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From electric vehicles to renewable energy, CATL’s expansive investment strategy promises bright future

Written by KrASIA Connection Published on     6 mins read

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Over 20 Chinese investment firms backed battery giant CATL, altogether generating over RMB 100 billion in profits from the venture.

On May 31, Ningde-based energy storage and battery giant CATL surpassed RMB 1 trillion (USD 157 billion) in market value, becoming the first A-share company backed by Chinese private equity and venture capital investors to do so.

The Shenzhen-listed company is a leader in the lithium battery industry, and now boasts a greater market cap than major A-share automakers like BYD, Great Wall Motors, and SAIC Group combined.

Big wins for early investors

From the early days of the company’s development, CATL relied on heavy investment from PE and VC groups in China. The company’s first round of investment was completed in January 2016, long before CATL was the industry titan it is today, and valued the company at RMB 21 billion (USD 3.28 billion).

Some thought the valuation was overly bullish, with the firm generating a net profit of just RMB 950 million (USD 148 million) in 2015, with a price-to-earnings ratio of 24. But six months later in 2016, CATL secured another round of financing, more than tripling the firm’s valuation to RMB 80 billion (USD 12.5 billion). The battery giant’s timing was brilliant, as the company was able to leverage a massive surge of demand in China’s renewable energy industry that is still yet to abate.

At this point, big name investors and funds started to take notice, including Yunfeng Capital and Alibaba founder Jack Ma. Since then, CATL has continued to grow, listing on Shenzhen’s ChiNext board in June 2018. Since the IPO, the company’s value has increased by more than 17x, and in December 2019, CATL became the most valuable listed company in Shenzhen.

By June 2019, PE and VC shareholders in CATL had already begun to cash in and sell off their stakes in the company, gradually falling out of the firm’s top ten shareholders. As of Q1 2021, only two PE or VC firms remain as CATL shareholders, together owning 4.81% of the total shares, a stake with a book value of around RMB 48.6 billion (USD 7.6 billion). These two investors sold off around RMB 4 billion worth of their CATL shares in 2020 to recoup their initial investment.

The stake of one early investor, CMB International Capital, was worth RMB 50 billion (USD 7.8 billion), setting a record for returns in Chinese VC history that is unlikely to be broken anytime soon.

The biggest winner from CATL’s meteoric rise is founder Robin Zeng, who owns RMB 245.3 billion worth of CATL stock, and was ranked 19th on Forbes’ China Rich List in 2020, then 52nd on Forbes’ Billionaires list in 2021.

Bursting onto the global scene

Riding the wave of China’s renewable energy evolution, CATL’s revenue has grown from RMB 14.9 billion (USD 2.33 billion) in 2016 to RMB 50.3 billion (USD 7.88 billion) in 2020, an increase of 238%, while net profit increased by 110% from RMB 2.9 billion (USD 450 million) to RMB 6.1 billion (USD 960 million) during the same period.

In Q1 2021, CATL reported a 112% year-on-year (YoY) growth in revenue to RMB 19.2 billion (USD 3 billion) and net profit reached RMB 2 billion (USD 313 million), up 163% YoY.

The company even managed to persevere through a difficult period in the industry following the expiration of some government subsidies for electric cars in 2018.

Looking back to CATL’s founding in 2016, the company lagged far behind competitors both at home and abroad, like BYD in China and Panasonic, Nissan AESC, and LG Chemical in overseas markets. But in five years since the company’s inception, CATL has surged past these established brands in the battery and energy storage industry.

CATL controlled 26% of global market share in 2020, with an installed capacity of 35.39 gWh, while it occupies over 48% of the Chinese market. And the company isn’t resting on its laurels. In the first quarter this year, the company installed 15.1gWh of storage globally, an increase of 321% YoY, with a market share of 31.5% for the period.

Read this: Chinese battery maker CATL to make unmanned electric mining technology

In August 2020, Mercedes-Benz partnered with CATL to secure batteries for its electric cars. Markus Schäfer (left), member of the Board of Management of Daimler AG and Mercedes-Benz AG; Robin Zeng (right), founder, chairman, and CEO of CATL.

Ramping up capacity

No matter how the industry environment changes, CATL has been intent on expanding its production capacity since its IPO. In 2020 alone, the company spent more than RMB 50 billion (USD 7.84 billion) on new expansions.

The firm currently has six major lithium battery production plants with a total capacity of nearly 400 gW, 10x its shipment volume in 2020. This ambitious scaling of its business directly correlates to CATL’s firm belief in the rise of electric vehicles, while many EV startups are simultaneously ramping up their production, boosting demand for batteries.

The share prices of EV companies like Tesla and Nio have skyrocketed in recent months, while traditional automakers including Volkswagen and Mercedes Benz are aiming to electrify 15–25% of their vehicles by 2025. The overall EV industry will grow at a compound annual growth rate of 35–39% over the next five years, according to a research report from Soochow Securities.

CATL’s production boost comes in tandem with the company’s increased capital outlay, looking to not only invest in related technologies and startups to create synergy with its core business but generate returns in new sectors.

Wide-reaching investment spree

On May 26, CATL announced that it would contribute RMB 300 million (USD 47 million) to the Boyu Xiamen Equity Investment Fund 4. The fund, boasting an aggregate value of RMB 4.22 billion (USD 660 million), will invest in sectors including consumer goods and retail, financial services, healthcare, and TMT. This capital is not meant to complement CATL’s core business but instead explores new areas to “generate reasonable returns on investment,” according to the company.

The firm is also readying investments to augment its core battery and energy storage segment, after bolstering its main business in August 2020, allocating RMB 19 billion (USD 2.97 billion) for investments in various parts of the new energy supply chain. In addition to its batteries and energy storage business, these investments will augment the company’s competency in upstream areas like raw materials and downstream sectors like EVs.

Since then, CATL has forged ahead with an RMB 539 million (USD 84 million) push in Fujian Shidai Mindong New Energy Fund in February. CATL is deeply involved with the fund, as one of its subsidiaries serves as general partner of the investment entity located in its home province of Fujian.

On April 21, CATL announced it would commit RMB 1 billion (USD 156 million) to the Yibin Chendao New Energy Equity Investment Fund, which has RMB 3.4 billion (USD 532 million) under management and will focus on investing in raw battery materials, power battery system solutions, NEVs, energy storage systems, power battery material recycling, and battery recycling.

Other recent investments are sharpening CATL’s downstream presence, with an investment in Aiways Automobile in April this year. The EV startup, founded in 2017, still lacks the scale of more recognizable names like Xpeng Motors and Nio, selling just over 2,000 vehicles in the first four months of 2021.

Ultimately, CATL will leverage its capital resources and industry-leading presence in energy storage to strengthen its core position, while its success enables the firm to expand into tangential areas in the new energy industrial chain. The company’s ambitions are unbridled, with a stake in startups in varied sectors from ride-hailing to automotive chip-makers. CATL’s goal is to extend its reach into the ever-wider world of renewable energy technologies.

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KrASIA Connection features translated and adapted content published by 36Kr. This article was written by Tao Huidong for DsstCapital.

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