CATL 4Q23 Earnings Call Summary
Summary of CATL's 2023 Annual Earnings Call, for a detailed analysis of the financial report, please visit " Battery Battle at Dawn, Will Ning Wang Make the Final Move? "
1. Review of Key Financial Information:
2. Detailed Content of the Earnings Call
2.1. Key Points from Management's Statements:
A. Operational Highlights:
Ⅰ. Continued rapid growth in the industry: In 2023, global sales of new energy vehicles reached 14.06 million units, a year-on-year increase of 33%. The use of power batteries reached 706GWh, up 39% year-on-year, while the shipment of energy storage batteries reached 185GWh, up 53% year-on-year. The advancement of artificial intelligence and digital networks has driven innovation across various sectors, accelerating the process of electric vehicles replacing fuel vehicles. The rapid development of artificial intelligence has led to a significant increase in computing power demand, further boosting the demand for power and energy storage.
Ⅱ. Research and Development System: R&D expenses in 2023 reached 180.4 billion yuan, with over 20,000 R&D personnel. By utilizing advanced research methodologies, technological accumulation, and massive data, the company continuously introduces an intelligent product design platform, releasing new products with high energy density, ultra-fast charging, and high safety. In the field of power batteries, the company launched the ultra-fast charging Shenxing battery, breaking the boundaries of lithium iron phosphate chemistry performance, winning the European Auto Best Technology Award, and introducing the Condensed Peptide battery, expanding its application scenarios. At the same time, the Kirin battery with 5C fast charging achieved mass production through cooperation with Li Auto, and the M3P battery and the first-generation sodium-ion battery achieved mass production through cooperation with Chery. In the field of energy storage batteries, the company continues to focus on building nuclear power plants and safety-hardcore products, establishing its own outline for energy storage system security. During the reporting period, the company released the "Zero Auxiliary Source" light storage fusion solution with long life, high safety, and high efficiency, which has been implemented in scenarios such as supercharging stations. The company upgraded products like EnerOne Plus and EnerD, significantly increasing energy density and charge-discharge efficiency compared to the previous generation.
Ⅲ. Leading in the domestic market, continuously expanding overseas markets: In the power battery sector, the company continues to strengthen cooperation with domestic automakers. Benefiting from the previous delivery to overseas customers, the company's overseas shipment volume continues to rise. In 2023, the company's global market share of power battery usage reached 37%, maintaining the top spot globally for 7 consecutive years. The overseas market share of power battery usage was 28%, up 5% year-on-year. During the reporting period, the company focused on building brand systems such as Shenxing and Kirin, aiming to reach a wider range of end consumers through CATL Inside. In the energy storage battery sector, the company supported Nextera in achieving the world's largest single-unit light storage project of 1.8 GWh and delivered a 6.4 GWh global storage project to Italy's national grid operator ENEL.Delivered the largest independent energy storage project in Australia, with a capacity of 3.8 GWh for Synergy, the Western Australian power company. The company's global market share of energy storage batteries reached 40% in 2023, maintaining the top spot worldwide for three consecutive years.
Overall, during the reporting period, the company achieved rapid development and excellent operational performance. Simultaneously, the company has always placed a high priority on shareholder returns. Following the board's decision, the company plans to distribute a total of 22.1 billion yuan in cash dividends and special dividends in 2023.
2.2 Q&A Analyst Q&A
Q: What is the company's view on the recent demand growth exceeding expectations, especially the significant production situation, and how does the company assess the short-term trend of this situation? How does the management view the mid-term demand growth prospects in the power and energy storage sectors? Regarding the company's competitive landscape, especially considering the slowdown in technological advancements and increasing competition, is it possible for the company's competitive advantage to further increase? How should the change in the company's profitability be evaluated in the current competitive landscape?
