In 2023, CATL’s founder, Zeng Yuqun, surprisingly experienced the most severe decline in wealth among entrepreneurs. According to the latest Hurun Rich List, Zeng Yuqun’s wealth in 2023 was 224.3 billion yuan, down from 334.82 billion yuan in 2022, marking a decrease of 110.52 billion yuan within a year. Corresponding to the drop in Zeng Yuqun’s wealth, CATL’s stock price on the last trading day of 2023 closed at 163.26 yuan, compared to 217.17 yuan on the same day in 2022, representing a 25% decrease and a market value evaporating by around 232.7 billion yuan in the year. Compared to its peak stock price of 382.68 yuan, the market value plunged by over 960 billion yuan.
On January 2nd, during morning trading, the new energy sector generally experienced a pullback, with Deli Energy’s stocks falling over 4%, CATL dropping over 2%, and photovoltaic heavyweights such as Longi Green Energy, Tongwei Co., and TCL Corp all declining over 1%. By the close of January 2nd, CATL’s stock price was 156.83 yuan, marking a further decline of 3.94%.
This trend is somewhat related to the industry entering a downturn. In 2023, factors such as intensified industry competition and rising upstream raw material costs caused the new energy storage industry to face a downturn. Will CATL experience a rebound in 2024?
Entering an Industry Downturn Investor Shi Baogang stated that this is largely related to the energy storage industry entering a downturn due to insufficient mineral supply and significant increases in primary material costs, directly leading to a decline in battery manufacturers’ profit margins. Taking CATL as an example, the upward trend in raw material prices has squeezed the company’s profit margins. In the fourth quarter of 2021, the gross profit margin fell by 3.19 percentage points to 24.70%. In the first quarter of 2022, it again dropped by 10.22 percentage points to 14.48%. Profit margins continued to be squeezed, and the impact on the company’s gross profit margin in 2023 may be even more significant.
CATL’s Chairman Zeng Yuqun mentioned during the 2022 performance conference that from 2015 to 2021, CATL’s compound annual growth rate for revenue and net profit was 56% and 52%, respectively. Globally, any company with a compound annual growth rate exceeding 20% can be deemed outstanding. CATL’s extremely high compound growth rate has resulted in valuations comparable to world-class high-tech companies. However, as profit margins in the industry continue to be squeezed, CATL must devise strategies to counter the industry’s downturn risks.
Rapid Growth in Overseas Markets Fortunately, CATL’s growth in overseas markets is robust, potentially offsetting some of the domestic market’s downward risks. According to financial reports, in the first three quarters of 2023, CATL achieved revenue of 294.7 billion yuan and a net profit of 31.15 billion yuan, earning an average net profit of 1.15 billion yuan per day. It became a unicorn enterprise in the global power battery industry, maintaining the leading market share. In the global power battery market, CATL holds the top market share. According to data from the China Automotive Power Battery Industry Innovation Alliance, in the first three quarters of 2023, CATL held a 42.75% market share, while BYD’s market share was 28.94%. CATL remains the leader in China’s new energy battery field. Public data shows that China’s share of the global new energy passenger car market was 40.8% in 2020, rising to 52% in 2021 and reaching 62.5% in 2022. From January to November 2023, China’s share of the global new energy vehicle market was 62.6%. China is the world’s largest new energy vehicle market, and the proportion will likely continue to increase. This is undoubtedly good news for CATL, which only needs to maintain its solid foundation to await a rebound opportunity.
Maintaining a Solid Foundation To stabilize its stock price and enhance investor confidence, on October 31, 2023, CATL announced plans to spend 2-3 billion yuan of its own funds on share repurchases, marking the first repurchase since its listing. The announcement stated that the purpose of repurchasing shares is to enhance investor confidence in the company and improve the company’s long-term incentive mechanism. The repurchased shares will be used for future stock incentive plans or employee stock ownership plans. CATL’s share buyback has attracted significant attention from numerous institutions. Zhongjin Company stated that the repurchase amount of 20-30 billion yuan is a top-tier repurchase for A-shares, exceeding market expectations by 50% higher than the market price, demonstrating CATL management’s confidence in future development.
Fitch Ratings explicitly pointed out in a research report that thanks to the decline in raw material costs and the increasing contribution of CATL’s overseas sales, CATL’s profit margin remains resilient, indicating its strong position in the electric vehicle industry chain. In the third quarter of 2023, CATL’s gross margin was 22.4%, an increase of more than three percentage points from the same period last year. This may be the key to CATL’s bottoming out and rebounding.
The third-quarter report for 2023 shows that CATL’s gross margin was 21.92%, compared to 18.95% in the same period in 2022, an increase of 2.97 percentage points. The gross margin has risen from 14.48% in the first quarter of 2022 to 21.92%, an increase of 7.44 percentage points. Since entering 2023, the gross margin for the three quarters has been 21.27%, 21.63%, and 21.92%, with moderate increases but still showing an upward trend. The net profit margin has also increased from 4.06% in the first quarter of 2022 to 11.04%, a rise of nearly 7 percentage points.
Continuous R&D Growth Sets the Stage for Rebound As a high-tech company, CATL has consistently invested in research and development. Financial reports show that R&D expenses in the past five quarters were 10.58 billion yuan, 15.51 billion yuan, 4.652 billion yuan, 9.85 billion yuan, and 14.88 billion yuan. Year-on-year growth rates were 130.18%, 101.66%, 81.16%, 70.77%, and 40.65%, respectively. The proportion of R&D investment to total revenue was approximately 5% throughout. From 2020 to 2022, R&D expenses were 3.569 billion yuan, 7.691 billion yuan, and 15.51 billion yuan, with growth rates of 19.29%, 115.48%, and 101.66%, respectively. The R&D proportion was approximately 7.1%, 5.9%, and 4.7%, maintaining an average of around 5%.
In the face of cyclical fluctuations in the industry, CATL has consistently adhered to technological innovation; increased continuous R&D investment; optimized production processes; actively expanded market share in emerging markets; and cooperated with upstream and downstream companies in the industry chain to jointly address cost challenges. This practice has not only contributed to the continuous development of the enterprise itself but also provided beneficial reference for the entire power battery industry to cope with cyclical fluctuations.