CATL

CATL is the Chinese battery maker that holds a commanding global position in the provision of batteries for electric vehicles (EVs) and energy storage systems (ESS). In a business where scale really matters, CATL is already 2.5 times the size of its nearest competitor in ESS and growing faster than the industry, suggesting the gap is widening rather than narrowing. CATL is also the largest producer of EV batteries, and, along with BYD, is likely to be the only company currently making a decent return on investment (based on publicly available data). Scale reduces the production cost per unit of storage, giving a gross profit margin advantage of several percentage points. This, together with higher absolute revenues, allows CATL to invest more absolute dollars into research and development than anyone else.

This positive flywheel shows no sign of abating; in fact, CATL and BYD are continuously announcing technological breakthroughs that leave competitors further behind. It is our view that the explosion in renewable energy demand, the need to power data centres, and the shift towards EVs and hybrids mean that the cost leader in batteries will capture a disproportionate share of industry profits.

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