China’s hottest stock trade is showing signs of falling apart. Shares of Contemporary Amperex Technology (CATL), the world’s biggest maker of lithium ion batteries for electric vehicles (EVs), have reversed their sevenfold surge in the past two years to retract 18 per cent from their December 2 record, double the loss on Shenzhen’s ChiNext index of growth companies. The pullback in CATL’s stock also unleashed a bout of sell-offs in green energy-linked stocks such as Ganfeng Lithium and solar panel maker LONGi Green Energy Technology. The tumult risks killing the sole bullish sector in China’s broader stock market, which has been languishing under regulatory clampdown, US-China tension and debt crisis. “The key problem is that CATL’s stock is too expensive,” said Wang Chen, a partner at Xufunds Investment in Shanghai. “It’s true that the new-energy industry grows faster than any other industry, but history [shows that] no company with a trillion yuan in market capitalisation can retain the valuation above 100 times [earnings].” China’s electric car battery makers race to extend ranges, lower costs CATL shares slipped less than 0.1 per cent to 565 yuan at the close on Thursday. The current stock price valued CATL at 1.34 trillion yuan (US$211 billion), making it the fourth-largest company in the onshore market, according to Bloomberg’s data. It trades at 131 times earnings, the data showed. CATL is the biggest constituent of the ChiNext index with an 18 per cent weighting. Near its peak in November, the stock trounced Industrial and Commercial Bank of China (ICBC) as the second-most valuable company for the first time, only smaller than liquor giant Kweichow Moutai . The rout in CATL and other richly valued green-energy stocks is in line with a global sell-off in tech stocks with outsize gains, as the faster-than-expected tapering signalled by the US Federal Reserve weighs on risk assets, according to Huaxi Securities. Still, the fundamentals remain solid in the industry that supports the rapid growth in the world’s largest market for new-energy vehicles (NEVs), as electric cars are called in China. China’s 2021 EV delivery jumped 169 per cent from a year earlier to almost 3 million units, or almost 15 per cent of new sales in the world’s biggest automobile market, the industry association data showed. Three in five new cars taking to China’s roads may be powered by electricity instead of fossil fuel in 2030, according to UBS Group, while the government’s target is for a 20 per cent penetration rate by 2025 . Analysts remained upbeat about CATL’s prospects, with 46 recommending clients “buy” the stock, one each to “hold” and “sell,” according to Bloomberg’s analytics. UOB Kay Hian was the most bullish, forecasting the stock to surge to 1,000 yuan, or a potential gain of 77 per cent. Essence Securities recommends buying into the renewable-energy bets after a decline of between 15 and 20 per cent, citing a higher safety margin and the resilient industry outlook.