A: When discussing demand, we need to consider both short-term and long-term perspectives. Short-term demand observations involve daily, weekly, monthly, and quarterly changes. This work is handled by the Production Material Control (PMC) and Production Control (PC) departments. Market penetration rate is a crucial indicator, reaching a high level in the previous week, even hitting 49% in February. The demand in the Chinese market remains strong, while it has slightly slowed in Europe and the United States, mainly due to reduced government subsidies. The European and American markets are influenced by policy drivers, while the Chinese market has achieved marketization and is more consumer-driven. As market trends progress, after exceeding a 50% penetration rate, electric vehicle buyers become mainstream, while gasoline vehicle buyers are considered the minority.
However, the long-term outlook remains optimistic. In terms of energy storage, large-scale storage (1 GWh requires 1.5 million battery cells) has high requirements for consistency, safety, energy decay, and the ultimate good product still boils down to cost calculations. Additionally, ppm-level process control is needed to achieve stable performance, and there is no surplus of high-quality production capacity in the market. In Europe, the slowdown in European carmakers' plans is mainly due to their own product and R&D issues. The launch of the 2030 electrification goal was met with skepticism, and now the delay to 2035 for the electrification goal still requires significant efforts to achieve.
Q: Regarding the recent overseas market demand, especially the development trends in the European market, it was mentioned at the end of last year that the demand in the European market may slow down. Now, I would like to know your opinion on whether the demand in the European market will accelerate next year.
A: There is still controversy over whether certain behaviors are illegal and the definition of strong growth, with many people lacking data support when making decisions, mainly relying on subjective feelings. In the long run, changes have occurred in the European automotive industry recently, with some major customers no longer investing in projects such as power batteries and new energy vehicles. Their investment pace has slowed, but the extent is not yet clear. Some car manufacturers originally planned to achieve full electrification by 2030, which was surprising considering that designing new cars in Europe typically takes about 48 months. Therefore, some companies have postponed electrification to 2035, but even by then, they may face the same challenges.This is like a duck paddling hard under the water, although it may not be visible on the surface, but we all feel the pressure.
Q: Since 2021, everyone has been focusing on the lithium battery industry chain, especially on cost reduction and control, but they are not willing to pay a premium for the leading position in technology and products. Some even compare batteries to traditional manufacturing, but in reality, electrochemical systems are more complex than traditional manufacturing. What is your view on this current phenomenon? Under what circumstances are downstream car manufacturers and consumers willing to pay a premium for new technology and high-quality products?
A: Power batteries are the core components of electric vehicles. For different types of vehicles, especially for some commuting tools such as electric bicycles, their demand is obviously different from high-end cars like Mercedes-Benz and BMW. Recently, a tragic incident of electric bicycle catching fire occurred in Nanjing, which has raised concerns about the safety of power batteries. Unlike traditional steel manufacturing, the characteristics of power batteries are more complex. Their performance, safety, reliability, and secondary market value are closely related to the type of vehicle.
Recently, in the concept of V2G advocated by the government, the role of power batteries is becoming increasingly prominent. It is not only an important part of providing power for vehicles but also expected to supply power to the grid, opening up new profit models. However, if the battery itself has safety hazards, a short lifespan, and insufficient range, it will not be able to fulfill this important task. Therefore, power batteries have significant differentiation capabilities, which are crucial for defining end products. In my opinion, compared to traditional steel products, power batteries have unique attributes and defining capabilities.
Q: In the new energy vehicle market, downstream companies are starting to lower prices and engage in price wars to gain market share. After this round of reshuffling, the downstream market may tend towards a relatively concentrated pattern similar to the traditional oil vehicle market. As an automotive parts supplier, how should companies respond to this situation? How might they respond to the mid-term industry development trend brought about by the increased concentration in the downstream market?
A: In the automotive industry, layoffs and closures are normal occurrences because the industry does not yet have enough concentration. Every car manufacturer hopes to stand out in the market competition, but who will take the dominant position is still uncertain. For us, the most important thing is to provide differentiated products for car manufacturers. CATL's products not only focus on cost but also emphasize value. We are a reasonable company, so our pricing is not excessively high, and our gross profit margin is not high.
