By relying on product strength to support gross profit, CATL has taken the path of second-tier battery manufacturers | Focus Analysis
When the entire automotive industry chain is deeply trapped in the shadow of a price war, the profit of "Ning Wang" has instead reached a highlight moment.
Recently, CATL disclosed its third-quarter financial report. In the first three quarters of this year, its revenue was 259 billion yuan, with a year-on-year decrease of 12%, but its net profit reached 36 billion yuan, with a year-on-year increase of 15.6%.
Looking only at the third quarter, CATL's net profit reached 13.136 billion yuan, more than 140 million yuan per day. This is the sixth consecutive quarter that "Ning Wang" has had a net profit of more than 10 billion yuan. The profit of this quarter ranks second in the company's historical single-quarter net profit.
The highest single-quarter net profit was in the fourth quarter of 2022. At that time, the price of lithium carbonate rose to 500,000 yuan per ton, and the battery price followed suit. CATL passed on the material cost to automakers and obtained an extremely considerable net profit of 13.138 billion yuan in the fourth quarter.
Now, although CATL's shipment volume has increased significantly, under the price war, the situation of increasing volume but not revenue has become the norm. CATL's revenue in this quarter was 92.278 billion yuan, showing a year-on-year decline for four consecutive quarters. Compared with the 118.254 billion yuan revenue in the fourth quarter of 2022, it has decreased by approximately 21.9%. Even so, the profit of this quarter is only 1.4854 million yuan less than that of the fourth quarter of 2022.
The gross profit margin gives a more intuitive feeling. CATL's gross profit margin in the third quarter reached 31.17%, setting a new high since the fourth quarter of 2018, that is, in the past 23 quarters. This is a gross profit level that CATL has not achieved even in its strongest period.
It is also worth mentioning that in the capital market, along with the rising trend of the A-share market, CATL's stock price has also been continuously climbing. On October 8, CATL's stock price once exceeded 300 yuan during the trading session, and its market value reached 1.31 trillion yuan on that day, setting a new high in the past two years. Although there have been adjustments since then, it still remains at the trillion-level.
Overall, despite the "wind and waves" in the market, CATL remains calm and firmly holds the profit in its own hands. Behind its third-quarter financial report, there is also a "code" for obtaining profits against the trend.
Products have price cuts, but costs drop faster
In the third quarter of 2023, the price war was extremely fierce. CATL stated in its financial report that it provided a part of rebates for automakers to support the long-term development of cooperative automakers.
This year, CATL did not mention "making concessions", but announced the announcement of the provision for impairment in the first three quarters. The total amount of provision for impairment is 7.54 billion yuan, which will reduce the net profit attributable to shareholders of the listed company in the first three quarters by 6.78 billion yuan. Among them, the amount of impairment provision for long-term assets accounts for a relatively large proportion, about 5.23 billion yuan.
CATL Announcement
The main "loss" of CATL's long-term assets is the Yichun lithium mine. At the beginning of September, when the price of lithium carbonate dropped to nearly 70,000 yuan per ton, there was once a rumor in the market that "CATL decided to suspend the operation of Jiangxi Lithium Industry". CATL also responded that it plans to adjust the production arrangement of lithium carbonate in Yichun. "Regarding the resumption of work, the company is communicating with the government to study cost reduction measures."
An industry insider told 36Kr, "The lithium ore grade of CATL in Yichun is relatively low. Even if it does the ore dressing and processing itself, the cost is about 90,000 yuan. For other ores with higher grades, the cost is only about 50,000 - 60,000 yuan."
It can be seen that when the price of lithium carbonate continues to decline, the Yichun "low-grade lithium mine" that CATL once acquired amid controversy has indeed become a "loss-making business".
In the announcement, CATL also disclosed that in the case of the continuous decline in the price of lithium carbonate, the company conducted an impairment test on the mineral resource-related assets with impairment signs in accordance with the requirements of the "Enterprise Accounting Standards", and provided for impairment for the part where the recoverable amount of the assets is lower than their book value.
