Contemporary Amperex Technologies (CATL) is the world’s leading manufacturer of batteries for electric vehicles (EVs). With EV manufacturing increasingly saturated by new market entrants, many investors who want exposure to the EV industry are wondering how to buy CATL stock.
CATL is a publicly traded company, but it does not trade on a US exchange. CATL shares trade on the Shenzhen exchange, which makes a purchase complicated for many US investors.
Why Buy CATL Stock?
CATL stock is a way to get exposure to the EV industry without relying on EV manufacturers, who face an increasingly congested competitive landscape. Because CATL supplies many of the most prominent EV manufacturers, it’s less vulnerable to competitive pressure.
|Contemporary Amperex Technologies: Fast Facts|
|Key Products||Electric Vehicle Batteries|
|Major Customers||Tesla, VW, Honda, Geely|
|Major Competitors||LG, BYD, Samsung, Panasonic|
|Founder and CEO||Zeng Yuqun|
|Current Market Cap||1.14 trillion CNY|
|Revenue Growth Rate (trailing year)||232.47%|
|Net Income Growth Rate (trailing year)||188.42%|
|Location||Ningde, Fujian, China|
EV Sales: An Overwhelming GrowthTrend
EVs inspire polarized rhetoric and a lot of varied opinions, but the market is clearly adopting them at a prodigious rate. The numbers speak for themselves.
Projected EV Sales, US
Projected EV Sales, Global
The US market tends to get a disproportionate share of the attention, but the world’s largest and fastest-growing EV market is China, followed by Europe.
Despite worries about range, charging networks, and battery lifetimes, EVs are clearly here to stay, and demand is strong and growing. But what does that mean for EV manufacturers?
EV Manufacturers: Competition Matters
Specialist EV manufacturers were among the market darlings of the 2021 bull market. Tesla is among the most talked-about stocks in the world, and Rivian was among the most prominent IPOs of the last few years.
While the EV market overall is surging, investors have good reason to be wary of specialist EV manufacturer stocks. The market is set for an unprecedented degree of saturation in 2023, with over 40 new models set to be introduced.
These span the gamut from Rolls Royce and Bentley to Maserati, Lotus, Mercedes, Lexus, Audi, and BMW to mainstream brands like VW, Volvo, Ford, GMC, Jeep, Toyota, Honda, Hyundai, and Kia, and on to VinFast, Nio, BYD, XPeng and many more. Even DeLorean is getting in on the show!
It’s impossible to know which of these models will stick and which will fade, and how they will stack up to the entrenched dominance of Tesla. What we do know is that competition is going to be intense, especially in the luxury niche. All EV manufacturers will struggle to achieve or maintain market share.
The CATL Alternative
CATL is by far the largest manufacturer of EV batteries, with a market share of approximately 34%. The next-largest competitor, LG, has 14%, and BYD, which only makes batteries for its own vehicles, is third at 12%.
CATL’s list of customers and collaborators reads like a who’s who of EV makers and includes Tesla, Volkswagen, Stellantis, BMW, Daimler, Hyundai, Honda, Nio, Volvo, XPeng, Geely, and multiple bus manufacturers.
On Jan 6, 2023, CATL inaugurated a $1.91 billion factory in Germany, only three hours from Tesla’s European “gigafactory”. Another plant is under construction in Hungary, and there are reports of a Ford-CATL joint venture plant in the US or Mexico.
Aside from its dominance in lithium-ion batteries, CATL is a world leader in Lithium Ferro-Phosphate batteries, which don’t use expensive cobalt or nickel, charge fast, and have a long lifespan.
CATL has developed a battery with a 16-year lifespan, capable of driving a vehicle for a million miles with better fire safety and cold-weather performance than existing models.
The Company is also exploring battery applications for large vehicles, ships, and others.
CATL is a leading R&D spender and as of the first half of 2022, had 5,480 issued patents with another 7,444 pending.
CATL is proactively addressing potential resource availability issues by investing in mining and processing facilities for lithium and other key materials. The company’s base in China assures a steady supply of rare earth metals.
Note: CATL’s dominance of the EV battery market and its role as a supplier to multiple EV manufacturers place it in a position to succeed in the EV boom no matter which manufacturers eventually dominate the pack.
CATL Financial Performance
CATL has shown extremely high growth rates. Revenues in Q3 2022, the most recent available at this writing, are up 232.5% over the equivalent quarter last year, and profits were up 188%.
The long-term growth trend is equally impressive.
One concern is that free cash flow has been negative since 2001, but that is explained by other figures.
The negative cash flow is caused by rising R&D expenses, which are necessary to maintain the company’s competitive position and market share, and a surge in capital expenditure driven by the expense of constructing new plants to meet rising demand.
R&D and investments in manufacturing capacity are necessary expenses and indicate that the company intends to maintain its position well into the future.
With $18 billion in cash and $8 billion in debt, the balance sheet is solid, and CATL is certainly not facing any imminent cash or debt issues.
By some conventional measures, CATL’s valuation seems stretched. The Company trades at 42.6 times trailing earnings and 4.12 times trailing sales, which are fairly lofty measures by any standard.
