The following is the summary of the conference call minutes for the third quarter of 2024 of Contemporary Amperex Technology Co., Ltd. (CATL). For financial report analysis, please refer to "Is CATL, the Trillionaire, Really Rising This Time?"
I. Review of Core Financial Information:
II. Detailed Content of the Financial Report Conference Call
2.1. Key Points from Executive Statements:
1）Business Progress
1. Status of Power Battery Market Share
In the first eight months of 2024, CATL's global power battery market share reached 37.1%, a year-on-year increase of 1.6 percentage points.
The market share of global commercial power batteries reached 64.9%, a year-on-year increase of 4.6 percentage points.
In the first nine months of 2024, the company's market share in the domestic power market was 45.9%, a year-on-year increase of 3.1 percentage points.
2. Commercial Power Battery Cooperation
Launched a new commercial power battery brand "Tianxing" with performance advantages of ultra-fast charging, long endurance, and long lifespan.
Signed strategic agreements with important partners such as Shandong Heavy Industry and Shaanxi Automobile Commercial to layout innovative models in the commercial vehicle automation field.
Released the power battery brand CATL TECTRANS that adapts to extreme environments worldwide, meeting the needs of various application scenarios, including low and high-temperature extreme environments.
3. Overseas Expansion in Energy Storage Sector
Significant growth in overseas shipments of the company's energy storage products.
The EU's electricity reform has led to a surge in demand for energy storage, with capacity market tender projects in countries such as Italy, Spain, and Greece being implemented one after another.
2.2. Q&A Analyst Interactions
Q: The gross profit margin in Q3 of 2024 exceeded 31%, showing a significant increase compared to the previous quarter. What are the factors contributing to this increase, and is it sustainable?
A: Due to the current decrease in raw material costs such as lithium carbonate, the company's product sales prices have slightly decreased due to the price linkage mechanism, resulting in a corresponding increase in the gross profit margin. In addition, the implementation of new technologies and products such as Shenxing supercharging batteries and Qilin batteries has been recognized by downstream mainstream automotive customers, bringing premium prices for new technologies and products. Combined with technological innovation, scale procurement, and other comprehensive cost advantages, it can support the company's profit level.
Q: How do you view the continuous decline in energy storage cell prices, the layout of second-tier manufacturers, and the judgment of the competitive landscape of energy storage systems? What are the future development ideas for energy storage integration?
A: The energy storage market has developed rapidly this year, with a faster growth rate than power batteries. In fact, energy storage batteries have higher requirements for product safety and lifespan. There is some low-price competition in the industry that is not sustainable. The company is committed to providing customers with higher-quality products and services, from energy storage cells, cabinets, to system integration solutions. The market for energy storage integration business is decentralized, with a dispersed competitive landscape, higher risks and responsibilities, different from traditional product equipment businesses The company is closely cooperating with multiple group units to jointly face the challenges and opportunities in the energy storage integration market.
Q: How much does the increase in capacity utilization contribute to the increase in profit margin? What is the shipment volume in 24Q3?
A: The increase in capacity utilization does not contribute significantly to the gross profit margin, and its impact on costs is relatively small. The shipment volume in the third quarter increased by over 15% compared to the second quarter. Energy storage shipments account for less than one-fourth of the total shipments, while power accounts for about three-fourths.
Q: Impairment situation in the third quarter?
A: The company adjusted its plans for several lithium carbonate production enterprises in Yichun. Based on the judgment of lithium carbonate prices, impairment was made on assets below book value. If lithium carbonate prices rise in the future, the impairment amount will not be reversed, and it will be recognized in the current period's product profit.
Q: Outlook for new products by the company
A: Shenxing Qilin battery products, with over 30 matching vehicle models in mass production, account for over 30% of shipments, with over 70% expected to be fast-charging products by 2025.
Q: How is the assessment of overseas European market demand and expectations for next year?
A: Overseas European market demand is significantly affected by carbon emission assessments, and this year's growth in the European market may remain stable or slightly decrease. However, it is expected that next year, with more cost-effective models entering the market, the market outlook will be better than this year, and the market share in Europe will steadily increase.
Q: Is the absolute change in costs and future prices relatively stable? If the penetration rate of new products increases to 70-80% next year, will unit gross profit further increase?
A: The average price of the company's batteries in the third quarter is around 63 cents per watt-hour. Looking at data from the past eight quarters, the absolute amount of unit gross profit per watt-hour is relatively stable. Therefore, the future unit gross profit level may remain relatively stable, with no significant room for increase. The unit gross profit situation depends on market conditions and competition next year. The company will adjust based on market and competitive dynamics, retaining the right to choose and flexibility.
Q: Regarding investment layout in the energy storage sector, and whether the progress of European OEMs' upcoming vehicle production next year is delayed due to carbon emission regulations?
A: Currently, due to carbon emission regulations, OEMs have not shown any delays in production progress, and the progress of the Shuangli factory is steadily ongoing. As for the energy storage sector, the company clarified rumors about acquisition investments and emphasized cautious industrial investments in areas related to the main business, focusing on businesses with synergies with the company's operations.
Q: What is the sales structure and unit net profit ranking for overseas energy storage, domestic energy storage, overseas power, and domestic power next year?
