China bear vs UBS, Nomura: Tesla’s battery supplier CATL to hurt investors or deliver windfall in battle of analysts

Capital Securities says stock has more room to damage investors, while UBS and Nomura projected at least 40 per cent upside over the next 12 months

Stock faces headwinds in the form of surging lithium ore prices, stiffer competition for supply and excessive valuation relative to market

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A production line at electric-car factory in Cangzhou, Hebei Province. Photo: Xinhua

Published: 7:30am, 22 Feb 2022Updated: 12:00pm, 22 Feb 2022

Contemporary Amperex Technology, which supplies lithium batteries to Tesla and its Chinese electric-car challengers like XPeng and NIO, cannot convince stock analysts about its prospects, even after delivering more than 150 per cent surge in earnings last year.

The stock could hurt investors by another 20 per cent, after losing about 370 billion yuan (US$59.1 billion) or a quarter of its market value from an all-time high on December 2, Wei Zhichao, chief economist at Capital Securities based in Beijing, wrote in a February 10 note to clients

That bearish view resonates with current market sentiment amid a rash of speculative attacks on the company’s prospects. The price targets of 700 to 722 yuan by analysts at UBS and Nomura look too bullish, as with consensus target of 723.65 yuan among 18 analysts tracked by Bloomberg.

The state of China’ electric-vehicle (EV) market, global lithium ore prices, economic policies and market valuations will determine who will come out victorious, according to money managers. One thing is certain: the one-way bet on Chinese “hot green stocks,” driven by President Xi Jinping’s carbon-neutrality agenda, is over.

“The major market concern comes from EV sales because of rising lithium cost and reduced subsidies for car purchases,” said Chen Ping, a fund manager at HSBC Jintrust Fund Management in Shanghai. “If sales miss expectations, the sector will face more valuation pressures.”

CATL fell 2.5 per cent to 497.41 yuan on Tuesday in Shenzhen, giving it a market capitalisation of 1.2 trillion yuan. It is the biggest constituent in the ChiNext gauge. Tesla was its biggest customer in 2021, taking up almost one-fifth of its installed capacity, followed by NIO and XPeng, according to Soochow Securities.

CEO Robin Zeng, here in July 2018 picture, has seen his net worth eroded as stock slides 25 per cent from peak. Photo Getty Images