It is also worth noting that in the first three quarters, CATL's ongoing construction projects have not been completed, and it has also actively provided for impairment of 600 million yuan. Such a large amount of impairment provision is to actively resolve potential risks and hide profits during the high-profit period, and then release them when the profit is insufficient in the later period.
After the huge impairment, CATL's profit in the first three quarters is still 36 billion yuan, with about 132 million yuan entering the account every day, showing its abundant profit.
The profit of CATL mainly comes from its cost control ability in the upstream and downstream as well as itself.
In the first three quarters of this year, CATL's operating income decreased by 12.09% year-on-year, but its operating cost decreased by 19.15%, its management expenses decreased by 2.07% year-on-year, and its R & D expenses decreased by 12.12% year-on-year. Only the sales expenses increased slightly, with a year-on-year increase of 6.9%. The changes in the three expenses are within a reasonable range. Although the R & D expenses have decreased, they are basically the same as the first and second quarters. The financial report also states that "there are no significant changes".
However, it can be seen from the operating cost that although CATL has reduced the price of its products in sales, the decline in production cost exceeds the decline in the price due to the price war. This is the reason why its shipment volume is more, its revenue is less, but its profit remains the same.
CATL's Third Quarterly Report of 2024
For the faster drop in costs, CATL disclosed the reasons. One is that new products such as Shenxing and Kirin batteries have been launched, bringing a premium. The other is the comprehensive cost advantage brought by technological innovation and large-scale procurement. However, the increase in volume without an increase in revenue also proves that the product premium ability is not high, but only mitigates the impact of the price war.
CATL's accounts receivable in the first three quarters was 66.703 billion yuan, with a year-on-year decrease of 2.95%, and its accounts payable was 123.14 billion yuan, with a year-on-year increase of 11.01%. It can be seen that in order to compete for high-quality production capacity, automakers have a rapid payment collection speed, while CATL controls the payment collection speed from suppliers within a certain period of time. Therefore, the accounts payable is about twice as high as the accounts receivable, and CATL's position in the industrial chain remains core.
In the first half of the year, CATL's capacity utilization rate was 65.33%. Although there is no detailed figure for the capacity utilization rate in the third quarter, CATL also pointed out at the performance communication meeting that the battery capacity utilization rate in the third quarter has been relatively saturated, and it is expected to further increase in the fourth quarter.
After the capacity utilization rate increases, the inventory also increases accordingly. In the first three quarters, CATL's inventory was 55.215 billion yuan, with a slight increase compared with 45.434 billion yuan in the same period last year.
In terms of capacity construction, CATL's capital investment in the first three quarters was 21.268 billion yuan, with a year-on-year decrease of 20.99%; the ongoing construction projects were 25.201 billion yuan, with a year-on-year decrease of 17.78%. This also means that although the shipment volume is continuously increasing, CATL has been very cautious in its investment in capacity expansion.
In addition, at the CATL financial report communication meeting, a response was also given to the recent fire incident: The cause of the fire at the Z base is still under investigation, but production has already resumed, and the impact on production and delivery is very small.
Kirin and Shenxing are about to be mass-produced, winning with products
In addition to excellent cost control, CATL's new products are also gradually entering the mass-production stage.
The Kirin battery and the Shenxing battery were launched in 2022 and 2023 respectively. They are two star products of CATL. The Kirin battery focuses on the high-end ternary market, with outstanding energy density and rate performance. The Shenxing battery is a lithium iron phosphate fast-charging product that focuses on cost performance.
Both products are relatively popular in the market. Especially the Kirin battery, which focuses on the high-end ternary market, an industry insider told 36Kr, "It is almost in short supply."
