The coming listing of a Chinese battery maker could give a jolt to Hong Kong's lackluster initial public offering market. CALB, China's third largest electric-vehicle battery maker, will keep riding the tailwind of China's electric vehicle boom -- though rising costs and geopolitics pose risks.
CALB'S IPO could make it one of the biggest deals this year in an otherwise quiet period -- media reports suggest it is seeking $2 billion although the company has yet to publicly disclose how much it wants to raise. Nonetheless its selling point for investors is clear: It will be supercharged by the booming EV market in China, and globally.
In the first eight months of 2022 sales of EVs in China, including plug-in hybrids, rose 120% from the previous year, according to the China Passenger Car Association. Nearly one in three cars sold in China in August was an EV. That has created a similar surge in the amount of batteries installed in cars, according to the China Automotive Battery Innovation Alliance.
CALB is far behind market leader Contemporary Amperex Technology and BYD, which makes batteries for its own cars, but it is gaining market share. The company had around 5.4% of the world's EV battery market in July, ranking it sixth globally, according to SNE Research. That compared with 3.4% a year ago. In comparison, CATL has around a third of the global market, while BYD's market share is 16%. China's battery market is more than half of the world's total.
CALB could benefit from customers trying to diversify their supplier base. The company has been expanding capacity rapidly to meet demand. Its revenue is expected to nearly quadruple this year, according to a report by Huatai, the IPO sponsor. And it aims to continue its aggressive expansion.
One big risk is geopolitics. Companies controlled by China's state defense and aerospace company Aviation Industry Corporation of China co-founded CALB in 2015. AVIC, which is under U.S. sanctions for its military ties, has since reduced its stake but it still indirectly owns around 10% of CALB. A worsening China-U.S. relationship could potentially drag CALB into the crossfire.
Another is rising raw material costs. CALB's gross margin fell to 5.5% in 2021, compared with 13.6% in 2020 as prices of battery materials like lithium have gone through the roof. As supply has yet to catch up with demand, material costs could remain elevated for quite a while. CALB will need to try to soften the blow with larger economies of scale.
EV sales are revving up into a higher gear. Battery makers like CALB will be along for the ride.
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