CATL: China’s battery market grows exponentially


Key Points

  • Electric batteries become increasingly price competitive to internal combustion engines as economies of scale, scope, and learning play out; CATL is prepared to scale and lead the Chinese charge.
  • CATL is strengthening its market position by becoming a supplier of lithium iron phosphate batteries for TESLA, challenging Panasonic’s supremacy in the market leader’s supply chain.
  • The battle to be the dominant EV manufacturer is worth hundreds of billions of US dollars and CATL is spreading its eggs by entering new strategic partnerships.

(Reading time: 20 minutes)

China produces 72% of the world’s lithium-ion battery cells today and if you want to take advantage of the massive electric vehicle revolution, it is critical to understand the Chinese market and its most prominent players in the industry, such as CATL. What does the future have in store for China? Will solid-state batteries disrupt the battery industry?

1. The Company

Business Model and Architecture

The company has been established in December 2011 by founder Zeng Yuqun alias Robin Zeng. CATL’s strategic vision is to utilize electrification and intelligentization to realize integrated innovation of market applications, utilize EV batteries to replace mobile fossil energy and utilize renewable energy generation and energy storage to replace stationary fossil energy[6].

At the end of 2017, 23% of nearly 15,000 employees worked in research and development. The headquarters are located in Ningde in Fujian Province. In addition, there are further branches in Shanghai, Jiangsu, Qinghai, Foshan, as well as overseas branches in Munich, Paris, the USA and Japan[7].

CATL’s upstream supply chain is heavily anchored within China and the firm’s growth is heavily intertwined with China’s economic development.

Industry Overview

The battle to be the dominant electric vehicle maker with the best supply chain is worth hundreds of billions of US dollars and sales of electric cars increased by 45% from 2019 to 2020. Worldwide electric car sales topped 2.3 million sales in 2019 (2.7% of 85 million cars sold) and 3.3 million in 2020 (4.7% of 70 million cars sold [1], [2].

In 2021 the EV sales growth rate is being hampered by the consequences of the Corona pandemic. We expect worldwide EV sales to fall between 4 million and 4.3 million cars for this year. Electric vehicle sales are expected to follow an S-curve growth trend. The sales numbers will portray a steady % growth increase over the next years until market saturation effects take effect from 2028 onwards that moderate the year-to-year growth rate increase. One can expect that the number of electric vehicles that are sold per year increases exponentially until 2028.

Market research suggests that around 30% of global passenger vehicle sales will be electric vehicles by 2030. According to Bloomberg, this number is going to increase to 58% by 2040[3], [4].

Current Chinese and EU politics impact the EV markets. In China, policymakers were early to identify the auto market as a primary target for economic stimulus. The central government encouraged cities to relax car permit quotas complemented by strengthening targeted New Energy Vehicle measures in 2020. In comparison, the European Union’s existing policies and regulations are being maintained and countries like France and Germany announced increased support measures towards electric vehicles for 2020 and beyond[5].

2. Qualitative Analysis

Industry Opportunities

Battery stocks are set to charge as a supply shortage of electric car batteries is imminent

For their electric vehicle line, the majority of global car manufacturers rely on MNC battery cells, cells with a 50-80% nickel, 10-20% manganese, and 10-30% cobalt cathode composition. The problem is that the EV market is growing at an exponential rate, but 90% of nickel in the global supply chain is not suited for battery production[5]. Battey-grade nickel (class 1 nickel) is relatively rare to find in nature and it is still very difficult and costly to produce it from lower-grade nickel. Challenges including high capital expenditure (capex) and environmental impact may slow down or even impede new nickel purification processes[8].

Supply chain bottlenecks in Nickel and Cobalt have already made it increasingly difficult to hold up with demand. Paired with the current aftermath of production dropouts due to Covid19 in the last months, original equipment manufacturers are desperate to satisfy electric car demand and are willing to pay a premium to battery manufacturers, who can still deliver[9].

Resilient battery suppliers such as CATL, LG Chem and Yunnan Enjie will profit from these imminent shortages[10].

CATL is the fastest-growing provider of EV batteries worldwide

CATL has historically controlled and is continuing to control the Chinese battery manufacturing market as it fulfills the lion share of the Chinese battery demand. China is the biggest market for electric vehicles worldwide and the high demand for electric vehicles in the local Chinese market combined with the international demand for CATL battery cells benefits the firm’s growth. CATL holds significant and long-term battery supply contracts with major auto OEMs, including BMW, Daimler, PSA and VW.