CATL also stated at the financial report communication meeting that the Kirin battery and the Shenxing battery have been mass-produced and installed in more than 30 mainstream vehicle models in China. It is expected that the two will account for three to four percent of the company's power battery shipments this year, and is expected to rise to seven to eight percent next year. It can be seen that the two star products will be the sales pillars of CATL in the future.
According to the 2023 annual report, CATL's top five customers include companies such as Tesla, Li Auto, Aion, NIO, and Zeekr. Now Zeekr is using the Shenxing and Kirin batteries, and Aion has also disclosed a cooperation. However, the top five customers only account for 36.78% of the total sales, and more sales come from the accumulation of other automakers.
CATL's 2023 Annual Report
The Huawei series vehicles such as Wenjie and Zhijie, which have a rapid sales growth rate, as well as Xiaomi Automobile, have begun to use the two products. In addition, Nezha, Avita, Arcfox, and LanTu, etc., have all begun to cooperate with the Shenxing battery.
The centralized shipment of the two products not only means stabilizing CATL's market share, but also largely unifies the battery specifications it produces. The same product can almost be produced on the same production line, which is completely different from the early stage where each automaker customized the production line and products.
This kind of co-line mode can greatly improve the production scale, ensure the capacity utilization rate, and reduce the manufacturing cost.
Coupled with CATL's super assembly line technology, a single production line can achieve 10 GWh. This production mode is specifically designed for the mass production of large single items and is suitable for the batch supply of the two products. CATL once stated that the company's 8th-generation super intelligent manufacturing production line - PSL can reduce the number of personnel by 70% and increase the speed by 300%.
Scale not only brings down the manufacturing cost, but also reduces the procurement cost. Obviously, the same product can mostly achieve unified procurement of raw materials.
An industry insider told 36Kr, "For the same ternary material, CATL can get the most favorable price in the industry, and CATL is also striving for this goal for lithium iron phosphate materials."
Using two star products to spread widely and reducing manufacturing and procurement costs through scale effects. This model may be the main means for CATL to ensure profits in the future. Previously, an industry insider analyzed to 36Kr, "If the manufacturing cost is reduced by 5 cents, the gross profit may differ by 8 percentage points."
Now, CATL's profit in the third quarter has reached 31.17%, setting a new high since the fourth quarter of 2018. This is a gross profit level that CATL has not achieved even in its strongest period.
CATL stated at the performance communication meeting that the increase in gross profit margin is due to the fact that the cost reduction is greater than the product price reduction, and the premium brought by new products has also improved the company's profitability.
CATL's Kirin and Shenxing products are still being innovated. 36Kr previously learned that CATL's Kirin II is ready to be launched and will be released at the end of the year, and the charging rate will reach 6C at that time. In addition, the Shenxing Super Hybrid Battery that supports a 3C rate has also officially announced a cooperation with Avita and will be sold on plug-in hybrid models thereafter.
If it simply relies on the shipments in the pure electric vehicle field, it is not easy for these two products to account for 70% - 80% of the company's power battery shipments next year. Now the growth rate of the high-end pure electric vehicle market has slowed down. But with the addition of the Shenxing Super Hybrid Battery to expand the plug-in hybrid market, CATL's goal may be achievable.
The Kirin and Shenxing batteries currently have almost no large-scale mass-produced alternative products on the market, which may also be the reason why CATL is confident in batch shipments next year.
Second-tier battery manufacturers are also competing for customers such as Leapmotor and Wuling who win by price. These automakers are customers with strong replaceability, with standardized procurement, regular bidding, and the lowest bidder wins. Even with a large volume, the profit is meager. An insider from a second-tier battery manufacturer calculated, "For a VDA product like Wuling, it needs to produce 8 GWh to be profitable."
Excellent products are the core of enterprise competition. When all second-tier battery manufacturers are calling for differentiated competition, this leading enterprise that has made the most obvious product differentiation is also CATL's biggest competitive barrier.
Just as CATL said at the performance meeting: "In the future, we will not focus on price, but focus on delivering good products. This is the most critical."