These valuation measures are still well below previous levels: CATL’s P/E ratio averaged 141 in 2020 and 86 in 2021.
The Price/Earnings Growth (PEG) ratio is far more attractive at 1.06. which by usual measures suggests a fair correlation between today’s price and expected earnings.
There is an argument for the premise that CATL’s growth rate and dominant position in a booming industry justify the valuation ratios. Whether that argument is compelling enough to justify investment is something investors will have to determine for themselves.
How to Buy CATL Stock
CATL trades on the Shenzhen stock exchange (300750.SZ). This will be an issue for US investors who use brokers that don’t handle overseas markets.
While the Shenzhen listing is a deterrent for US investors, it also alleviates a key risk for Chinese stocks. The SEC has suggested that Chinese stocks could be delisted due to reporting concerns, which could have a serious impact on stocks with US listings.
There has been some discussion of a CATL listing in Switzerland, but this is unconfirmed and would still pose an obstacle for US investors.
There are still ways for US investors to buy CATL stock.
1. Use a Broker That Allows Overseas Trades
Several US brokers allow investments in overseas markets, including Fidelity and Charles Schwab. The number of markets available is limited, and you may need to meet special qualifications and pay additional fees.
Interactive Brokers offers the widest range of foreign markets of any broker available to US investors, with access to 150 markets in 33 countries. It might seem extreme to open a new brokerage account for a single stock, but if you’re interested in diversifying into foreign markets, it is certainly worth looking into their services.
Interactive Brokers is the only broker we know of that allows US investors to purchase shares directly on the Shenzhen exchange.
If CATL pursues a Swiss listing, it will be accessible through a larger range of US brokers.
2. Purchase Through a Fund
If you want to have CATL shares in your portfolio but you don’t want to change brokers or open a new account, another option is to buy a mutual fund or Exchange-Traded Fund (ETF) that has a significant holding in CATL. These funds are typically available through any US broker.
The downside of buying through a fund is the same as the upside: CATL will be only one of many holdings. If you really want to buy CATL, this is a downside; if you want diversified exposure that includes similar companies, it’s an upside.
Two types of funds are likely to hold CATL: funds focused on battery or lithium stocks and funds focused on China tech stocks.
Not all funds in these categories will hold CATL. Some funds restrict themselves to companies that trade on certain exchanges, and they may not be willing to buy shares on the Shenzhen exchange.
Top Fund Options
Here are four funds with prominent CATL holdings, two focused on Chinese stocks and two focused on battery and electric vehicle stocks. All holding percentages are as of February 5, 2023.
- The KraneShares Bosera MSCI China A 50 Connect Index ETF (KBA) holds shares in 5o large-cap stocks listed in Shenzhen and Shanghai. CATL is the single largest holding, with 8.07% of the fund’s assets.
- The VanEck ChiNext ETF (CNXT) tracks a cap-weighted basket of stocks on the Shenzhen SME and ChiNext exchanges. CATL is the largest holding, with 17.42% of total assets.
- The Amplify Lithium and Battery Technology ETF (BATT) focuses on lithium battery technology, including metals and materials, batteries, and EVs. CATL is the second-largest holding, with 7.62% of assets.
- The KraneShares Electric Vehicles and Future Mobility Index ETF (KARS) tracks the Bloomberg Electric Vehicles Index, which is focused on electric vehicles and future mobility. CATL is the largest holding at 4.76% of total assets.
Before selecting any of these funds, you should assess the entire portfolio, the investing strategy, the expense ratio, and other factors.
Should You Buy CATL Stock?
Every investment involves risk, and investment in CATL is no exception.
Many US investors perceive all Chinese stocks as high-risk investments. There are reasons for that perception: US-China tension and the possibility of escalated sanctions or even war over Taiwan are real concerns.
CATL is less vulnerable to these influences than many stocks. Because the stock trades on non-US exchanges, it is immune to the potential delisting controversies that surround Chinese ADRs in the US. Sanctions are also unlikely. CATL no longer receives government subsidies. It is a major supplier to US firms, and its major competitors are Asian, not US, companies.
CATL does not fit the “copycat” description so often applied to Chinese companies. The company is an innovator in its own right and does not rely on imported technology.
Despite this relative insulation, there is little doubt that CATL would be affected by a significant escalation of US-China tensions, and that the impact of actual military conflict would be significant.
Probably the greatest risk factor facing CATL is the possibility that the EV industry overall may not live up to its lofty expectations. A prolonged period of low oil prices, for example, could slow EV adoption. The ascension of conservative governments could lead to EV subsidies and supports being withdrawn. Safety or lifespan concerns could slow EV adoption.
All of these factors are impossible to predict and could have an impact on the entire industry.
The Bottom Line
CATL is a highly innovative company that dominates a rapidly expanding market. Its high-profile customer list positions it to ride the EV wave no matter which manufacturers emerge on top of the competitive duel. If you believe in the future of electric vehicles, CATL is a stock to consider.
While CATL is an interesting and appealing company, it trades on an exchange that poses certain accessibility issues for US investors. If you’re wondering how to buy CATL stock, there are still ways to do it!
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