Battery wars ahead of IPO

CATL lawsuit says CALB infringed its EV battery intellectual property

In China you might typically steer clear of competition with a state-owned enterprise that used to develop missiles for the People’s Liberation Army.

Unless you are CATL, perhaps, the world’s biggest producer of batteries for electric vehicles and a key contributor to China’s drive to reach carbon-neutral status by 2060.

The story starts in the city of Luoyang in Henan province. Sitting in one of China’s ancient capitals is the former headquarters of China Lithium Battery Technology (CALB). Next door is the missile developer in a smaller building with a supersized slogan that translates as “Serving the country with aviation; strengthening the army; and enriching the people”.

A smaller rival of CATL, CALB applied for a stock market listing in Hong Kong in March. In its prospectus, the EV battery maker revealed that it was formerly a part of the China Airborne Missile Academy, a unit of the aerospace and defence giant AVIC. As part of a corporate restructuring ahead of its IPO, CALB was spun off from AVIC. All military-related businesses have been transferred to its missile-developing parent and its biggest shareholder is now a vehicle controlled by the local government of Jintan district (in Jiangsu), although AVIC has retained a stake of about 10%.

EV batteries are now an investment hotspot. But for investors who want to take a punt on CALB’s shares, they might first size up some potential geopolitical risks. AVIC, for instance, was one of the military-linked entities put on an  American investment blacklist in 2020. If the sanctions were eventually to extend to  CALB as well, the state-backed firm might find it difficult to win international clients for its batteries.

CATL, which has been hit with speculation that it could also be a target of Washington’s sanctions, is a more imminent threat to CALB’s business prospects.

CALB’s listing documents acknowledge that one of the major risk factors is intellectual property infringement claims. The company has been dealing with a lawsuit filed by CATL since last year, for instance, which alleges infringement of five patents. CATL is demanding that  CALB stop selling products using the specific patents, with China Securities Journal reporting last week that CATL is also demanding compensation of at least Rmb518 million.

CALB’s prospectus claims that the allegations are “lacking in merit” and that they don’t have a material impact on its business as a whole.

According to Jiemian, a news portal, CALB filed applications last year to the China National Intellectual Property Administration (CNIPA) to revoke the five patents in question  owned by CATL. It has since withdrawn two of the applications and two are still in proceedings, Jiemian says.

CALB is the third biggest EV battery maker in China behind CATL and BYD (which makes most of its batteries for its own electric vehicle brands).  It has been trying to win orders with cheaper pricing than its larger rivals and its products accounted for 8.6% of new installations in China in March, reported 36Kr, another news website, up on 5.7% share in January 2021.

Over the same period, CATL’s share slipped to 50.5% from 53.3%.

The legal dispute between CATL and CALB could have far-reaching implications for the world’s largest EV market amid the Chinese government’s wider ambitions for the EV sector, which it wants to be the global leader of, the South China Morning Post reported.

In the meantime there is no further news on when CALB’s Hong Kong listing might finally happen, despite the initial filing for the IPO in March.

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