The Mercury News Weekend
Tesla battery supplier smashes profit estimate as EV sales soar
China's Contemporary Amperex Technology Co. reported annual earnings that beat estimates buoyed by strong demand for cleaner cars, underscoring its dominance as the world's biggest maker of batteries for electric vehicles.
The Tesla supplier on Thursday reported net income for the 12 months ended Dec. 31 of $4.4 billion, an increase of 92.9% from the previous year. That beat analyst estimates of $4.14 billion, according to data compiled by Bloomberg, and was in line with CATL's January preliminary guidance of profit between $4.18 billion to $4.52 billion.
Revenue came in at $47.19 billion, up 152% and in line with analyst forecasts. CATL's core power battery business, which in 2021 accounted for the majority of the company's sales, generated margins of 17.2% matching market estimates.
Ningde, Fujian-based CATL also saw a strong performance in its fastgrowing energy storage segment, which generated revenue of $6.47 billion, ahead of expectations. That's an area of the business that billionaire Chairman Zeng Yuqun is taking a keener interest in, recently calling for stricter standards — a move that could benefit his firm at the expense of smaller rivals.
CATL commanded a 37% share of the global market for EV batteries in 2022, testimony to the popularity of its cheaperto-produce lithium-ironphosphate (LFP) batteries. In joint second place, with 13.6% each, are South Korea's LG Energy Solution Ltd. and China's BYD Co., the Warren Buffett-backed company that also makes cars, according to SNE Research data.
The size and dominance of CATL has caught the attention of Chinese President Xi Jinping, who in rare remarks offered at annual parliamentary meetings in Beijing earlier this week said he viewed its leading position with “joy and worry.”
CATL also faces a global battery market facing intensifying competition. Those dynamics are in part being spurred by CATL itself, which reportedly has been offering discounts some to Chinese carmakers against the backdrop of tumbling raw material prices like lithium, where it has direct investments.
Citibank analysts led by Jack Shang said in a Feb. 20 note that they expect more competition “is likely the developing trend” this year. But they added that “our top pick remains CATL, which we believe is better positioned among the battery producers with lower costs.”
Jefferies Financial Group Inc.'s Johnson Wan cautioned any price war could lead to earnings deterioration this year and next. He recommending focusing on leading battery makers like CATL as the supply chain consolidates.