In recent years, the electric vehicle (EV) market has witnessed explosive growth, largely driven by policy support and rapid advancements in renewable energy technologiesLeading the charge in this sector is Contemporary Amperex Technology Co., Limited (CATL), often referred to as the 'king' of the industry due to its sheer scale and innovative prowessHowever, the third quarter of 2023 has marked a significant turning point, as the company reported its first quarter-on-quarter decline in net profit since going public.

On the evening of October 19, CATL released its financial report for the third quarter of 2023. The results show that for the first three quarters of the year, the company's revenue stood at an impressive CNY 294.68 billion, reflecting a year-on-year growth of 40.10%. Additionally, the net profit attributable to shareholders reached CNY 31.14 billion, a staggering increase of 77.05% compared to the same period last year, indicating that net profits for the first three quarters have surpassed the total profits from the previous year.

When examined on a quarterly basis, the company's net profit growth faced significant headwinds

During the third quarter, CATL's revenue was registered at CNY 105.43 billion, an increase of 8.28% year-on-year but only a modest 5.21% growth sequentiallyThe net profit for the third quarter amounted to CNY 10.43 billion, showcasing a year-on-year increase of 10.66% but a decline of 4.28% from the previous quarter.

This slowdown in revenue growth is striking, particularly when compared to previous quartersThe third quarter's year-on-year growth rate of 8.28% starkly contrasts with the considerable growth rates of 55.86% in the second quarter and 82.91% in the first quarter of the year.

The findings from CATL's quarterly reports raised eyebrows among analysts, leading to concerns about the company's future trajectoryAs a dominant player in the lithium-ion battery field, CATL now faces fierce competition that threatens to erode its market share, while internally, the company must reinforce its foundational revenue streams.

In the capital markets, following the release of the quarterly financial report on October 20, CATL's stock closed at CNY 181 per share—a significant drop, marking its lowest point of the year, bringing its total market value down to CNY 795.9 billion.

Unlike many automotive component manufacturers that have their roots steeped in decades of history, CATL was founded only in December 2011. It entered the A-share capital market in June 2018, achieving a remarkable peak share price of CNY 381.36 in December 2021, which translated into a market valuation of CNY 1.56 trillion—a staggering 21 times increase from its initial offering price.

CATL specializes in the research, manufacturing, and sales of lithium-ion batteries, energy storage batteries, and battery recycling products

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Its primary business segments include battery systems for electric vehicles, energy storage systems, battery materials, and resource recycling.

Among these segments, the electric vehicle battery systems account for over 70% of CATL's revenueAccording to mid-2023 reports, the respective revenues for the battery systems, energy storage systems, battery materials, and mineral resources were CNY 139.42 billion, CNY 27.99 billion, CNY 12.68 billion, and CNY 2.85 billion, indicating their contributions to total revenue at rates of 73.67%, 14.79%, 6.7%, and 1.51%. Furthermore, additional business contributions totaled CNY 6.31 billion, or 3.33% of total revenue.

Geographically, CATL's international revenues account for over one-third of its earningsIn the first half of the year alone, the company reported international revenues of CNY 67.17 billion, which represented 35.49% of its total revenue during that period

Much of the international sales growth has been driven by the ongoing expansion of the company’s overseas operations, leading to a structured roll-out of products to previously established clients.

Over time, however, CATL's revenue growth has notably deceleratedIn 2021 and 2022, the company enjoyed revenue growth rates of 159.06% and 152.07% respectivelyNevertheless, for the period of January to September 2023, the growth rate dropped to 40.1%. The slowdown is particularly pronounced in the third quarter, where the growth rate of 8.28% pales in comparison to the remarkable 55.86% and 82.91% seen in earlier quarters.

The decline in net profit growth is similarly alarming, as it decreased from 192.61% in 2021 to 87.32% in 2022 and further to 65.63% in the first three quarters of this yearThe net profit attributable to shareholders saw declines with a drop from 185.34% in 2021 to 92.89% in 2022 and a further drop to 77.05% in the third quarter of 2023. Adjusted net profit after excluding non-recurring items fell from 215.2% to 109.88%, ultimately standing at 68.23%.

Delving deeper into the specific performance of the third quarter, CATL's net profit attributable to shareholders was CNY 10.43 billion, presenting a 10.66% increase year-on-year, yet a contraction of 4.28% quarter-on-quarter

This marks a significant event, as it is the first quarterly decline in net profit since the company's public listing.

In a conference call following the financial report, CATL attributed the quarterly drop in net profit to heightened competition from automotive clientsTo support these clients and foster deeper partnerships, the company implemented certain rebates for battery clients during the quarterThis strategic move, while beneficial for client relations, has directly impacted the company's revenues and profits.

Despite the challenges presented by the third quarter, various factors are at play regarding CATL's performanceA significant contributor to reduced profitability stems from asset impairment and financial costs associated with recent expansionsThe company recognized an asset impairment loss of CNY 949.5 million and a credit impairment loss of CNY 470 million, leading to overall financial expenses amounting to CNY 1.325 billion

These elements collectively contributed to a quarter-on-quarter decline of 4.28% in net profit for Q3 2023.

Particularly noteworthy are CATL's financial costs of CNY 1.325 billion, predominantly influenced by swift global expansion and financial market volatilityIn the third quarter, the company encountered foreign exchange losses tied to the appreciation of the Chinese yuan against the euroMarket insights suggest that if these exchange losses were omitted, CATL's net profit could have been lifted to CNY 11.75 billion, resulting in positive growth compared to the previous quarter.

From January to September, CATL accrued total asset impairment provisions of CNY 3.097 billion, which has reduced the net profit attributable to shareholders by CNY 2.629 billion.

Indicators of profitability show a downward trendFor instance, CATL's gross profit margin in the third quarter of 2023 was recorded at 21.92%. Although this figure represents a slight increase from 20.25% in 2022, it still reflects a decline from peaks seen in previous years—27.76% in 2020 and 26.28% in 2021. Prior to 2018, CATL consistently enjoyed a gross profit margin above 30%, which underscores the noteworthy decrease in profitability over time.

Despite these challenges, CATL remains a powerhouse in the global battery market, having held the top spot for several years

SNE Research reported that from January to August 2023, the company achieved a power battery installation capacity of 158.3 GWh, translating to a remarkable year-on-year growth of 79.1% and a market share of 36.9%, marking a 1.4 percentage point increaseThis solidifies its dominance within the industry.

The growth of CATL is particularly evident in the European market, where it has captured a market share of 34.9% in battery installations, representing an increase of 8.1 percentage points year-on-yearIn emerging markets, collaborations with established automotive firms like Toyota and Hyundai have bolstered CATL's position, with significant increases in battery market share in both the United States and regions outside of Europe, reaching 27.2%—a year-on-year increase of 9.8 percentage points, creating a higher growth ceiling.

Competition in the battery market is fierce, primarily due to the strong presence of first-tier companies like CATL