In addition to that, the firm makes a strong investment in research and development and the company is at the forefront of improving MNC battery chemistries and architecture. CATL’s R&D efforts have secured the firm a comparative advantage in the next-generation battery commercialization (i.a solid-state and lithium-silicon batteries).


The battery pack price is continuing to fall as economies of scale, scope and learning come into play

CATL’s battery pack prices continue to fall, albeit at a slower pace as in the preceding years. This slowdown has been caused by the halt in production due to the Corona Virus outbreak and scalability limitations due to raw material bottlenecks. The average price of CATL’s electric vehicle battery pack fell to 30.7 USD/kWh in 2020, with a reduction of 8.6% year to year, 12,9% short of the 2019 year to year price decrease.

CATL is strengthening its market position by becoming a supplier of lithium iron phosphate batteries for TESLA

CATL has secured a spot in Tesla’s supply chain and is the first to provide the electric vehicle market leader with LFP (lithium iron phosphate battery) packs. Nickel prices have rallied over the past year and competition over secure, long-term supply becomes increasingly fierce. Amid increasing yearly demand for electric vehicles, the American car manufacturer has been the first to proactively hedge against potential nickel and cobalt shortages and to diversify its electric vehicle offering to include LFP powered vehicles. It remains to be seen what the Tesla – CATL partnership will mean for the global battery market.

New strategic partnerships are in the CATL’s pipeline

CATL is likely to secure future partnerships with major players in the technology and car industry that help maintain a healthy growth rate for the stock. Partnerships with Apple and Nio are now in discussion and would offer great potential for CATL to secure future growth and the possibility to vertically extend their value chain positioning.

CATL is tendered to supply critical parts for APPLE’s planned US battery production. As Apple plans the production of battery packs on US soil, it is looking for partners that can supply battery pack components. Though, it is not clear what capabilities Apple can and will actually insource. The Chinese battery manufacturers CATL and BYD are being considered as potential partners. Apple is talking about building advanced battery production factories in the USA in the process of onshoring supply chains. Apple has made building manufacturing facilities in the United States a condition for potential battery suppliers. CATL is reluctant to build a U.S. factory due to political tensions between Washington and Beijing as well as cost concerns but is tendered to cooperate with Apple when they decide to take over part of the battery production themselves. This cooperation with Apple offers great potential for CATL to secure future growth and integrate themselves long term within the US market[11].

A cooperation with Nio extends CATL’s business operations downstream. The batteries for Nio’s leasing service will be supplied by a company established by Chinese battery makers including leader Contemporary Amperex Technology Co Ltd[12].


The electric vehicle battery market is moderately fragmented. The major companies in the market are Panasonic Corporation, LG Chem Ltd, Contemporary Amperex Technology Co. Ltd, Samsung SDI Co. Ltd, and BYD Co. Ltd.

Supply Chain partner Tesla will be multisourcing LFP battery packs

Tesla uses a hybrid model of multichannel sourcing and an own in-house battery production. The move towards LFP batteries will on the one hand decrease Tesla’s supply chain risk as LFP batteries do not require any bottleneck resources (nickel and cobalt) and on the other hand increase the number of Tesla’s sourcing channels overall. As the biggest lithium-Ion battery producer in China, CATL is likely to fulfill a large part of Tesla’s new LFP battery demand, but not all. Tesla will at least dual-source LFP battery packs and as of now also include another Chinese player, EVE Energy, in its supply chain. EVE Energy is only a minor player with a moderate production capacity, but CATL will need to continuously compete on price and projects with the other Chinese player.

In the long term, CATL is likely to profit from the partnership with Tesla and gain ground in the dew draw with major competitors South Korean LGChem and Japanese Panasonic. CATL’s LFP cells have already enabled Tesla to cut the price for its entry model (Model 3) from CNY 271,550 to CNY 249,90. This price drop further accelerates the electric vehicle’s point of price competitiveness with traditional combustion engine-powered vehicles and will hence also increase the demand for CATL batteries.

3. Risks


An all-time low of oil prices is on the horizon

Lower oil prices resulting from the COVID-19 crisis could reduce demand for electric vehicles in the United States as they undermine the comparative advantages of EV over standard combustion cars. Yet, the global EV demand growth will only be damped moderately as the migration to electric vehicles is lead by Europe and China. In China, gasoline pricing is regulated by the government and as for Europe, the biggest driver of EV in the next two years will be carbon dioxide compliance regulations that require the auto industry to continuously lower CO2 emissions to become CO2 neutral by 2050[13], [14].

