Recently, a patent lawsuit between the first and third largest power battery giants in China was adjudicated: CATL (Contemporary Amperex Technology Co., Limited) won the case against CALB (China Aviation Lithium Battery). Since July 2021, CATL has initiated five patent lawsuits against CALB. On May 20th, CALB announced that it received a civil judgment from the Fujian Provincial High Court on May 17th, ordering CALB and its former subsidiary to stop infringing on CATL's "explosion-proof device" patent and to compensate CATL 415.7 million yuan. In recent years, there have been customer battles, price wars, and patent lawsuits between CATL and CALB, with both sides experiencing wins and losses. In terms of performance, as the third-ranked company in the industry, CALB saw a situation in 2023 where revenues grew significantly but profits were halved. What happened? CALB's revenue in 2023 reached 27.006 billion yuan, a year-on-year increase of 32.5%. The gross margin increased from 10.3% in 2022 to 13.0%, an increase of 2.7 percentage points. However, in 2023, CALB's net profit saw a significant decline, dropping from 692 million yuan in 2022 to 294 million yuan, a year-on-year decrease of 57.4%. From the financial reports, the main reasons for the decline in CALB's net profit were inventory provisions and increased financial costs.
In 2023, CALB's other net losses increased significantly from 62.872 million yuan in 2022 to 877 million yuan. Of this, inventory provisions increased from 268 million yuan in 2022 to 864 million yuan, an increase of nearly 600 million.
At the end of 2022, CALB's inventory scale was 11.822 billion yuan, with raw materials, work-in-progress, and finished goods amounting to 3.613 billion yuan, 3.210 billion yuan, and 4.999 billion yuan respectively. However, in 2023, the price of lithium carbonate, a key material for power batteries, fell sharply. According to data from Shanghai Steelhome, the price of battery-grade lithium carbonate dropped from 511,500 yuan per ton at the beginning of the year to 102,500 yuan per ton by the end of the year, a decrease of 80%.
The sharp drop in lithium prices led to a devaluation of CALB's inventory and a significant increase in provisions, which became an important reason for the decline in profits. At the same time, in recent years, CALB has vigorously expanded its production capacity, and the scale of bank loans has grown significantly, leading to a noticeable increase in financial costs. In 2023, CALB paid 17.708 billion yuan for property, plants, and equipment, most of which came from bank loans. In 2023, the net amount of funds received from bank loans by CALB was 10.497 billion yuan. By the end of 2023, CALB's total bank loans amounted to 32.426 billion yuan, of which 9.005 billion yuan was due within one year. The huge amount of bank loans led to a rapid increase in financial costs. In 2023, CALB's financial costs increased from 65.217 million yuan in 2022 to 330 million yuan, a year-on-year increase of 406.68%.
The rapid growth of inventory provisions and financial costs eroded CALB's profits, ultimately resulting in the company's situation in 2023 of "increasing revenue without increasing profits."
Profitability is weaker than peers. In terms of power battery installation, CALB ranks third in the industry, just after CATL and BYD. According to the installation data compiled by Cui Dongshu, the secretary-general of the China Passenger Car Association, in 2023, CATL's market share was as high as 43.5%, BYD was 26.9%, and CALB's market share was 8.5%, followed by EVE Energy and Guoxuan High-tech with market shares of 4.5% and 4.1% respectively. However, among these leading battery manufacturers, CALB's profitability is at a lower level. Over the past five years, CALB's revenue has grown continuously from 1.734 billion yuan in 2019 to 27.006 billion yuan in 2023, but the net profits for the five years were -119 million yuan, 5 million yuan, 140 million yuan, 692 million yuan, and 294 million yuan respectively. From 2019 to 2023, CALB's gross margin levels were 4.8%, 13.63%, 5.5%, 10.3%, and 13.0% respectively. During the same five years, CATL's gross margin exceeded 20%, reaching 22.91% in 2023; EVE Energy's gross margin exceeded 16%, reaching 17.04% in 2023; Guoxuan High-tech's gross margin also exceeded 16%, reaching 16.92% in 2023. In terms of net profit margin, CATL's net profit margin exceeded 10% over the five years, EVE Energy's net profit margin exceeded 9% over the five years with the help of investment income, and Guoxuan High-tech's net profit margin was relatively unstable, but except for 2022, its net profit margin levels were all higher than CALB's.
This is somewhat related to CALB's development strategy: In order to capture market share, CALB pursues a low-profit, high-volume strategy. According to the prospectus, from 2019 to 2021, the average selling price of CALB's power batteries was 0.87 yuan/Watt-hour, 0.64 yuan/Watt-hour, and 0.65 yuan/Watt-hour, which was 9%-28% lower than that of CATL. As the cost-effectiveness strategy drives revenue and market share growth, CALB's accounts receivable have increased significantly in recent years.
By the end of 2021, CALB's accounts receivable were 2.106 billion yuan (including 666 million yuan from related parties), by the end of 2022 it was 3.582 billion yuan, and by the end of 2023, CALB's accounts receivable had reached 5.071 billion yuan. At the same time, some of CALB's accounts receivable are extending in terms of age. In the annual report disclosures for 2021 and 2022, the longest age of CALB's accounts receivable was 1-2 years. However, in the new annual report for 2023, there were accounts receivable with an age of over 2 years, and the scale of accounts receivable aged 1-2 years increased by more than 9 times compared to the end of 2022.
The troubles of the industry's third place. As the third-ranked power battery company in terms of market share, CALB is also facing fierce market competition. CATL and CALB are the only two battery manufacturers in the industry that rank in the top five in both the lithium iron phosphate battery and ternary battery markets. BYD's batteries are self-supplied, so it can be said that CALB is the real competitor of CATL.
In the ternary battery market, CATL's market share exceeds 60% and is still increasing. Data shows that in 2023, CATL's ternary market share reached 62.3%, an increase of 5.3 percentage points year-on-year. In the first quarter of this year, CATL's ternary share was as high as 67.03%. CALB is the second-largest manufacturer of ternary lithium batteries, with a market share of 11.80% in 2023, an increase of only 0.3 percentage points year-on-year, while the third-ranked LG New Energy's market share was 6.5%, an increase of 1.8 percentage points. In the first quarter of this year, CALB's ternary battery market share fell to 7.80%, while Great Wall Motor's power battery subsidiary, (Hive Energy), quickly rose with a supporting range-extender model, ranking third with a market share of 7.11%, which is quite close to CALB.
In the lithium iron phosphate market, in 2023, BYD and CATL's market share combined exceeded 70%, while the market shares of CALB, Guoxuan High-tech, and EVE Energy ranked 2nd to 5th, at 6.9%, 5.6%, and 5.5% respectively, with a small gap. In the first quarter of this year, EVE Energy's share increased to rank third, with CALB and Guoxuan High-tech ranking fourth and fifth, and the competition between them is very fierce. In 2023, both CALB and Guoxuan High-tech were suppliers to Geely Group, Changan Automobile, and Leap Motor, with very close supply ratios; CALB and EVE Energy were both suppliers to GAC Group and XPeng Motors, with a direct competitive relationship.
Source：Commercial Scale