China CATL's Shares Dip: Revenue Fall and Slowing Profit Growth Signal Market Concerns

China CATL's shares have taken a hit after the company warned of a revenue fall and slowing profit growth, signaling market concerns about the world's largest electric vehicle battery manufacturer. CATL, which supplies batteries to major automakers like Tesla and BMW, reported a revenue increase of 8.28% year-over-year (YoY) and a net income increase of 10.66% YoY in the quarter ended September 30. However, these figures represent a significant slowdown compared to the second quarter, when the company recorded a 55.86% YoY increase in revenue and a 63.22% YoY increase in net income. On a quarter-over-quarter (QoQ) basis, CATL's revenue rose 5.21% while its net income dropped 4.28% in the third quarter.



The latest quarterly earnings suggest that CATL is poised to be overtaken by its arch-rival, BYD, in the electric vehicle (EV) battery sector. BYD preliminarily estimated its net income in the third quarter to reach between RMB9.546 billion and RMB11.546 billion, with a YoY increase between 67% and 101.99%. CATL's slowdown in earnings may result from overcapacity and a decline in market share. In the first half of the year, CATL's capacity utilization rate decreased to 60.5%, a significant drop from the previous year. Data from the industry body showcased CATL continued losing market share in its home market, with its battery installation volume market share dropping to 39.41% in September 2023, the lowest since May 2022.



CATL's recent performance can be attributed to several factors, including:

1. Overcapacity and declining market share: CATL's capacity utilization rate decreased to 60.5% in the first half of 2023, a significant drop from the previous year. This overcapacity, combined with a decline in market share, has put pressure on the company's financial performance.
2. Cooling sales of Tesla: CATL relies on automobile companies' orders to boost its battery installation. The cooling sales of Tesla, CATL's biggest client, have negatively impacted the company's revenue. In September 2023, Tesla China's retail sales slumped 43.9% YoY, representing a 32.7% month-over-month decrease.
3. Increased competition from domestic rivals: Emerging domestic rivals like EVE Energy and SVOLT Energy Technology have been growing rapidly and winning significant battery orders from major automakers. EVE Energy's battery installation volume surged 182.8% YoY in the first eight months of 2023, and it could win BMW Group's nearly 70 GWh capacity of EV battery order in China. SVOLT Energy Technology has signed a contract to supply nearly 90 GWh for BMW's EVs made in Europe.
4. Price reduction and revenue pressure: The continuous decline in the unit price of batteries, particularly power batteries, has led to a decrease in revenue. In 24Q3, the unit price of CATL's power battery was about 0.75 yuan/Wh, a sequential decline of 5%.

To regain market share and maintain its competitive edge, CATL should consider the following strategic moves:

1. Diversify Customer Base: CATL should reduce its reliance on a single customer, such as Tesla, by diversifying its customer base. This can help mitigate the impact of fluctuations in demand from individual customers.
2. Innovate and Differentiate: CATL should focus on developing new technologies and products to differentiate itself from competitors. For instance, CATL has already introduced the Shenxing ultra-fast charging battery and the Qilin battery, which have been well-received by major clients.
3. Expand Overseas Markets: CATL should accelerate its expansion in overseas markets to tap into new growth opportunities. The company has already started construction of a battery plant in Germany and has received certifications from Volkswagen Group.
4. Optimize Cost Structure: CATL should continue to optimize its cost structure by improving operational efficiency and reducing expenses. The company has demonstrated strong cost control measures, with operating costs decreasing by 19.15% over the previous year in the first three quarters of 2024.
5. Strengthen R&D: While CATL has shown a more cautious approach to R&D expenses in the first three quarters of 2024, the company should continue to invest in R&D to maintain its technological edge and develop new products that meet the evolving needs of the market.

By implementing these strategic moves, CATL can regain market share and maintain its competitive edge in the electric vehicle battery sector. However, investors should closely monitor the company's performance and the broader market trends to make informed decisions about their investments.