Our mission is to promote the sustainable development of the new energy industry and ensure that technological equality is widely recognized. In addition to selling batteries, we collaborate with various industries, such as battery swapping partnerships, to extend battery life. Battery life is crucial for us; our batteries can travel millions of kilometers, far exceeding other batteries. Although some batteries are 10% to 20% cheaper, our value may be several times theirs. We focus on long-term value, and short-term competition is only temporary. The real long-term value lies in creating value for customers that exceeds the cost. With the decline in interest rates in China, people are more willing to accept high-value products, which is the greatest benefit of technological innovation and high-quality development.Q: Does the company currently hold a leading position in global battery technology, and can it maintain this advantage in the future? What is the company's definition of next-generation battery technology, and what is the company's advantage and technical reserves, especially considering the solid-state battery plan announced by a South Korean electronics company for 2027? Will this pose a competitive pressure on the company?
A: I have been involved in solid-state battery technology research for 14 years and have been closely monitoring it. Solid-state batteries face many fundamental scientific issues, such as material diffusion and the challenge of liquid ions. Currently, although the industry has great enthusiasm for solid-state batteries, challenges remain in practical applications. For example, in the laboratory, applying 6000 atmospheres of pressure to particles to achieve conductivity is feasible, but it is challenging to find such an environment in real-world applications. Therefore, solid-state battery technology still needs to overcome many technological challenges and achieve industrialization.
Currently, there are three main pathways for solid-state battery research: oxides, sulfides, and polymers. These pathways face various challenges, especially in mass production. For example, solid-state batteries with graphite anodes have high costs, low energy density, and may not necessarily have significant advantages in terms of safety. Within the company, we often categorize the development of solid-state batteries into technology pathways, product pathways, and commercial pathways. The technology pathway considers the feasibility of the technology, the product pathway focuses on safety and quality assurance in the manufacturing process, and the commercial pathway focuses on the market feasibility of the product. Solid-state batteries still face many challenges in the technology pathway and also face challenges in meeting customer demands. Although research from South Korea and Japan has shown promising results, it will take time to translate them into marketable products. We are increasing our investment in solid-state battery research and look forward to making further progress in the future.
Q: Ford has been recommending CATL as the best global battery supplier, can you provide an update on the progress of the cooperation project with Ford in the United States, and whether it will bring surprises ahead of schedule? Secondly, how is CATL's cooperation progressing with Mitsubishi and Volkswagen in Europe? Especially in the period from 2026 to 2030, are there still growth opportunities in the European market?
A: In the United States, due to geopolitical relations, the IRS model is adopted as a sharing model (technology licensing cooperation), which is welcomed by customers because it is considered a sharing model that is more balanced compared to independent factory construction. In addition to Ford, other companies are also considering adopting this model, which may accelerate cooperation.
Ford's greenfield factory construction is slow, while companies with existing factories may adapt more quickly to our equipment and models for transformation. In the future, more partners are expected to adopt this model. A similar situation is also seen in Europe, where some European electric vehicle manufacturers are considering cooperation using the IRS model. For example, cooperation is underway in Hungary and Stellantis, among other places. Although the procedures are somewhat cumbersome, we are fully confident in meeting their supply plans, and Stellantis can achieve supply in 27 years.
Commercial relationships take 7-10 years from establishment to completion, are robust, and are not necessarily affected by changes in political leadership. Investors hope for a faster pace of mass production, but there are many requirements overseas for environmental impact assessments and environmental protection. The experience accumulated in German factories will help the company's subsequent overseas expansion, and overseas customers continue to support this aspect.Q: During the last surge in lithium carbonate prices, the entire industry chain experienced a certain degree of turbulence and fluctuations. I would like to know if the company has a long-term self-sufficiency target for resources, and what measures and actions the company plans to take in the future to achieve this goal?
