CATL To Recharge Its Offshore Output With New Shares

The world's leading maker of electric car batteries has filed for a secondary listing in Hong Kong, aiming to boost its production capacity outside China

Key Takeaways:

• The company said it should not suffer any serious damage from being labelled a military-linked business by the United States
• CATL forecast its revenue for 2024 would fall between 8.7% and 11.2%

Battery giant CATL is preparing to plug into the Hong Kong stock market to power its international expansion, raising funds to diversify its supply lines outside of China.

The world's top-selling maker of electric car batteries, which goes by the full name of Contemporary Amperex Technology Co. Ltd. (300750.SZ), joins a stream of industry leaders drawn to Hong Kong for secondary listings, after the likes of logistics enterprise S.F. Holding and appliance maker Midea Group .

CATL has stormed to global dominance as a supplier of battery packs, a key part of the EV supply chain, for brands including Tesla and Volkswagen. The Shenzhen-listed firm has held the top spot for eight years in a row, with its installed battery capacity jumping nearly 32% in 2024 to 339.3 GWh for a global market share of almost 38%, according to a report from new-energy specialist SNE Research. In the global rankings, CATL is closely trailed by another Chinese brand, BYD (1211.HK; 002594.SZ), and South Korean rival LG Energy (373220.KS).

Investors got wind of the listing plan in December, as we previously reported.

A blueprint later approved by the CATL board said the Hong Kong float would not exceed 5% of total issued share capital, but underwriters would get an option to add up to 15% more than the baseline amount. Chinese securities regulators still need to give the green light before the listing can proceed.

A report on Bloomberg, citing sources familiar with the plan, said CATL aimed to raise at least $5 billion from the Hong Kong listing to drive its expansion plans. The proceeds could be even higher than that. Morgan Stanley estimates the amount could range from $6.8 billion to $7.7 billion. If it exceeds the $6.2 billion IPO by video-sharing platform Kuaishou (1024.HK) in 2021, CATL could rank as the biggest Hong Kong listing in recent years.

Overseas obstacles

The high-profile float is being guided by big names in global financial services, alongside China's CICC and China Securities International, according to the listing application. BofA Securities and J.P. Morgan are named as joint sponsors, apparently undeterred after CATL's name appeared on a U.S. list of companies suspected of ties with the Chinese military.

CATL has disputed the designation by the U.S. Defense Department, saying it has not been involved in any military-related business or activities. The company has also played down the potential impact, saying it only faced exclusion from a small number of U.S. government contracts, with minor repercussions for its business.

The listing proceeds would be mostly spent on driving forward its international strategy, which aims to bring new factories on stream outside China. By diversifying its production base, CATL could cut manufacturing costs and shield its products from tariff barriers and other policies that could dent Chinese exporting capacity, as global trade tensions mount.

The listing application said CATL has built a battery manufacturing base in the German state of Thuringia and is constructing a plant in Hungary in a joint venture with the automaker Stellantis (STLA.US), as well as moving ahead with plans for a battery supply-chain project in Indonesia.

A global profile is part of CATL's corporate mission. Company computers are said to display a slogan exhorting workers to "venture out boldly" as heroes of the push into overseas markets.

There is still work for them to do, with data indicating CATL's international growth could be stagnating. SNE Research, which focuses on the battery market, has found that the company's market share outside China edged down from 27.5% in 2023 to 27% last year, although the firm tightened its grip on the global business to 37.9%.

Meanwhile, CATL battery exports have been falling, lagging the pace of the overall industry, as the firm shifts from export-oriented trade towards localized production. In November last year its battery exports fell 22.8% from the same period a year earlier to 12.5 GWh, marking a fifth straight month of decline.

Moves to phase out fossil fuels are still positive for the EV sector, but Chinese companies face increasing obstacles from import restrictions and tariffs as they try to gain greater traction in U.S. and European markets. More Chinese companies are therefore looking to set up production bases in their target markets, or close by, often using a joint-venture model.

But building manufacturing plants and supply chains does not come cheap.

CATL has a market value of more than one trillion yuan and holds more than 100 billion yuan in cash. However, by the end of last June, its currency holdings included only $6.74 billion and 3.86 billion euros, not enough to finance a sustained overseas push. A listing in Hong Kong would offer a potential solution, with the city's appeal to foreign investors and cheaper access to foreign exchange easing the pressure from a falling Chinese yuan.

Tipping point

The EV penetration rate in China has exceeded 50%, meaning domestic battery demand could be peaking out. According to a Goldman Sachs report, China's production capacity for batteries is expected to reach 3,000 GWh in 2025, dwarfing the size of domestic demand projected at a mere 900 GWh.

Raw materials could also be a risk factor, with volatile prices for lithium carbonate, a key input for battery manufacture. CATL lowered its product prices after a fall in the cost of lithium, which has weighed on earnings. The company has estimated that revenues will fall between 8.7% and 11.2% to a range of 356 billion yuan ($48.95 billion) to 366 billion yuan for 2024. Annual net profit is projected at between 49 billion yuan and 53 billion yuan, a year-on-year increase of 11.1% to 20.1%, marking the slowest profit growth since 2019.

CATL is on course for the biggest Hong Kong float in years, at a scale that underscores the sense of urgency about the shift towards international production. The company's status as a leading brand in the global spotlight makes the stock attractive to investors, despite slowing profit growth.

Currently, the company's A share is trading at a price-to-earnings (P/E) ratio of around 20 times, for a market cap of around 1.18 trillion yuan. Mainland China's dual-listed companies tend to trade at a discount in Hong Kong, but foreign investors are revising their views on Chinese tech stocks after the breakthrough success of AI upstart DeepSeek.

Those discounts are expected to narrow over time as China grows more competitive in high-tech industries, according to a Deutsche Bank report. In that case, companies such as CATL could stand to gain in value.