There is a disdain chain in China’s new energy industry: those who sell cars are inferior to those who sell batteries, and those who sell batteries are inferior to those who mine.
Last year, because of the soaring price of lithium carbonate, the upstream mining enterprises made a lot of money, the midstream battery factory was under great pressure, and the downstream vehicle factory lost money. Everyone is working for miners.
CATL direct call cannot be carried. It negotiated with auto companies and set up a raw material price linkage mechanism to directly transfer the pressure of upstream raw material price rise to the terminal.
As a result, the price of batteries and new cars increased. Finally, the user bought the order.
CATL, sandwiched in the middle, has always displayed the image of “in a dilemma”. After all, the price is raised by mining enterprises, the car is sold by the main engine factory, and their business is also affected.
But now, looking back, the biggest winner in the entire industrial chain is neither the seemingly profitable mining enterprises nor the hot new force of car building, but CATL, which boasts itself as “platform building”.
CATL is a typical representative of making a fortune. At least since 2015, it has maintained a profit record every year and has never made a loss. Even in 2022, when the situation is so complex, the cost of raw materials has reached a new high, and most enterprises have fallen into losses, it is still profitable, and the profit amount is more than that of any previous year.
According to the latest 2022 financial report data released by CATL, its revenue in this year was 328.6 billion yuan and its net profit was 30.7 billion yuan. In the fourth quarter of last year alone, the net profit reached 13.1 billion yuan.
This is a terrible number. On the ability to make money, it not only kills all the new forces of car building in China, but also surpasses BYD, the global champion of new energy car sales, and even surpasses those eye-catching mining enterprises.
This is not all. There are 157.6 billion yuan of cash reserves on CATL’s account. In order to improve capital efficiency, it bought more than 20 billion yuan of principal-guaranteed investment and financial management.
Zeng Yuqun, the chairman of the board, is a man with great ambition, but he is also familiar with low-key philosophy. He once said that CATL is to move bricks and build platforms to provide a platform for car companies to dance. There are all kinds of different plays on the platform, and he is the object of “oppression”.
The fact is that CATL has quietly built its own trillion empire while moving bricks. It has built its own stage with the strongest bricks in the industrial chain.
Car companies play and CATL makes money. This is the real other side of the new energy wave.
How does CATL make money?
The new energy industry is promising, which is the consensus of the industry. However, CATL, which provides batteries for automobile enterprises, is the first to make huge profits.
An electric car has tens of thousands of parts, the most expensive of which is the power battery. The industry generally believes that the power battery accounts for about 40% of the total vehicle cost. To a large extent, the price of new energy vehicles is determined by batteries.
CATL’s battery life is high and its spontaneous combustion rate is low, which is favored by automobile enterprises. Car companies fight a price war in the market. No matter how low the price is, they will not hesitate to take batteries from CATL. Even if car companies sell one car and lose one, it will not prevent CATL from making money.
In the past five years, the average gross profit rate of CATL power battery system was 26%, even as high as 35% at the peak. That is to say, CATL takes a profit of nearly 30000 yuan for a battery system with a price of 100000 yuan.
This is the core business of CATL and also the revenue pillar, which once contributed more than 80% of the revenue.
Power battery is a good business, but not all manufacturers make money like CATL. The gross profit margin of CATL is significantly higher than that of its peers. In the first three quarters of 2022, the gross profit margin of CATL was 19%, and that of Guoxuan Hi-Tech, EVE and SUNWODA was 14%, 13% and 16% respectively.
Before 2019, CATL has become the largest in the world by relying on the Chinese market. As for the rise of this company, there are many reasons. Good technology, good product quality and meeting the needs of automobile enterprises are all necessary conditions. In addition to these, there are several very key boosting forces.
One is to bet in the right direction. The new energy industry follows the national trend, and the baton of subsidies directly determines the direction of resource allocation. In 2015, the state began to subsidize ternary batteries with higher energy density, and CATL, which took the ternary route, ushered in great opportunities. This is also one of the reasons why BYD who took the lifepo4 battery route fell to the throne.
The second is to stand in the right position. Since 2016, the state has restricted the use of foreign battery models to enter the product announcement and catalogue of the Ministry of Industry and Information Technology, and relevant models cannot be marketed. At that time, CATL, the head of the local battery factory, received the policy dividend.
These factors have made CATL sit on the iron throne and maintain a net interest rate of more than 10% for a long time. In 2017, when subsidies prevailed, its net interest rate was even as high as 19.4%.
The real qualitative change will take place in 2021. This year, CATL’s revenue was 130.4 billion yuan, up 1.6 times. Its net profit doubled to 15.9 billion yuan, which is close to the sum of the profits of the previous four years.
The catalyst comes from the explosion of the new energy vehicle market. The sales of new energy vehicles in China will reach 3.52 million in 2021, 1.6 times higher than 1.37 million in 2020. The growth rate exceeded any of the previous five years.
