CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
Contemporary Amperex Technology Co. Ltd. reported a rise in first-half net income, clawing back a disastrous start to the year that saw the Chinese battery-making giant post its sharpest-ever drop in quarterly earnings.
Earnings for the six months through June 30 jumped 82% year-on-year to 8.17 billion yuan ($1.2 billion), versus an analyst estimate of 6.39 billion yuan, as CATL weathered ongoing volatility in raw material prices that risks cutting further into margins.
Revenue for the period at the world’s biggest maker of cells for electric cars was 113 billion yuan, rising 156%, according to an exchange filing Tuesday, and better than the 102.6 billion yuan the market was looking for.
CATL shocked investors earlier this year when it reported a 24% drop in first-quarter income and a 41% plunge in underlying profit for the three months through March 31. The Ningde, Fujian-based company also disclosed a 1.79 billion yuan derivatives liability in the first quarter, however didn’t comment as to its origins. For the first half, CATL said impairment losses on assets shrank by 66% to 256.6 million yuan.
CATL’s Shenzhen-listed shares have gained about 50% since a low in May as the company ramps up global capacity, including a inking a partnership with Mercedes-Benz Group AG to build a battery factory in Hungary. That announcement followed a flurry of others on new battery sites, including a 14 billion yuan investment in China’s Shandong province and a 13 billion yuan battery project in Fujian.
Such rapid expansion to cater for rising sales must however be weighed against spiraling costs of inputs like nickel and lithium, key ingredients used in electric car batteries.
And those ballooning expenses are putting industry-wide pressure on margins. Rival LG Energy Solution Ltd. last month raised its annual revenue guidance 15% to 22 trillion won ($16.5 billion) but soaring prices of precious metals drove the South Korean EV battery maker to a second-quarter earnings miss.
Gross margins at CATL for the six-month period through June 30 slipped below 20% on a half-yearly basis for the first time, coming in at 18.7%. Margins for the company’s power battery business fell to 15% from 23% in the same period a year ago.
Enforced power cuts spurred by Sichuan province’s worst drought in more than half a century have also raised questions about one of CATL’s key production sites in the southwestern city of Yibin, where it has its largest factory. CATL hasn’t publicly commented on local media reports that the plant went into shutdown mode last week.
CATL, a key supplier to Tesla Inc. and Volkswagen AG among others, had a global market share of 34.8% at the end of June, according to Seoul-based SNE Research, up slightly from 33.9% in May. LG Energy is No. 2 at 14.4% while Chinese electric car, chip and battery maker BYD Co. comes in third with an 11.8% share.
Globally, sales of EVs are predicted to reach 10.6 million in 2022, according to BloombergNEF, with strong consumer demand coming from China and Europe.
“The passenger EV market in China grew 105% in the second quarter. We expect EV sales in China to reach 6 million in 2022 as a result of booming demand spurred by new models coming to market and regulatory support on municipal and national levels,” BNEF analysts wrote in a note last week. “South Korea will remain the second-biggest market in the region, but we also expect sales in India to nearly triple in 2022.”
China’s Passenger Car Association meanwhile earlier this month upgraded its 2022 new-energy-vehicle sales forecast by 9% to 6 million deliveries, a marked turnaround after Covid-related lockdowns in Shanghai and an economic slowdown hit consumer sentiment.
Shares in CATL closed 1% higher on Tuesday.
(By Danny Lee)
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