Published on: January 23, 2025 / Update from: January 23, 2025 - Author: Konrad Wolfenstein
The market for battery manufacturers is booming, but the Chinese battery giant CATL is still recording massive declines in sales - Image: Xpert.Digital
Electrification is booming, profits are shrinking: The paradox of the battery giant CATL
Boom in the battery market, but CATL is struggling: What's behind the decline in sales?
The global market for battery manufacturers is experiencing a real upswing, fueled by the ever-growing electrification of the transport sector and the ambitious goals of many countries to switch to renewable energies. The demand for powerful and long-lasting batteries for electric vehicles, stationary energy storage and a variety of other applications is increasing rapidly. But in the midst of this boom, a stumbling block appears to be emerging in the path of Chinese battery giant Contemporary Amperex Technology Co., Limited (CATL): a significant decline in sales. This apparent discrepancy between market growth and individual performance raises questions and requires a differentiated view in order to understand the underlying mechanisms and influencing factors.
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There are complex reasons for CATL's decline in sales
The reasons for CATL's decline in sales are varied and complex. They range from changing market conditions and strategic price adjustments to technological innovations and geopolitical influences. It is a combination of factors that means that even an industry leader like CATL is not immune to challenges.
Price adjustments due to lower raw material costs
A key factor that has influenced CATL's sales performance is the price adjustments the company has made in response to reduced raw material costs, particularly in the key battery material lithium carbonate. Lithium is a key element in most modern batteries, and its price has seen significant fluctuations in recent years. As lithium prices fell, CATL was forced to adjust its product pricing to remain competitive and maintain demand. CATL itself reported that sales fell between 8.7% and 11.2% in the last financial year, which is largely due to these price adjustments, although the company was able to record increased sales volume at the same time. This situation highlights an important dynamic in the battery market: increasing sales figures do not necessarily mean increasing sales if prices are falling at the same time.
Impact on operating results
The price adjustments had an immediate impact on CATL's operating results. Although the company's net income increased between 11.1% and 20.1%, the decline in operating profit signals that margins have come under pressure. This is a sign of increasing competition and the need to produce more efficiently and reduce costs to maintain profitability.
Dynamic developments in the global battery market
Raw materials, competition and excess supply
But it's not just raw material prices and the resulting price adjustments that play a role. The global battery market itself is undergoing dynamic change characterized by a number of factors:
1. Intensifying competition
The entry of new market participants and the continuous expansion of production capacities of existing companies are leading to a growing oversupply of batteries, especially in China. Various studies and industry reports predict that global battery demand will reach around 4,900 gigawatt hours (GWh) by 2030. However, this contrasts with already announced production capacities of around 8,900 GWh worldwide. This discrepancy between supply and demand puts significant price pressure on manufacturers and increases competition. It is a battle for market share in which only the most efficient and innovative companies can prevail.
2. Competitive pressure from other manufacturers
CATL does not operate in a vacuum. The company is in direct competition with a number of other Chinese battery manufacturers, above all BYD, but also CALB and other players. These companies are entering the market with their own technologies and production capacities and are trying to take market share from CATL. In the first half of 2024, although CATL maintained a 46.4% market share of Chinese-made electric vehicle batteries, the combined market shares of BYD and CALB already reached 32%. This shows that competition is increasing and CATL cannot rest on its laurels.
3. Regional differences and global expansion
While the Chinese market is reaching a certain level of saturation, growth is increasingly shifting to Europe and North America. These regions are characterized by ambitious climate targets, government support programs and growing demand for electric vehicles. CATL has recognized this and is responding with strategic investments abroad to expand its global presence. This includes the construction of a 100 GWh battery factory in Hungary that will supply companies such as Mercedes-Benz and BMW, as well as a new joint battery project with Stellantis in Spain. In addition, CATL is planning further joint ventures in Europe to strengthen its position on the continent. However, this expansion involves significant investment and risk as CATL must adapt to new markets, regulatory frameworks and cultural differences.
Technological innovations and research
Research and investments for the future of batteries
Another important aspect that influences the development of CATL is the technological advances and the associated investments in research and development. The battery market is an innovation-driven market where new technologies and materials are constantly being developed to improve battery performance, safety and cost. The trend is clearly towards higher energy densities, longer lifespans and faster charging times. CATL invests heavily in research and development to remain competitive and develop the next generation of battery technologies. For example, the company has unveiled a new electric vehicle chassis and plans to focus on power grids to diversify its businesses. However, these investments put a strain on margins in the short term because they generate high development costs before they pay off in the form of new products and sales.
Global influences and economic risks
Economic and geopolitical challenges
In addition to the specific factors affecting the battery market, global economic factors and geopolitical tensions also play a role. A general economic slowdown or recession may dampen demand for electric vehicles in certain markets, which may negatively impact CATL as a primary supplier. In addition, geopolitical tensions, trade conflicts and tariffs can hinder cross-border trade in batteries and raw materials and increase costs. Falling lithium prices and reductions in lithium mining have also impacted the company's financial performance. CATL has announced that it will adjust its lithium production in Jiangxi Province to respond to the price decline.
Dominance and future prospects of CATL
Market position and long-term prospects
Despite the current decline in sales and multiple challenges, CATL remains a dominant player in the global battery market. The company has a strong market position, high production capacity, a wide customer base and extensive research capabilities. With a 45.1% market share of Chinese-made electric vehicle batteries, CATL remains the market leader in its home market. The long-term growth prospects for the battery industry remain very positive. Studies predict that the global battery market will grow 18-fold between 2020 and 2030, at a CAGR of 34%. Around 80% of the demand for lithium-ion batteries will come from electric vehicles in the next few decades.
Challenges and strategic direction
Despite short-term challenges such as declining sales and intensifying competition, CATL is well positioned to benefit from long-term growth trends in the global battery market through strategic investments, diversification and adjustments. However, the company must continue to invest in innovation, reduce costs, expand its global presence and adapt to changing market conditions to maintain its competitiveness and achieve its long-term growth objectives. The future will show whether CATL is able to overcome the current challenges and consolidate its position as one of the world's leading battery manufacturers.
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