CATL’s Q4 In Line; Margin Recovery Expected to Continue This Year

Fourth-quarter revenue for no-moat Contemporary Amperex Technology 300750, or CATL, doubled year over year to CNY 118 billion, in line with our expectation. Net profit for the quarter increased 61% year over year to CNY 13.1 billion, at the midpoint of the preliminary announcement. We maintain our fair value estimate at CNY 433, which implies a forward P/E ratio of 25.8 times.

We cut 2023-24 electric vehicle, or EV, battery shipment by 5%-12% to factor in lower utilization amid new capacity ramp-up and expect CATL to sell 346 gigawatt-hours, or GWh, of power batteries in 2023. Nevertheless, our 2023-2024 revenue estimates are only reduced by 1%-3% with faster growth of energy storage systems, or ESS, products offsetting the cut in the EV battery segment. Due to robust demand for EV and ESS batteries and capacity expansion, we estimate CATL’s revenue to achieve 2022-25 CAGR of 14%, driven by sales volume growth of 28% CAGR in 2022-25 for lithium-ion rechargeable batteries—but partly offset by an average 9% decline in power battery selling price. We forecast the company’s battery production capacity to grow to 670 GWh by 2025 from 390 GWh in 2022.

Growing economies of scale and the pricing pass-through mechanism should help gross margin to recover to an average of 22.5% during 2023-25 versus 20.3% in 2022. We keep our 2023-24 net profit forecasts largely unchanged and estimate CATL’s net profit to grow to CNY 63.4 billion in 2025 from CNY 30.7 billion in 2022, implying a three-year CAGR of 27%.

CATL’s battery capacity increased to 390 GWh in 2022, more than double the level a year ago. According to the China Automotive Battery Innovation Alliance, CATL has a 48% share in the China EV battery market as measured by installed capacity. For the global market, its market share increased to 37% from 33% a year ago, according to SNE Research. As the largest lithium-ion battery producer, we believe CATL will continue to benefit from the global vehicle electrification trend.