Auto Industry

Hoarding reserves

CATL readies new cobalt deal


A driving force in new energy cars

Cobalt is found in almost all of the lithium-ion batteries that power smartphones, laptops and electric cars today. An element commonly found in copper or nickel mines, it is scarce but toxic. And even as scientists work on new formulas that eliminate the lustrous metal from cathode composition, the expensive material isn’t expected to be supplanted in the foreseeable future.

Why? The stability and performance benefits it affords to lithium-ion batteries is still unbeatable.

To that end, Contemporary Amperex Technology (CATL), the world’s largest EV battery maker, announced on April 11 that it had struck a $137.5 million agreement with China Molybdenum in a bid to gain access to a high-grade copper-cobalt mine in the Democratic Republic of Congo. Under the partnership, the Ningbe-based company will obtain a 24% stake in a project called Kisanfu, while its Luoyang-based counterpart will retain 71% ownership, and the Congolese government 5%. Located close to Tenke Fungurume, a giant copper-cobalt mine also owned by China Molybdenum, Kisanfu contains an estimated 3.1 million tonnes of cobalt and 6.2 million tonnes of copper.

Kisanfu is CATL’s second largest investment in upstream cobalt production. In 2018 it claimed a 25% stake in a $700 million nickel-cobalt asset in Indonesia. But the latest deal came at a time when CATL’s four-year purchase agreement with Glencore, reportedly signed in 2016, was set to expire (see WiC404), while cobalt prices continue to rise fast. The metal’s three-month forward rate, as quoted on the London Metal Exchange, has climbed more than 50% to above $50,000 per tonne so far this year.

Ensuring the stability of its cobalt supply has become all the more important for CATL given its swelling order book. China’s domestic EV shipments in 2021 are expected to increase by 40% on the year to 1.8 million units, according to the China Association of Automobile Manufacturers, a trade group. More than half of the 3,900 new-energy vehicle models approved (as of June last year) by the Ministry of Industry and Information Technology have adopted CATL’s batteries.

In addition to a growing legion of EV players at home, CATL is enjoying a widening appeal abroad. Mercedes-Benz, for instance, has opted to load CATL’s square and pouch-type batteries into its first all-electric sedan, the EQS.

That’s likely to be to the dismay of LG Chem, which supplied the German brand’s first EQ model (the EQC) back in 2019.

In February CATL was also awarded a $12.5 billion order from General Motors, Sina reported.

According to South Korea’s SNE Research, CATL’s share of the global EV battery market for the first two months expanded by 17 percentage points to 32% (as compared to a year ago, when China’s Covid lockdowns began – and dramatically cut CATLs output and sales). LG Chem came second with 19.2%, followed by BYD on 7%. The Chinese company has been leading the pack since 2017. Last year it sold a total of 34.3 gigawatt-hours (GWh) of EV batteries, or 24% of the world’s tally.

To maintain its dominant position, CATL has been aggressively adding new production capacity. So far this year it has already announced investments of nearly Rmb40 billion ($6.15 billion) to build four manufacturing facilities in China. This will take its total to eight production hubs (including one in Thuringa in Germany).

By 2025, CATL will have at least 497.5 GWh of production capacity, estimates Guosen Securities, a local brokerage, versus the 53 GWh it reported in 2019.

Losing 12% year-to-date, CATL’s Shenzhen-listed shares have been underperforming the broader A-share market. Partly that was because investors have weighed the new challenge posed by its archrival BYD (see WiC499 for more on the pair’s technology feud).

The Warren Buffet-backed company told Nikkei Asia that it will supply batteries developed under its unit Fudi Battery to third parties as early as July. BYD is planning to spin off Fudi as well.

Trading at 179.5 times its trailing earnings, CATL had a market capitalisation of around Rmb850 billion as of this week. Its shares could see a new rally should Apple confirm rumours that its auto project, titled ‘Titan’, will use CATL’s batteries.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.