A: Since last year, we have been strategically positioning ourselves in the lithium carbonate field to ensure fair profitability across the entire industry chain. Business is like oxygen - if certain links profit excessively while others suffer losses, it will lead to ecological imbalance. We take measures to maintain a balance in resource profits, similar to a central kitchen (inventory), adjusting sales or purchases timely according to price fluctuations to maintain stable industry operations. We believe that business operations should be orderly, not driven by cutthroat competition, in order to contribute to the development of new energy businesses.
Q: Regarding the company's business model, currently focused mainly on Tob, while also making some layouts in battery swapping. Looking at the medium to long-term outlook, what do you think about the expansion prospects of the company's C-end business?
A: Our expansion of C-end business is actually an innovation in business models, aiming to better showcase the value of our products. Take the battery swapping model as an example, it is a great way to translate value. For instance, if the battery life of an electric vehicle can reach 5000 or 6000 charge cycles, while other brands may only last for 1000 or 500 cycles, this difference is very significant, with a tenfold lifespan gap, which undoubtedly holds certain value. Through battery swapping sharing and the previously mentioned B2G model, this value will be fully realized. Our goal has always been to provide consumers with the best value. Consumers with CATL batteries receive far more value than those using other batteries. This is what we mean by translation, although many are involved, our product competitiveness is the strongest.
In addition to signing a strategic cooperation agreement with Sinopec, we have also collaborated with other companies. Oil companies are facing challenges brought by ride-hailing services, as taxi retail performance sharply declines after transitioning to electrification. Sinopec hopes to share high-quality battery resources with us and provide rental financial services for everyone, aligning with the national encouragement of high-quality development and providing better customer value. We are excited about this and more companies are eager to join this collaboration. Meanwhile, our "Qijia" heavy truck platform and battery swapping service are also thriving.
Q: From the perspective of a core component supplier for automotive parts, how do you view the future market share of pure electric vehicles, plug-in hybrids, and extended-range vehicles? As a core component supplier, do you think the next 24 years will be a turning point for pure electric products? For example, looking at China, do you think that pure electric vehicles will account for over 90% in ten years?
A: Currently, the trend still leans towards large battery capacity. Taking plug-in hybrids and pure electric vehicles as examples, considering different usage scenarios such as urban and highways, one saying goes, "full battery like a dragon, low battery like a worm," which means that vehicles perform excellently when the battery is fully charged but significantly drop in performance when the battery is low. Therefore, the future trend may lean towards the development of plug-in and hybrid models with large-capacity batteries, as they can travel longer distances in pure electric mode.Some people may not be willing to charge frequently due to economic or other reasons, resulting in the vehicle often running out of power and having to burn fuel, which not only adds trouble but also pollutes the environment. Others may charge every day to save money, hardly using any fuel. Therefore, the performance, reliability, and safety of batteries are crucial.
The development of future intelligent driving is closely related to electrification. Currently, electric vehicles in the northern regions consume a lot of power when using air conditioning in winter, affecting the driving range. Therefore, the development of plug-in and extended-range models is progressing rapidly. It is difficult to predict the development in the next one or two years accurately, but in the long term, electrification and intelligence will be closely integrated, becoming a mainstream trend. The specific timing depends on different regions, supply levels, and other factors, making predictions challenging.
Q: How is the company's development momentum in Europe? Will there be demands from European governments and key customers for localized production in Europe in the upcoming cycle (26 to 30 years)? Concerning the high dividend ratio of the company affecting future growth rates, and views on the growth rates of the company in China, Europe, and other regions (excluding North America)?
A: This question involves two aspects. Both Europe and the United States aim to produce batteries independently, but battery manufacturing involves multiple aspects. China has developed rapidly in the field of electrochemistry with abundant talent reserves. The education systems in Europe and the United States tend to cultivate talents in AI, chips, and software, while China focuses more on training professionals in electrochemistry. Therefore, despite Europe introducing battery laws and aiming to establish a local battery industry chain, they face practical difficulties. The company adopts a technology licensing model rather than massive investments, hence the growth expectations in the European and American markets are limited.
