CATL's profit margins are declining, automakers are in arrears, and its financial situation is deteriorating

Previously, CATL benefited from generous policy subsidies from the Chinese government and China's huge automobile market, and became the world's number one power battery system supplier in terms of sales.

As the Chinese government plans to completely cancel its electric vehicle subsidy policy after 2020, Japanese and Korean battery manufacturers are making a comeback.

CATL is experiencing many difficulties including declining operating capacity, continued decline in net profit margin, and increasing accounts receivable.

On August 23, CATL released its first interim report since its IPO, showing that the gross profit margins of all businesses were declining. Among them, the gross profit margin of the energy storage system, which has the smallest revenue scale, fell by 27.23 percentage points year-on-year, and is currently only -3.11%.

Due to the slowdown in the collection of subsidies from auto companies, accounts receivable reached 8.53 billion yuan, an increase of 1.61 billion yuan from the same period last year.

CATL's net profit in the second quarter was 428 million yuan, down 37.61% year-on-year from 686 million yuan in the second quarter of 2017.

On June 11, CATL's stock price rose 44% on its first day of trading on the ChiNext, with a market value of 78.64 billion yuan. On July 25, CATL's share price rose to 95.08 yuan per share, with a total market value of over 200 billion yuan, nearly four times the market value at the time of IPO pricing. As of August 28, the total market value was still as high as 158.4 billion yuan.

In the first half of 2018, the company achieved revenue of 9.36 billion yuan, a year-on-year increase of 48.69%. The company's market share in the country has increased from 29% at the end of 2017 to 42% at the end of June 2018, making it the number one company in terms of production and sales.

In the first half of 2018, the total installed capacity of power batteries nationwide was 15.45GWh, among which CATL led the industry with an installed capacity of 6.5GWh. The corresponding sales revenue was 7.187 billion yuan, an increase of 34.92% over the same period last year.

As of the end of 2017, the total domestic power battery production capacity reached 135GWh, with an effective capacity of 110GWh, while the annual power battery shipments were only 36.2GWh, with an average capacity utilization rate of less than 40%.

CATL is also affected by the cost increase brought about by the upstream cobalt price (the core raw material of ternary lithium batteries). For example, in 2017, the cobalt price doubled from 270,000 yuan/ton at the end of 2016 to 534,000 yuan/ton at the end of 2017, and reached 800,000 yuan/ton in the first quarter of this year.

CATL's gross profit margin was 36.2% in 2017, which dropped to 32.77% in the first quarter of 2018 and to 30.31% in the second quarter of 2018.

CATL's net profit after deducting non-recurring items in the first half of the year was only 697 million yuan, a year-on-year increase of 36.55%. However, its net profit in the second quarter was only 428 million yuan, a year-on-year decline of 37.61% compared to 686 million yuan in the second quarter of 2017.

According to the accounts receivable disclosed in CATL’s interim report, CATL’s accounts receivable in the first half of the year reached 8.53 billion yuan, an increase of 1.61 billion yuan over the same period last year.

As of the end of 2015, the end of 2016 and the end of 2017, the balance of accounts receivable was RMB 2.397 billion, RMB 7.322 billion and RMB 6.938 billion, respectively, accounting for 42.05%, 49.22% and 34.70% of the operating income in the current period, respectively.

At the end of the first half of 2018, CATL's accounts receivable accounted for as much as 87.7% of its current operating income.

The country's new energy vehicle subsidy policy is the key to the rapid rise of China's new energy vehicle industry. In recent years, the subsidy policy has continued to decline.

At the end of 2016, the state continued to adjust the subsidy policy for new energy vehicles, adding a new provision that "new energy vehicles purchased by non-individual users must have a cumulative mileage of 30,000 kilometers (except for special-purpose vehicles for operation) to apply for subsidies." In February 2018, the subsidy policy was adjusted again, reducing the operating mileage requirement to 20,000 kilometers. As a result, the subsidy repayment period is at least one and a half years.

The Chinese government plans to completely cancel its subsidy policy for electric vehicles after 2020, which has forced overseas companies that once withdrew from the Chinese market to return.

On July 17 this year, South Korea's LG Chem and Nanjing Jiangning Binjiang Development Zone jointly announced that the LG Chem battery project would be located in Binjiang and a signing ceremony was held. The project is expected to invest about US$2 billion, and the new plant will start construction in October and start production in October 2019.

CATL has little room to grow its market share in China, and as overseas competitors are re-entering the market, it must seek new growth points in overseas markets.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.