Another is cooperation with Tesla. Tesla built a factory in Shanghai, and parts need to be localized. CATL took the opportunity to enter the Tesla supply chain. Model 3 and Model Y with CATL batteries will be shipped in large quantities in 2021, and Tesla will become the largest customer of CATL.
In 2022, CATL continues to soar. Its revenue directly crossed the 300 billion mark from more than 130 billion to 328.6 billion yuan, and its net profit reached 30.7 billion yuan. CATL said it would take out 6155 million yuan of dividends.
There is no doubt that CATL is a big winner in the rapid development of China’s new energy industry. In all major industries, it is difficult to find another company that can maintain 1.5 times the annual growth rate in the volume of 100 billion revenue, and still make money.
As the global sales of new energy vehicles continue to rise and the replacement process of fuel vehicles is accelerated, the demand for batteries by new energy vehicle enterprises will be increasing. With about 50% market share in the Chinese market, CATL’s revenue and net profit scale will also rise with the tide.
However, it is worth noting that there is a law in the power battery industry: with the passage of time, the cost will inevitably decline, and the gross profit rate of the battery factory will certainly decline – this is not an industry that earns huge profits by high gross profit, but depends on scale. The gross profit rate of CATL power battery has dropped from 35% in 2017 to 17% in 2022.
CATL needs to expand all the time, continue to expand its scale and continue to expand in the industrial chain. Only in this way can the cost be spread low enough, the output value be large enough, and the profit be more generous.
If one day, CATL is no longer the first, or its customers are largely diverted by competitors, that is the beginning of the crisis.
CATL’s enemies and circle of friends
The strength of CATL lies not only in its rapidly expanding revenue and profit, but also in its control over upstream and downstream and customers. It has long started to join forces to pull auto companies into its own circle of influence and form a bundle of interests.
At the beginning, the binding method was to establish a joint venture battery company with auto companies. SAIC, GAC, FAW, Geely and Dongfeng have all reached an alliance with CATL; Later, it let the car company pay for the battery production line, and the factory started production after receiving the deposit; Later, it simply invested directly in auto companies and entered the list of shareholders of auto companies.
Either let the car companies pay or pay themselves. Only when they pay will they be deeply bound. Zeng Yuqun once said, “A promise without money is not serious.”
Any behavior from the outside world that wants to break this binding relationship is a challenge to CATL.
According to the data of Skyeye, both CALB and SVOLT participated in the lawsuit initiated by CATL on the basis of unfair competition as defendants.
CALB is the third battery manufacturer in China. Its customers include GAC EAN, Chang’an New Energy, LEAPMOTOR, etc., and the penetration rate of GAC EAN is more than 70%. GAC was originally a customer of CATL, but was later vied for by CALB. Zeng Qinghong, Chairman of GAC, publicly complained about CATL last year: “Battery manufacturers have taken away all profits, and GAC has been working for CATL.”
CATL took CALB to court in the name of patent infringement, claiming more than 600 million yuan. This lawsuit has been fought for more than a year. At the end of last year, CALB counter-claimed CATL, accusing it of abusing its patent rights for malicious rights protection and wanton defamation, suspected of unfair competition.
Some auto companies choose to actively “unbind” and look for “second supply” and “third supply” outside CATL.
XPEV began to introduce CALB as the main battery supplier two years ago to reduce its dependence on CATL. The XPEVP7i, which has just been released recently, all the batteries carried in the first version of the whole series are from CALB. The batteries of LEADING IDEAL cars were previously exclusively supplied by CATL, but SUNWODA and SVOLT were introduced into the new car L7, and the price of the corresponding model was 20000 yuan cheaper than the CATL version.
SVOLT’s customers also include NETA, LEAPMOTOR and XPEV, which are also competitors of CATL. Last year, because of the employee competition agreement, SVOLT was sued by CATL in the name of unfair competition. SUNWODA has grown up very fast. Last year, it also received investments from NIO, LEADING IDEAL and XPEV.
Car companies are not willing to be subject to CATL. They have their own small calculation. It is a major feature of the battery industry last year to find multiple suppliers and purchase separately.
According to the data of the China Automotive Power Battery Industry Innovation Alliance, in 2022, the domestic market share of CATL fell by 3.9% year-on-year and below 50%. The market share of second-tier battery manufacturers such as CALB, EVE and SUNWODA has increased.
In fact, as early as 2018, Li Xiang, the founder of LEADING IDEAL, said that CATL was too strong, which would allow auto manufacturers to deliberately support other battery plants to balance CATL. Big auto brands were not likely to allow the supply chain to dominate.
Five years later, CATL is still strong. Unlike five years ago, today’s CATL has a larger scale, stronger earning power and stronger cash reserves. It began to take advantage of these advantages and extend its tentacles to deeper areas.
CATL’s investment in automobile enterprises is accelerating.
