Auto Industry

Into the fast lane

Battery maker CATL jumps IPO queue to fund production expansion

CATL-w

Favoured by policymakers

Coming after a year of frenetic fundraising in 2017, China’s IPO market saw far fewer new listings in the first quarter this year – suggesting that Beijing’s perennial balancing act between pursuing growth and managing financial risks had reverted to the latter.

While 37 companies managed to sell their shares to the public in the first quarter – versus 134 a year ago – 339 firms are still waiting for regulatory clearance. But the delay does not seem to have perturbed one contender, whose ambitions to power the world’s electric vehicles saw it jump the IPO approval queue at record speed.

On April 5, Ningde-based EV cell maker Contemporary Amperex Technology, or CATL, got the nod to raise Rmb13.1 billion ($2 billion) from floating a tenth of its shares on Shenzhen’s ChiNext Board.

The news went public just 24 days after CATL’s listing application was made. That compared to the previous record holders Taipei-based Foxconn Industrial Internet (36 days) and Shanghai-based biotech company WuXi AppTec (50 days).

By contrast the majority of applicants – particularly property firms – wait years rather than weeks for their green light.

Market insiders say the fast tracking of CATL’s listing reflects a broader policy shift: Beijing’s commitment to its “Made in China 2025” strategy. The goal is to create highly competitive players in areas that can vault China up the global value chain. The sectors include robotics, driverless cars, clean energy and advanced microchips – and companies in these industries can expect an easier pathway to the capital markets.

CATL is deemed crucial to China’s goals of dominating the EV industry. “Whoever controls the lithium supply chain will control the future of the electric vehicle space,” Simon Moores, managing director at research firm Benchmark Mineral Intelligence, told CNN Money. And that’s the great hope for CATL, which is banking on a $1.6 billion new facility at its headquarters in Ningde and emerging as the world’s biggest EV battery cell maker.

Around 68% of the finance for the plant will come from CATL’s upcoming IPO, and it will help to quintuple CATL’s output and boost its total capacity to at least 41 gigawatt hours (GWh) a year when it is completed in 2020, according to Bloomberg. By comparison, Tesla’s Gigafactory in Nevada will have an annual production capacity of 35 gigawatt hours.

“Panasonic, LG and Samsung still lead on quality, but CATL will be the top volume producer and then, over time, its quality will increase. My expectation is that CATL will end up in Western vehicles,” Moores told the Financial Times.

Last year CATL invested €30 million in a 22% stake in Valmet Automotive, a Finnish engineering company that assembles cars for Mercedes-Benz. It also has one of its three research and development centres in Berlin. At home, it is already the biggest supplier to foreign-branded EVs (think Volkswagen, BMW, Hyundai, Toyota and the like), largely thanks to rules – see WiC334 – that privilege locally produced batteries. (New regulatory requirements are also forcing manufacturers to make sure that one-fifth of the cars on China’s roads are electric-powered by 2025.)

Warren Buffett-backed BYD is CATL’s main local rival but until recently it only made batteries for its own vehicles.

That enabled CATL – which sells to all car brands – to displace the Shenzhen-based firm as the nation’s market leader with a 21% share in the battery market in the first half of 2017, according to local consultancy RealLi Research.

With its roots in rechargeable battery maker Amperex Technology – originally part of TDK (until the Tokyo-based firm exited two years ago) and a supplier for Apple’s iPods and iPhones – CATL was spun-off but still likes to emphasise its heritage of Japanese quality assurance.

But what really differentiates CATL is its aggressive procurement of cobalt, a key ingredient for lithium-ion batteries, which has been soaring in price in conjunction with rising expectations for the EV market (when WiC first touched on the theme of Chinese cobalt demand in WiC329 the price was $26,500 a tonne; The Economist reported last month that prices had reached $90,000 a tonne).

In October 2016 CATL signed a four-year agreement with mining company Glencore to secure 20,000 tonnes of cobalt products, Reuters reported. It also signed an alliance with Shenzhen-listed GEM, which has also secured access to a third of Glencore’s expanded cobalt output over the next three years.

Ivan Glasenberg, Glencore’s CEO told a conference in Lausanne in March that car manufacturers had yet to realise how “tight” the cobalt supply is. “The motor car industry hasn’t woken up to the fact, I don’t think, how important cobalt is,” he said. “The Chinese will have most of the offtake of cobalt. They’re not going to sell batteries to the world, more than likely they’ll produce batteries in China and sell electric vehicles to the world.”

Meanwhile, Robin Zeng Yuqun, the 49 year-old engineer who built both Amperex and CATL and remains chairman of CATL with a 29.23% stake, is poised to become the richest man in Fujian. Going public will give the seven year-old firm a valuation of $20 billion, topping that of many of its clients, including local carmaker BAIC.


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