Battery giant CATL is no longer just a play on electric vehicles

{"text":[[{"start":6.35,"text":"Foreign investors have been pouring into Chinese battery maker CATL’s stock. Its Hong Kong-listed shares, which tend to be traded by offshore investors, hit a record 50 per cent premium to their mainland equivalent last month. That suggests they are increasingly optimistic about its future earnings. "}],[{"start":26.880000000000003,"text":"CATL accounts for more than 40 per cent of the world’s electric vehicle battery market and, amid competitive pressure, has managed to maintain relatively strong profitability, with an operating margin of 18 per cent. But that much is not new. What may be changing is how investors view its expanding presence in sectors outside EVs. "}],[{"start":52.38,"text":"One of them is energy storage systems where demand for grid scale storage and data centre backup power has been growing. Demand is also supported by rising volatility in energy markets. That increases the value of storage: users can load batteries up when prices are low and discharge when prices are high. "}],[{"start":74.87,"text":"Unlike EV batteries, these systems involve long-term contracts and closer integration with ongoing customer operations. Profitability is typically lower than that available on EV batteries, as engineering and connections are costlier, but they are more stable and less exposed to the cycles that affect the car industry. "}],[{"start":null,"text":"

"}],[{"start":98.9,"text":"A more nascent area for growth lies in shipping. CATL has pledged to electrify parts of the global maritime fleet and has already deployed batteries on around 900 vessels. Electrification is best suited to smaller craft operating close to the coastline, where batteries can compete economically. Long-distance shipping remains dominated by alternative fuels such as methanol and hydrogen. "}],[{"start":127.79,"text":"Regulatory pressure related to the International Maritime Organization’s target of a 50 per cent cut in shipping emissions by 2050 should add a tailwind. While unlikely to match the scale of EVs, maritime electrification offers CATL exposure to another reliable source of demand. As with energy storage systems, clients in this segment also require integrated systems. That means more stable and ongoing servicing-related revenues."}],[{"start":157.88,"text":"CATL shares now trade at 21 times forward earnings, a discount to South Korean peers. That partly reflects its perceived exposure to the cyclical EV market and concerns about intensifying competition. It also reflects concerns that battery manufacturing is an increasingly commoditised business. "}],[{"start":180.57999999999998,"text":"Yet CATL’s recent growth in non-automotive segments should start to change the nature of the business, from one exposed to consumer cycles to one benefiting from policy-driven demand. Its leading position in EV batteries comes in useful here, providing it with cost advantages and reducing execution risk in new markets."}],[{"start":214.07,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1776136445_7795.mp3"}