In 2021, CATL successively invested in Aichi Automobile, BAIC Blue Valley, Geely Krypton Automobile and NETA, participated in the financing of Avita, a high-end electric vehicle brand of Chang’an Automobile, and became its second largest shareholder. It has also acquired about 2% of the shares of Celes, which has jointly built a business with Huawei. At the end of last year, CATL took a stake in Chery Automobile with a shareholding ratio of 3.73%.
These investments have made CATL and auto companies more closely bound.
The batteries of the first two cars M5 and M7 are supplied by CATL, and the subsequent models will also be fully equipped with CATL batteries. Chery cooperates with Huawei in the “Smart Car” project. The model will be equipped with the latest Kirin battery from CATL. CATL’s EVOGO power exchange project, including the first model of Aichi U5.
Under the big net of investment, CATL is everywhere.
Ambition goes beyond that
The annual revenue is 300 billion and the profit is 30 billion, which is not enough to support CATL’s ambition.
Last year, CATL completed a “skyrocketing” increase of 45 billion yuan, which shocked the market. This made its cash reserves increase rapidly, reaching 157.6 billion yuan at the end of last year.
In addition to investment, production expansion, and even financial management, the money is also used to buy mines.
Mining is a veritable profiteering business. The market price of lithium carbonate with a cost of 100000 yuan/ton approached 600000 yuan/ton last year. Upstream mining enterprises easily earned excess profits. CATL has a strong opinion about this. It believes that the high price of lithium will erode its profits and make it difficult for it to be caught between the upstream and downstream.
Therefore, CATL has won several lithium projects through a series of acquisitions and integration. In Yichun, Jiangxi, Yajiang, Sichuan, Daping, Guizhou, Bolivia and other places, CATL operates several mineral projects at the same time. These projects will be put into production and shipped in succession.
In the 2022 financial report, CATL added “battery mineral resources” in the revenue account, contributing 4.5 billion yuan of revenue.
CATL, which has mines at home, has become more comfortable in the industrial chain since then. It can not only sell minerals directly to make money, but also use minerals for its own use to reduce battery costs, and then launch a price war.
In February this year, CATL launched the “lithium rebate” plan to some auto companies, which was considered as the beginning of the price war. The so-called “lithium rebate” is that CATL provides batteries to these cooperative automobile enterprises. It uses self-produced lithium carbonate to lock in the price of 200000 yuan/ton, which is equivalent to transferring the profit from selling mineral resources and reducing the battery cost of automobile enterprises. At present, the price of lithium carbonate has fallen back to about 400000 yuan/ton.
This plan can kill two birds with one stone. On the one hand, it is equivalent to a price war, which is conducive to expanding market share; On the other hand, it can form a deeper bond with the automobile enterprises, because CATL requires that the supply proportion of the cooperative automobile enterprises in the first three years should not be less than 80%, and a certain proportion of advance payment should be paid.
This can be seen as a way for CATL Battery to target specific customers and lock its own product shipments.
To buy ore from upstream and invest in downstream, CATL’s territory is becoming larger and larger. Some people ask whether CATL will build cars next?
At present, it is unlikely that CATL will build cars by itself, but its penetration into the automobile industry will be deeper and deeper, and it will try to formulate rules of the game in more fields.
In January last year, CATL released the EVOGO power exchange brand and combined power exchange scheme, claiming to adapt to 80% of the pure electric platform models that have been listed in the world and will be listed in the next three years, and invited auto companies to join. Some insiders pointed out to Shentu that this is equivalent to CATL providing a third-party standard solution, and auto companies should continue to use its battery standard when they join. If the standards established by CATL are implemented, CATL’s voice in the electric vehicle industry chain will be improved.
CATL is also developing the skateboard chassis, and has reached a project cooperation with its investment in NETA. The first vehicle model is planned to be launched at the end of 2024. The sliding plate chassis separates the upper and lower body of the vehicle. The battery, electric drive and control functions are integrated on the chassis. Different body can be matched above the chassis. This changes the way the traditional battery pack is loaded, and directly integrates the battery cell with the vehicle chassis. CATL has infiltrated into the very critical field of automobile chassis.
In addition, in addition to power batteries, CATL’s energy storage and battery recycling businesses have also started. Energy storage is regarded as the next big wind of new energy, contributing 45 billion yuan to CATL’s revenue in 2022. There are also many enterprises in the distribution of battery recycling, with CATL’s revenue reaching 26 billion yuan.
CATL’s ambition is not limited to a battery factory. Starting from the battery, it tries to pick the sweetest fruit in the vast forest of new energy.
Looking back at the whole new energy automobile industry, we always enjoy the fierce competition among automobile enterprises. From Tesla to BYD, and then to the major new forces of automobile manufacturing, the inner circle has never stopped. We believe that the end of the industry is to focus on the head. The car companies want to kill their rivals and reap all the benefits of the platform.
What is interesting is that the car companies who are playing well on the stage have not won or lost. CATL, which stands behind the scenes “moving bricks”, has competed for supremacy. The challenger of CATL is still on the way.