Will CATL Surpass Tesla in Capacity?

01/02/2018

In 2015, China overtook the US as the world’s biggest market for electric cars; battery maker CATL now serves a huge domestic market.

The next global powerhouse in the auto industry comes from a small city in a tea-growing province of southeast China, where an unheralded maker of electric car batteries is planning a $1.3 billion factory with enough capacity to surpass Tesla’s output and dwarf other suppliers of battery-powered cars like GM, Nissan and Audi.

Contemporary Amperex Technology Ltd, or CATL, already has the market share of battery sales to top electric vehicle makers in the biggest global market: China. Now it wants to use proceeds from a pending initial public offering backed by Goldman Sachs to get under the hoods of more European manufacturers and secure customers in the US.

The company plans to raise 13.1 billion yuan (US$2 billion) as soon as this year by selling a 10% stake at a valuation of about US$20 billion. The sale would finance the construction of a battery plant second in size only to Tesla’s Gigafactory in Nevada – big enough to cement China as the leader in the race to replace gas-guzzling engines.

The new assembly lines would quintuple CATL’s production capability and make it the world’s largest electric-vehicle battery cell manufacturer, ahead of Tesla, Warren Buffett-backed BYD in China and South Korea’s LG Chem, according to Bloomberg New Energy Finance. The factory could go fully online as soon as 2020, an opportune time as China targets a sevenfold increase in new-energy vehicle sales by 2025 and ponders a course for phasing out fossil-fuel vehicles altogether. “China, unabashedly, wants to be the Detroit of electric vehicles,” said Anthony Milewski, a managing director at Pala Investments, a Zug, Switzerland-based fund investing in the EV supply chain. “There is no question in my mind that they are going to lead the world in capacity and, eventually, in the technology.”

China’s government likes to have national champions of industry: think Alibaba Group Holdings in e-commerce and Tencent Holdings in social media. So far, no auto manufacturers are part of that conversation, although CATL is working its way in by capitalizing on China’s push for cleaner air and fewer oil imports. The rising battery giant is, in no small part, a manifestation of China’s aggressive government support for electric vehicles.

China surpassed the US in 2015 to become the world’s biggest market for electric cars. Sales of new-energy vehicles – including battery-powered, plug-in hybrid and fuel-cell vehicles – reached 777,000 units last year and could surpass 1 million this year, the China Association of Automobile Manufacturers estimated. CATL is already in the midst of expanding overseas. Last year, it spent €30 million (US$35 million) to acquire 22% of Finland’s Valmet Automotive, a contract manufacturer for Daimler’s Mercedes-Benz and supplier to Porsche and Volkswagen’s Lamborghini. CATL also added offices in Paris to existing facilities across Germany.

Now CATL is making another leap. Job ads for positions in the Detroit area have appeared on LinkedIn, and the company said in email it plans to meet with several US carmakers to discuss partnerships.

“Their intentions are very clear,” said Simon Moores, London-based managing director of battery sector consultant Benchmark Mineral Intelligence. “To not just be China’s biggest battery producer but the world’s largest.”

Menahem Anderman, President of Total Battery Consulting in Petaluma, California, went to see CATL’s headquarters for himself in January and found a company in the process of becoming a world-class battery maker.

“Technically they are a probably a tad behind the big three,” he said, citing Panasonic, Samsung SDI, and LG Chem. “But considering how fast they have been moving, it’s reasonable to assume that in two to three years they’ll have a technically similar product.”

Zeng Yuqun, CATL founder, made the decision to start the company in 2011, while he was President of ATL. The decision was itself a gamble on the direction that Chinese government policy would take. That year there were just 1,014 alternative-energy vehicles sold in China, according to Bloomberg Intelligence.

Zeng’s prediction proved right: Xi’s administration now provides generous incentives for consumers buying non-gasoline vehicles. In 2016 and 2017, those subsidies reportedly totaled 83 billion yuan, according to an estimate from Cui Dongshu, Secretary-General of the China Passenger Car Association.

“Their ambitions are one hundred percent global, and I believe they are going to be global competitors,” said Milewski, who is also Chairman of Toronto-based Cobalt 27 Capital Corp. “You have the Chinese government behind them, and you have some of the smartest people in the world working there.”

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