Third-quarter net profit growth slowed to 14.54% while operating cash flow collapsed to 1.41 billion yuan from 26.5 billion in the second quarter.
By Xiang Bei
Shares of Contemporary Amperex Technology (CATL) plunged again on Oct. 21, with its mainland-listed stock falling 12% and its Hong Kong-listed shares dropping more than 10%. The sell-off has left the two stocks down 51% and 53%, respectively, from their previous highs, cutting the company’s market capitalization from more than 2 trillion yuan ($300 billion) to below 1.1 trillion yuan.
The latest plunge follows the release of the company’s third-quarter earnings. CATL, the world’s leading electric vehicle battery maker, reported third-quarter revenue of 165 billion yuan, up 58.6% year on year, and net profit of 21.3 billion yuan, up 14.5%.
With net profit exceeding 60 billion yuan in the first nine months, why are investors continuing to sell?
Profit growth slows, trailing revenue jump
CATL’s revenue grew 52.5% year on year in the first quarter and 56.9% in the second, before rising 58.6% in the third. Profit growth, however, has decelerated sharply: net profit attributable to shareholders increased nearly 50% in the first quarter, 36.5% in the second and just 14.5% in the third.
Adjusted net profit also fell nearly 10% quarter on quarter, highlighting the growing gap between revenue and earnings.
Management attributed pressure on per-unit profitability to changes in the product mix, the introduction of a consumption tax on Sept. 1 and a reduction in the export tax rebate rate from 9% to 6%.
More concerning was the collapse in operating cash flow. Net cash generated from operating activities fell to 1.41 billion yuan in the third quarter, from 26.5 billion yuan in the second quarter and 22 billion yuan a year earlier.
CATL said it had changed supplier payment arrangements to ease cash-flow pressures across the lithium battery supply chain, including shortening payment terms, making advance payments and providing R&D funding to selected partners. Management said the measures would not undermine its long-term cash-generating ability.
But with the broader electric vehicle and battery markets showing signs of weakening, the explanation has done little to calm investor concerns.
Technology advantage narrows
The second challenge is CATL’s shrinking technological lead.
As 800-volt electrical architectures and 5C fast-charging platforms become more widespread, rivals including CALB (3931.HK), Sunwoda Power, Gotion High-tech (002074.SZ) and EVE Energy (300014.SZ) are closing the gap in fast charging and energy density for conventional lithium iron phosphate (LFP) batteries.
CATL’s Shenxing fast-charging battery was once a key differentiator. Now, CALB and Sunwoda have introduced their own 4C-to-5C LFP cells compatible with 800-volt platforms, with performance approaching that of comparable CATL products.
Automakers are responding by adding suppliers and using competing bids to negotiate lower prices. CATL’s premium for superior performance is being squeezed as its advantage shifts towards manufacturing consistency and global supply capabilities rather than a decisive lead in battery performance.
As driving ranges commonly exceed 600 kilometers, batteries are increasingly becoming standardized components rather than a decisive technological differentiator.
Li Auto’s (2015.HK) L8 lineup has switched entirely to Sunwoda cells, while Xiaomi’s (1810.HK) Dragon Armor battery uses cells from CALB and Sunwoda. Xpeng (9868.HK) and Huawei’s Aito EV brand are also bringing in additional suppliers.
CATL is moving from being a supplier automakers feel they need in order to remain competitive to one they may choose for reliability but can increasingly do without.
The shift could become more pronounced with next-generation batteries. Semi-solid-state and all-solid-state technologies may reduce the value of expertise accumulated in conventional liquid-electrolyte batteries.
Semi-solid-state developers QingTao Energy and WeLion, which is backed by investors including Xiaomi, Huawei, Geely, and Nio, have made progress in energy density and vehicle deployment, establishing partnerships with automakers including Nio and SAIC. All-solid-state development remains less mature, with interface resistance, lithium dendrites and ultra-dry production requirements still posing industry-wide challenges.
CATL continues to invest heavily in R&D, but its commanding head start in conventional batteries may be difficult to replicate. Its future advantage may depend more on scale — an advantage that price competition can erode.
Automakers want a bigger share of battery profits
The third challenge is the growing push by automakers to develop their own batteries, potentially reshaping how profits are distributed across the electric vehicle industry.
Li Auto helped accelerate the trend in September by announcing plans to replace CATL batteries with its own 5C batteries in parts of its lineup. Orders for the next-generation MEGA placed after 3 p.m. on Sept. 7 would switch to Li Auto’s batteries. The i9 would initially use CATL cells before transitioning to in-house products, while the i6 would drop its CATL version in the fourth quarter.
CATL shares fell sharply the following day as discussion of “de-CATLization” intensified. On Monday, Li Auto unveiled its Lianshan battery system at its Power Day event, backed by a lifetime warranty commitment.
Other automakers are following suit. Xiaomi’s Dragon Armor battery uses cells from CALB and Sunwoda. Xpeng chairman He Xiaopeng said in September that the company would pursue greater control over its batteries. Geely has consolidated its battery operations under the Shendun Golden Brick brand, while Changan Automobile (000625.SZ) and Chery Automobile (9973.HK) have launched their own battery brands. Zhejiang Leapmotor Technology (9863.HK) says it will develop and manufacture all its battery cells in-house.
The underlying issue is the uneven distribution of profits across the EV value chain.
In the first half of the year, while several major Chinese automakers reported losses or falling profits, CATL’s revenue rose 54.8% to 276.9 billion yuan and net profit attributable to shareholders climbed 42% to 43.3 billion yuan — roughly 240 million yuan a day.
That was more than the combined net profit of 15 major publicly listed Chinese automakers, which totaled about 21.1 billion yuan over the same period.
CATL’s share-price collapse may therefore reflect expectations that the industry’s profit distribution is about to be renegotiated. As automakers gain more battery options and bring production in-house, CATL faces pressure not only on prices and margins, but also on the structural advantages that established its dominance.
Source:
Value Line