Due to the company's relatively abundant cash flow this year, we plan to give back to shareholders. Considering regulatory requirements and market investors' emphasis on cash returns, we have decided to issue a special dividend. Although the original plan was to distribute 22 billion, considering the board's recommendation to allocate 28 billion for financial management, we believe increasing the dividend is more appropriate.
Q: In the next 3-5 years, when manual driving is still necessary, what do you think is the ideal driving range for a pure electric vehicle?
A: The future driving range demand varies due to individual driving habits and psychological pressures, especially in cold regions. We are developing low-temperature batteries to address this issue, and there is no need to wait 3-5 years; we will soon offer various solutions. Under normal circumstances, I believe a 600 km CLTC driving range is a good choice. In addition, our Divine Charge technology can charge 400 km in ten minutes, but sufficient charging stations are required. Driving habits vary in different regions, so a 1,000 km driving range may be more suitable for some people. In conclusion, we provide diversified products to meet the needs of different customers.
Q: Considering the recent geopolitical situation and the long-term development of the European market, will the company consider accepting more foreign investments? Especially considering the bias of the international community towards China, are there plans to establish a battery factory in Europe to support the local electric vehicle market and collaborations?A: We are currently discussing the possibility of establishing a battery factory in Europe. We will provide technical support while charging licensing and service fees. I believe this is a well-organized division of labor rather than a competitive relationship. Our goal is to jointly promote the development of the new energy industry. For example, Europe may want to move the entire battery production chain to their region, and similar expectations exist in other regions as well. In this case, we will collaborate with all parties to facilitate the global development of the new energy industry chain.
In this scenario, it's like three national leaders vying for power, each trying to control 100% of the situation. I believe this is not fair and should be about sharing. We can resolve issues through discussions, such as adopting a 4:3:3 or 3:3:4 approach. Whether it's 4:3:3 or 3:3:4, the ultimate goal is to serve humanity in addressing climate change. Regardless of geopolitical considerations, climate change is a global challenge, so we should abandon narrow self-interest.
Q: In the long term, will the company accept foreign investment or invest in European battery factories?
A: The company approaches cooperation through a business model and is willing to help European battery factories produce batteries effectively. However, the extent to which the battery factory can achieve this depends on the commercial arrangement. The European market prefers the battery factory to be entirely local, with resources, funds, and technology all kept within the country.
I believe this is not fair and should be about sharing. We can resolve issues through discussions, such as adopting a 4:3:3 or 3:3:4 approach. The company is open to accepting legal and compliant foreign investment, with the main obstacle being the lack of sharing.
Q: For Chinese battery companies, how to address the potential challenges posed by the European carbon border tax, including building zero-carbon factories, increasing local production ratios, and intergovernmental carbon footprint certification?
A: There are two reasons why we have four zero-carbon factories. Firstly, we base our operations on our conscience and corporate standards to ensure that our products meet the zero-carbon requirements of organizations like the World Economic Forum (WEF) to avoid criticism. Secondly, regarding carbon border taxes, we believe that doing business requires a balance between creating value for humanity and profitability. We are a vice-chair unit of the European Battery Alliance, participating in promoting carbon mutual recognition between Europe and China and unifying power distribution by integrating the Chinese grid. While there may be disagreements in data openness, we believe these issues will be resolved. Even if a consensus cannot be reached, we still have the option of local manufacturing and exports in Europe. Most importantly, we strive to establish a zero-carbon image and ensure international recognition, which will have a significant impact in Europe.
Q: Looking ahead, how will Chinese battery companies deal with the continuous cost reduction and efficiency improvement that may lead to a decrease in market capacity and product prices?
A: Achieving batteries that are both cheap and of high quality is the greatest contribution. The application scenarios can be further expanded, with vast potential in long-term applications such as electric vehicles, energy storage, ships, and aircraft, where AI with high power consumption requires affordable power support. The company's long-term returns will undoubtedly be much higher than other products.
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