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How CATL plunged $15 billion USD in one blink

by SEP Editor

Translated by SEP Team

Article by Titanium Media Team丨Titanium Media Industry Research Department, (25 Dec. 2021)

December 24 was day of darkness for A-shares.

The three major indices fell collectively, among which the new energy sector fell especially, with CATL fell through more than 7%, and the market value evaporated more than 100 billion in one day.

In fact, this has been the second plunge of CATL this week. On December 20, CATL has hit a single day close to 6.5% decline. Earlier on Dec. 6 and 7 it hit a single-day drop of nearly 4.5% for two consecutive days. Since the beginning of December, CATL has fallen from a high level all the way down, and the share price has fallen from about 690 yuan on December 3 to 576 yuan today, shrinking the market value by nearly US$47 billion in a month. You can see that the plunge again on December 24 is not a coincidence.

CATL does not stand alone in its plunge.

The overall share price of new energy concept stocks and lithium battery concept stocks fell by 2.38% and 3.40%, respectively, with 78.8% and 88.21% of stocks declining.

From the data of individual stocks, the new energy concept stocks with the highest drop on December 24, such as Amaton, Akcome Technology, Igor, Inglot, and Zhongtian Technology, all fell by more than 7.25%, of which Amaton fell.

New energy concept stocks with the highest decline on December 24 are Changzhou Almaden Co., Ltd., Akcome Technology, Eaglerise, Innuvuo, Microbio, etc., all fell by more than 7.25%, in which Almaden’s limit tumbled.

As for market values, new energy concept stocks Naura fell 3.17%, BYD fell 3.57%, Sungrow fell 5.51%, Ganfeng Lithium fell 4.90%, and Eve Battery fell 5.83% , Longji shares fell 2.89%, Guoxuan High-tech fell 6.40%, Xinwangda fell 3.44%, Shanshan shares fell 3.44%.

Among the lithium battery concept stocks, Dynanonic, Lopal, Yongtai Technology, Tibet City Investment in December 24, the decline has been more than 9.90%, of which Dynanonic plunged 11.90%.

Market participants are analyzing the reasons for the decline, and the general consensus include two aspects.

First, it may be related to exposure adjustment in public offered funds. As new energy sector shoot up reaching market expectations, coupled with the end of the year and the double holiday coming, some of the larger profit-taking plate funds began to withdraw to add positions in consumer and other sectors.

Second, CATL joined the trillion dollar RMB club in June, soon after the stock went skyrocketed. The decline may been an adjustment period, coupled with unfavorable news announcement on lithium battery, that led to readjustments.

To summarise, short news on lithium battery serves as trigger to the substantial evaporation of CATL market value, which are contributed from exposure adjustment of public funds, exceeding pre-valuation.

Though CATL owned the show since June with market frenzy, the market value grown to a maximum of $2 trillion USD in early December, and the share price has risen from a maximum of $76.4 USD in early September to $108.68 USD in early December.

As early as September 22, some analysts had made market prediction to investors that CATL may facing high level shocks and adjustments. Due to the low base of the same period last year, for half a year CATL appeared to experience a faster growth rate of net profit. But in the long run, the growth rate of CATL net profit failed to maintain same growth rate as first half of the year, which may be an indication of bubble. This may be the logic behind this year-end plunge.

Data chart source: wind

Titanium Media Science and Technology Stock Industry Research then analyzes the development of the new energy vehicle industry and the position of CATL in the industry.

The future growth rate of the power battery industry depends on the growth rate of the downstream new energy vehicle industry. Growing high speed in China, new energy vehicle sales have maintained high growth in sales since the second half of 2020, with sales reaching 321,000 units in August 2021, up 193.69% year-on-year, new energy vehicle penetration rate reached 18% in August 2021, and new energy vehicle penetration rate reached 10.79% in the first eight months of 2021.

The penetration rate of new energy vehicles reached 10.79%, the penetration rate of new energy vehicles showed an accelerated upward trend, the penetration rate of new energy vehicles rose from 1% to less than 6% from 2016 to the end of 2020, and the penetration rate reached 10.79% in the first 8 months of 2021, and the penetration rate of new energy vehicles will still show an accelerated upward trend in the coming period.

In fact, CCA data also shows that the domestic new energy vehicle market sold 450,000 units in November, up 1.2 times year-on-year, with a market penetration rate of 17.8%, which continued to rise compared to October, with a penetration rate of 19.5% in the new energy passenger car market. In the first 11 months of this year, the cumulative sales of the new energy vehicle market was 2.99 million units, up 1.7 times year-on-year, with a penetration rate of 12.7%. The CCA predicts that domestic sales of new energy vehicles are expected to reach 3.4 million units this year.

Evidently demand for EV remains strong. Yet CATL’s industry position may be changing.

Source: wind, Titanium Media Industry Research
Source: wind, Titanium Media Industry Research Department

CATL remain as leader in market, but less in shares

Since 2019, CATL accounts for more than half of the domestic market shares.

2021H1 Ningde Times has a domestic installed capacity of 25.76GWh and a market share of 49.1%, up 0.8% year-on-year from 2020H1, and BYD, which hits second domestic market share, has an installed capacity of 7.65GWh and a market share of only 14.6%, which is apparent gapy with that of CATL.

According to CATL capacity planning, by 2025 capacity planning will reach 592GWh, which is 4 times of 118GWh capacity in 2020; the second largest global power battery LG 2025 capacity planning 430GWh, the third place Panasonic 2025 capacity planning 151GWh. Though other major domestic power battery will reach 800GWh by 2025, CATL will be likely to remian in lead position, though with less shares.

To better understand future growth for CATL, PEG method was employed to analyze the company’s share price. we can see that the company’s PE (TTM) has maintained accelerating growth since 2020, currently at about 135, the company’s net profit growth rate for the first three quarters of 2021 is 148.36%, if only based on the first three quarters of net profit growth, PEG is less than 1, with the current net profit growth rate.

However, considering that it may be difficult to maintain such a high growth rate of the company’s net profit in the next three to five years, which means that though the market is currently quite optimistic about the company’s valuation, investors should remain cautious in the long run.

Source: wind, Titanium Media Industry Research Department

Weakened position in the supply chain

For the lithium battery sector to encounter a stronger selloff, industry analysis believes that on the one hand, the technology and production capacity of CATL’s competitors are continue to strengthen. On the other hand, downstream vehicle manufacturers are starting to cooperate with more power battery factories to ensure battery supply.

It remains a concern whether CATL would maintain equally strong position in the industry chain.

In addition, a major negative trigger for the strong selling pressure on the Li-ion battery sector is the construction plan of the first sodium ion battery mass production line, which will be put into operation in 2022, as Zhongkehai Sodium reached a cooperation with Hinabattery, Three Gorges Capital and Fuyang People’s Government of Anhui Province on December 23.

As CATL begins to weaken its leading position, car companies have also taken shares in power battery companies or built their own battery factories, such as Volkswagen’s stake in Guoxuan High Tech and Daimler’s strategic investor in Yiwei Li-energy.

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