A commercially viable solid state-battery technology could disrupt the battery industry

Finding a cost-effective and efficient solid-state battery for electric vehicles could prove equivalent to finding the golden fleece in Greek mythology. The advent of solid-state batteries would cut the recharging time for electric vehicles by two-thirds to circa 10 minutes and would extend the driving distance of a compact electric vehicle while maintaining legroom[15], [16].

 The popular discussions on solid-state batteries have brought development both in academia and industry. With an increasing number of players working in this field and some milestones being achieved, the solid-state battery market is expected to grow to $8 billion by 2031[17]. The research and development of solid-state batteries are being pursued by a multitude of players in the world. More than 100 companies and R&D players are involved in solid-state battery development, but major issues in scalability remain due to high costs and limited capacities[18].

The Chinese tech group QingTao Energy Development has started the development of solid-state batteries this year and will spend a major share of its $153 million R&D budget on solid-state batteries and Japanese policymakers have put aside $19.2 billion to support the development of a mass-production infrastructure within Japan for new technology batteries. Toyota has secured over 1000 patents involving solid-state batteries[19]. Important mentions are Volkswagen’s recent acquisition of Quantum Scape, a solid-state battery startup Stanford University spin-off and the Hyundai partner Ionic Materials, who have both said they want to have developed a commercially viable solid-state battery technology by 2025[20].

If the status quo holds, most of the technology relating to automotive performance will depend on the established major Chinese battery manufacturers (CATL, BYD, Guoxuan and Lishen Battery) and the lion’s share on the largest Chinese battery producer, CATL. CATL also researches the solid-state battery chemistry, but if there will be a breakthrough it is not clear which company and which country will be leading the next battery revolution.


Automotive manufacturers could insource battery cell production

The Panasonic share price had been hit hard after Elon Musk said in September 2020 that Tesla would bring in-house the manufacturing of bigger lithium-ion battery cells[21]. Tesla, Ford and VW have plans to manufacture their own batteries for electric vehicles. Tesla will be manufacturing battery cells along with electric vehicles at its planned German factory in Grünheide near Berlin. The gigafactory will boast a capacity of 100 GWh[22].

Volkswagen has already started its own battery cell production for electric cars with a pilot line in 2019 and currently builds a 16 GWh battery cell factory with NorthVolt in Salzgitter[23], [24]. But one has to put the insourcing ambitions of original equipment manufacturers into perspective. The German automakers have deals with existing battery cell manufacturers LG, Samsung, and CATL in place[25] and in the next 10 years, VW alone plans to produce around 22 million electric vehicles between 70 new electric models, which translates to an annual capacity requirement in Europe excess of 150 GWh, with similar demands expected in Asia[26]. Also with regards to Tesla, there is a silver lining for CATL and other battery manufacturers. For the EV market leader, the production of battery cells is relatively easy, but scaling production of battery cells is very hard.

As of 2021, there is a huge battery cell supply shortage and with Tesla’s ambitions for long-range trucks, this shortage will continue into the future[27].

Political tension could worsen between China and the Western world

Although Biden is in the White House now as the President of the United States of America, the relationship between the two superpowers remains delicate and new American sanctions have the potential to seriously hurt multinational companies such as CATL. When it comes to Europe, CATL’s main concern is local politics that incentivize near-sourcing and especially the automotive industry in Germany is home to several of CATL’s key customers. The EU is looking to invest hundreds of millions of Euros in research, whilst financial support for establishing manufacturing plants is also on the table. CATL has taken the steps to adjust to European policies and from 2022, lithium-ion batteries set for the European market are to be manufactured at the 23-hectare site of the insolvent photovoltaics manufacturer Solarworld. The CATL gigafactory will have a production capacity of 24 GWh and will create 2000 jobs by 2024[28]

4. Quantitative Analysis

Financial Comparison of the Key Players in the Battery Manufacturing Industry

Comparison Highlights

CATL has a very high P/E ratio compared to its direct competitors. This high P/E ratio indicates that investors are willing to pay a higher share price today because of growth expectations in the future. Investors expect CATL to thrive in the future market.
Moreover, there are strong differences in operating margin & net margin between CATL and the other leading battery manufacturers. Operating margin measures the percentage of revenue a company keeps as operating profit. The net margin, often referred to as the ‘bottom line’, is a business’s true profitability after accounting for all operating expenses and cost of goods sold (COGS). CATL’s net margin of 11,1% is excellent. It shows that CATL is able to effectively control its costs and provide goods at a price significantly higher than its costs.
CATL is on par with Panasonic and outperforms Lg Chem and Samsung SDI when it comes to its return on equity. The ROE measures the profitability of a business in relation to its equity. CATL’s improving bargaining power drives up the leverage ratio, boosting ROE. 11,30% is a very respectable ROE for the industry.                                                                    
Furthermore, CATL has no net debt. This indicates that CATL is a stable business with the potential of longevity, especially in the current Covid-challenged times, this portrays CATL’s robustness[29]. In addition, cash inflows are much higher than net profit.

