Chinese battery maker halves IPO hopes after NEV cuts

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Regulations on initial public offerings and lower profit expectations have forced China’s CATL – the world’s biggest electric vehicle battery manufacturer – to more than halve its own initial valuation, with a cut to Chinese NEV subsidies also weighing down on the “unicorn.”

Established only seven years ago, Contemporary Amperex Technology Ltd. was originally looking to go public with a 10 percent stake that would have valued the company at 20 billion US dollars.

However, on Monday, the company announced that while it was going ahead with an IPO in Shenzhen, it was cutting its offered share price to 25.14 yuan, effectively valuing the company at 8.5 billion US dollars.

CATL, which was placed sixth on a ranking of billion-dollar Chinese unicorn companies last year by the Chinese Ministry of Science and Technology, overtook Panasonic last year to become the world’s largest supplier of batteries to the NEV sector in terms of sales.

While a surge in domestic demand has been a key factor in CATL’s rapid growth, the Fujian-based company also counts Volkswagen, Nissan and BMW as its customers.

However, recent cuts to subsidies for certain electric vehicles by Chinese authorities have hit profits, with the company’s gross margin falling to 35 percent last year, a drop of nine percentage points. CATL also moved to reduce the retail price of its batteries in a bid to gain a larger market share.

The cut to profits has directly affected the company’s IPO price, with Chinese regulations now stipulating that valuations cannot be any more than 23 times profit at the time of listing.

With China the biggest NEV market in the world, CATL still has a lot more room to grow as the electric sector continues to expand. The big blow to the company’s original valuation, however, has seen CATL look overseas for greater profitability – its first overseas factory is due to be announced next month, and offices have already been opened in Japan and Germany.