A: The profitability levels in the domestic and overseas markets are similar, with the growth rate of the energy storage business faster than the power business. From a gross profit margin perspective, overseas product gross margins are slightly higher, but after deducting post-sales maintenance costs, the difference in gross margins between domestic and overseas is not significant. With the adjustment of new accounting standards, it will be more accurate to compare the actual gross profit margin levels of the two after the fourth quarter Q: Regarding technology licensing, is the similar licensing model being promoted in regions outside the United States, and will Europe adopt this model in the future?
A: Our technology licensing model has been recognized in multiple regions and by customers, so technology licensing revenue will continue to increase. With over 10,000 patents and more than 20,000 R&D personnel, the company has made significant R&D investments. The technology licensing model has the potential to be promoted globally, including in regions such as Europe.
Q: In terms of energy storage, has the profitability trend per kilowatt-hour improved in the third quarter? How much of this improvement is due to the increase in overseas large-scale energy storage shipments?
A: The customer response to the company's "Tianheng" energy storage products has been positive, but profit contribution requires time to materialize. There has indeed been a month-on-month improvement in the profitability per kilowatt-hour of energy storage, partly due to the increase in shipments in overseas markets. Regarding the risk of energy storage shipments in overseas markets, if the United States imposes tariffs, it may have a certain impact on the energy storage business.
Q: What are the company's plans regarding the situation of lithium carbonate in Jiangxi in the future?
A: Forced to adjust production due to a sharp market decline, the company is actively communicating with the government and taking multiple measures to reduce costs.
Q: How is the profitability of the German factory currently? And what is the expected production start time for the Hungarian factory?
A: The German factory is progressing smoothly and is expected to achieve a breakeven point within the year; the cost of the Hungarian factory is expected to be lower than that of Germany, with the first phase of the project already capped, and production is expected to start in the second half of next year.
Q: What are the company's plans for future production expansion? Currently, overseas production capacity is mainly for power, are there plans for energy storage expansion in the future?
A: The company will cautiously approach capacity expansion and will quickly initiate factory construction based on real market demand. If there is sufficient demand for energy storage overseas, the company will also consider building energy storage factories overseas.
Q: Is the high gross profit margin in the third quarter related to an increase in patent licensing income? Regarding the materials business, does the company have expansion plans?
A: Patent licensing income in other revenue streams accounts for a small proportion, and the increase in gross profit margin in the third quarter mainly comes from the improvement in the gross profit level of the main power battery and energy storage battery business. The materials business is crucial for the company, affecting profit levels and forming a closed-loop industrial chain, with a net profit margin similar to the past few quarters.
Q: What are the company's prospects for the development of lithium iron phosphate in the European market? In the European market, what proportion of lithium iron phosphate may reach in demand for power batteries? How is the expected proportion of lithium iron phosphate shipments in Europe next year? What is the forecast for the company's lithium iron phosphate shipments in the European market next year?
A: In the European market, due to factors such as supply chain, recycling system, and economics, lithium iron phosphate does not have much cost advantage compared to ternary lithium batteries, and customers are willing to pay a premium for high energy density and lightweight ternary batteries. Therefore, in the short term, the market share of lithium iron phosphate in the European market will not be as widespread as in China, possibly mainly used for economical vehicles. However, with the company's new product M3P that combines the advantages of ternary and lithium iron phosphate, it may meet the demand in the European market. The company remains optimistic about the lithium iron phosphate shipments to the European market next year, expecting continuous growth and market share increase, but due to fluctuations in each model, there is uncertainty in the specific growth rate Q: What is the capital expenditure budget for 2025 and are there plans for special dividends?
A: The scale of capital expenditure in 2025 is around 20-30 billion RMB, and as the utilization rate of super line production capacity increases, the intensity of capital investment is decreasing. As for the dividend plan, it will be decided at the annual shareholders' meeting based on market conditions, investor feedback, and various other factors.
Q: What is the proportion of pack business to system business in the company's main business structure?
A: There are differences between domestic and international markets. Overall, the proportion of overseas pack business to domestic pack business is roughly between 50% to 60%. At the same time, the definition of system business varies. If divided into DC side or AC side, overseas mainly ship cabinets, while the definition of system business in domestic market is broader and may cover a wider range.
Q: What is the competitive situation in the overseas AC side market for the company?
A: Integrators are relatively scattered in the market. The company insists on providing customers with high-quality products and maintains an open cooperation attitude with integrators, channel partners, etc., to enhance product competitiveness and cost-effectiveness, in order to occupy a favorable position in the still evolving energy storage market competition landscape.
Q: What is the profit contribution of the German factory in the third quarter? And the situation of joint venture factory with Stellantis?
A: Currently, the German factory is still in the ramp-up stage with limited contribution to profits. For cooperation details, please refer to the company's announcements.
Q: Has there been any change in the inventory structure, and how is the inventory strategy adjusted with falling material prices?
A: The increase in inventory in the third quarter is mainly due to strong production and sales in the third quarter, changes in inventory structure, increased shipments, a corresponding increase in goods in transit, and stocking up for the fourth quarter.
Q: What is the impact of the factory fire incident on production and the subsequent production situation?
A: The fire was extinguished on the day of the incident, with no casualties. The base has resumed production; the impact on production and customer interactions is minimal. The company has organized the security department to conduct safety hazard inspections and rectifications to prevent such incidents from happening again.
Risk disclosure and disclaimer of this article: Dolphin Research Disclaimer and General Disclosure
