and by the end of the year, the price had fallen to 100,000 yuan/ton, a decline of nearly 81% for the year. In 2024, lithium mine prices will continue to fall, and the founder of True Lithium New Energy publicly said: "It is expected that the spot price of lithium carbonate may fall below 80,000 yuan/ton in 2024." ”
New energy vehicle companies and power battery companies are "born from the same root". In order to hedge cost risks, more and more new energy vehicle companies have embarked on the road of self-developed batteries after investing in power battery companies. After all, car companies have long complained that batteries are too expensive, Lei Jun once said that ternary lithium + CATL + 100 degree battery pack = more than 100,000 yuan cost.
Even if the quotation of lithium batteries and raw materials has fallen to the "freezing point" recently, the risk of price fluctuations that may occur at any time still worries car companies. Statistics show that more than 10 top echelon car companies such as BYD, Tesla, GAC Aion, Changan, and Zeekrypton have laid out the track or disclosed their self-developed battery plans, which has exacerbated the decline in demand in the power battery market.
Although CATL has adopted strategies such as clearing inventory to stabilize the fundamentals, from the perspective of the market, more product inflow will become an accelerating factor for overcapacity.
Overseas policy changes have also constrained the development of CATL.
In recent years, CATL's overseas business has become more important. In the first half of 2023, its overseas revenue increased by nearly 200% year-on-year to 65.684 billion yuan, accounting for nearly 35% from less than 20% in mid-2022. However, the US Inflation Reduction Act stipulates that NEVs eligible for tax credits must be manufactured in North America, and a certain percentage of battery components and raw materials must come from North America or countries that have signed a free trade agreement with the United States – Chinese companies in the supply chain may be subject to export restrictions because they are considered "sensitive entities".
Although CATL previously stated that it would not participate in the price war, the situation of internal and external difficulties has been reflected on the books, and it cannot help itself.
In February 2023, CATL was revealed to launch a "lithium mine rebate" plan that "reduces the price of lithium carbonate and sacrifices gross profit margin in exchange for 80% of the purchase volume of cooperative car companies", and then at the performance briefing for the first half of 2023, it revealed that it has signed a plan with some customers.
Lane change energy storage
CATL realized that instead of squeezing itself and waiting for the market to pick up, it should set its sights on a new way out. Among them, the energy storage business has become this new road.
On April 9, 2024, CATL released the Tianheng energy storage system. The system adopts bionic SEI and self-assembled electrolyte technology, which can achieve zero attenuation of power and capacity for 5 years, and the power consumption of auxiliary equipment can be controlled and not increased throughout the life cycle, which can curb the thermal runaway phenomenon caused by oxidation reaction. In addition, its footprint has been reduced by 20%.
The prospect of the energy storage market is considered to be as good as the power battery market. The Energy Storage Application Branch of the China Physical and Chemical Power Industry Association predicts that the scale of the new energy storage industry is expected to exceed one trillion yuan in 2025 and approach 3 trillion yuan in 2030.
There are already domestic enterprises that have eaten crabs. According to the financial report, Sunwoda's energy storage system business will increase by 144% year-on-year in 2023. Guoxuan Hi-Tech said in the financial report that the obvious increase in net profit is due to the further improvement of the delivery capacity of the energy storage business. Power battery companies such as BYD, Chongxin Aviation, and EVE are expanding their territory to the energy storage market.
CATL laid out the energy storage business in 2011 and achieved a revenue of 13.62 billion yuan in 2021 after tilting more resources to it, although this data accounts for a small proportion of the company's performance of hundreds of billions of yuan, but the growth rate of 601.01% allows CATL to see the second growth curve.
In 2023, CATL's global energy storage battery shipment market share will be 40%, ranking first in the world for three consecutive years, revenue will increase by 33.17% year-on-year to 59.9 billion yuan, accounting for 14.94% of total revenue, and sales will account for nearly 20% in the first quarter of 2024.
It is predictable that CATL's energy storage business will continue to grow. With the release of new energy storage systems and subsequent large-scale deliveries, the influx of new products into the market will drive buyers to actively replenish inventory. As of the end of 2023, 24 provinces, autonomous regions and municipalities have announced energy storage development targets, and the demand will reach 78.3GW by 2025.
However, the mutual substitution of energy storage batteries and power batteries is worthy of the attention of CATL and energy storage companies. The popularity of energy storage batteries will continue to drive down the price of power batteries, and the former tends to digest inventory to low-end electric vehicles, further intensifying the involution of power batteries.
In addition, the energy storage business is characterized by high R&D investment and low gross profit margin, which may increase CATL's debt after the market is saturated.
But in any case, CATL has finally found a breakthrough in the endless internal friction market, which may make CATL become the "King of Ning" again.
Resources:
Observer.com: "Revenue Declines, Profits Soar, CATL Kills Peers"
City "Earning 120 million a day, King Ning is still very anxious"
Golden Horn Finance "New Energy Goes to Sea, Ning Wang is Almost Unable to Do It"
摩根士丹利《Resurgence of "CATL Inside"》
Securities Star "CATL Interim Report Commentary: Can High Performance Growth Be Sustained?"
Economic Information Daily "The New Energy Storage Industry Needs to Return to the Main Channel of Technological Innovation"