Financial Statements Analysis:

CATL’s 2020 annual report depicts its yearly revenue increased 9.90% Y-o-Y (year to year) to US$7.77Bn and its net profit increased by 22.43% Y-o-Y to US$860M. In 2020, CATL’s Lithium-ion battery sales totaled 46.84GWh, up 14.36% Y-o-Y.

Income Statement highlights

The company’s net income for fiscal years 2017 to 2020 averaged 652.82 million USD. Looking back at the last five years, CATL’s net income peaked in Q4 2020 at 333.97 million USD. Compared to previous years, its net income decreased in 2018 by 10.9% and increased in 2017 by 43.7%, in 2019 by 34.2% and in 2020 by 21.8%. Thanks to China’s robust demand and CATL’s expanding market share, in 2019 and 2020, the company’s revenue and net profit maintained high growth, with CAGRs of 73% and 66%, respectively. In 2020, despite the COVID-19 epidemic, CATL still achieved above industry average operating revenue and net profit.

CATL’s extensive change in operating expenses is mainly driven by interest income and expenses. The firm’s yearly income expenses, the amount of interest that the company has paid on its borrowed money, has more than quadrupled in 2019 and 2020 compared to 2018 and 2017. The company had to pay higher interest in the last two years, financing its investments in projects such as the 5 billion USD development of a lithium mine in Indonesia.

Balance sheet highlights

CATL’s total assets (cash, investments and everything that the business owns that can be liquidated into cash) have been steadily increasing over the last four years. This indicates that CATL has had steady growth over the last years and this growth has remained steady throughout Q1 2021. The firm enjoys strong improvements in turnover ratio, rapid growth in cash on hand, and a healthy asset structure. In the last years, CATL’s cash flow has fully covered capex.

Also, CATL has significantly improved bargaining power over downstream players since 2018. A large part of CATL liabilities is represented by funds of upstream and downstream players; its actual interest-bearing debt ratio is low, and the leverage ratio is high[30].

Statement of Cash Flows Highlights

CATL has strong liquidity. Its unrestricted cash and cash equivalents to short-term borrowings have a ratio of 8 to 1. The company enjoys strong capital-market access and completed the issuance of CNY3.0 billion of five-year onshore bonds in January 2020 and a CNY19.7 billion equity placement in July 2020[31].

Moreover, the firm has continued to collect more cash from customers than it has spent on expenses throughout the last years. Its operating cash flow has been significantly higher than net profit since 2018. CATL’s cash flow can cover capex; cash on hand continues rising[32]. Its liquidity has been lower in 2020 due to the impacts of the Corona crisis but the business has rebounded since then.

CATL has recently made considerable investments to extend its supply chain control and secure raw material supply. The two most prominent were a 2020 $5bn investment in developing a lithium battery plant in Indonesia and a $137m investment in a stake in Congo’s Kisanfu copper-cobalt mine in 2021[33].

5. Conclusion and Investment Strategies

What is happening in China is more important for the EV market growth prospects than what is happening in Europe or America. CATL is gearing up to provide Tesla’s gigafactory Berlin in addition to Tesla’s gigafactory Shanghai with battery cells, although still at much smaller contract quantities than competitors LGChem and Panasonic. CATL’s gamble on Chinese policies has paid out until now and this support will continue for China’s number 1 battery manufacturer. Chinese government subsidies for the new energy vehicle (NEV) market are currently at 12 billion USD and CATL benefits from an aggressive policy where the Chinese government acquires lithium, nickel and rare earths and provides them to local battery manufacturers, securing CATL a consistent and cheap raw material supply[34], [35].

The company has great future potential as worldwide battery demand is increasing at an exponential rate and it is well-positioned within the supply chain network of major global car manufacturers. It is a buy. CATL is bent on European expansion because it expects huge growth in the European electric vehicle market in response to the EU’s tighter CO2 requirements for 2030. Overall, CATL has a very strong story for the next 3 – 5 years and buying a major battery manufacturer is a great play if the electric vehicle market growth continues on the foreseeable trajectory.

Disclaimer: Our content is intended to be used solely for informational and educational purposes, and not as investment advice. Always do your research and consider your personal circumstances before making investment decisions. ChineseAlpha is not liable for any losses that may arise from relying on information provided.

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