The recent surge in the stock price of Contemporary Amperex Technology Co., Ltd(CATL) has caught the attention of investors worldwideClosing at 563.5 yuan last Friday, CATL’s stock has rebounded nearly 60% from its recent lowsHowever, many analysts and investors believe this significant jump may just be the beginning for the company.

One prominent investor who has been heavily invested in CATL since the end of 2019 suggests that the company's current valuation should be re-evaluated in light of the low penetration rate in its industry.

In the electric vehicle (EV) market, for example, the penetration rate remains quite low, which makes short-term valuations an inadequate basis for comparisonThe prediction of reaching a 50% penetration in the EV market would mean that out of 40 million global cars, the average price would decrease from 500,000 yuan to 300,000 yuan, leading to a total market of 12 trillion yuan

Advertisements

Additionally, considering industry redundancy and energy storage advancements, this figure could escalate to 15-16 trillion yuan.

If CATL can capture a 40% market share, the company could generate about 600 billion yuan in revenueAssuming a 12% net profit margin typical in the manufacturing sector, this translates to a profit of around 80 billion yuanAt a 25 times earnings multiple, CATL's market valuation could reach 2 trillion yuan.

Given that CATL’s market capitalization has previously peaked at approximately 1.6 trillion yuan, this suggests there’s still considerable growth potential, particularly with the evolving energy storage sectorThis investor maintained their position and did not reduce their holdings even when CATL’s stock was at its highest.

In the past week, CATL has experienced a series of positive developments

Advertisements

A major highlight was the announcement of a 45 billion yuan capital increase, which successfully materialized on WednesdayA total of 22 strategic investors participated in this deal, showcasing an impressive line-up of both domestic and international institutions.

The investors included major financial players like JPMorgan Chase, Barclays, Morgan Stanley, Hillhouse Capital's HHLR, Ruifeng Capital, Taikang Asset, Guotai Junan, and Shenwan Hongyuan, among others.

The capital increase was priced at 410 yuan per shareConsidering that typical placements are usually offered at an 80% discount (with a lock-in period of six months), intelligence in the market drove the stock price up to around 512.5 yuan.

Moreover, on Thursday, CATL unveiled its latest Kirin battery, which boasts an unprecedented level of system integration, with a volume utilization rate exceeding 72% and energy density reaching 255 Wh/kg

Advertisements

This innovation allows electric vehicles to achieve a range of 1000 kilometers on a single charge.

The Kirin battery not only surpasses Tesla’s 4680 battery but offers an additional 13% in capacity, marking a significant leap in battery technology within the industry.

Just last Tuesday, another player, Li Auto, launched its much-anticipated L9 model, which drew massive interest, leading to server crashes from overwhelming pre-ordersCATL supplies the electric power batteries for Li Auto, linking the success of both companies.

These consecutive positive developments enabled CATL’s market valuation to rise back to approximately 1.3 trillion yuan.

Looking ahead, one of the longest-serving fund managers heavily invested in CATL is Wang Dongjie, who manages the Jianxin Big Security Strategic Selected Fund, which has maintained significant holdings in CATL for ten consecutive quarters

• U.S. Interest Rates Cut Again
• Avita Secures Over 11 Billion in Funding!
• Pinduoduo's Staggering Loss of Over 450 Billion!
• South Korean Stock Market Suffers Major Crash
• Euro Experiences Continuous Decline

Earlier this year, they increased their investment by 22%, representing nearly a full allocation of 10%.

Wang noted in an interview that his interest in CATL commenced due to his background in electric power equipment and new energy sectors, recognizing early on the vast potential of the new energy vehicle market.

He observed that the industry’s supply chain is complex, with upstream resources and vehicle manufacturers at either endThe profits within the entire industry chain are not evenly distributed, concentrating instead in specific segments that showcase higher levels of competitive stability.

Wang identified the two segments of this chain that exhibited the highest concentration of profits were power batteries and separators, both held by leading companies commanding around 50% of their respective markets.

In contrast, other segments of the supply chain experience significant volatility due to cyclical production issues, leading to erratic profit figures reliant on capacity levels.

When capacity is low, companies can heighten their prices, but once production scales up, prices typically decline, resulting in minimal gains.

Conversely, Wang emphasizes that the targeted two segments of power battery and separator can attain consistent profitability, highlighting the strong cash flow generated within these segments compared to their net profits.

In this year's reports, Wang further stressed CATL’s advantages lie heavily in its management capabilities across its supply chain and robust economies of scale and branding.

These elements combine to maintain a competitive edge, granting CATL exceptional returns in the near term.

Despite a lackluster Q1 report, which resulted in a brief decline in stock prices primarily due to rising mining costs that could not be passed along downstream immediately, CATL's overall outlook remains positive, particularly in light of its low industry penetration rates.

With electric vehicle penetration projected to reach 50% in the coming years, and taking into account trends suggesting a reduction in average vehicle prices, predictions show potential revenues could reach 600 billion yuan.

As the energy storage market grows, CATL is well-positioned to capitalize on this segment too, which some analysts believe allows them to maintain or even increase their market share further.

While some veteran fund managers remain cautious about CATL's prospects, highlighting that its business model does not support linear growth patterns, others maintain confidence in its ability to become a long-term player in the energy sector.

The duality of perspectives—whether CATL's future revenue will grow in linear fashion or reflect a more cyclical nature—is a point of contention among investors, as both sides present valid arguments.

As the conversation surrounding CATL’s potential 2 trillion yuan valuation continues, many are left to ponder if this trajectory can be sustained, given the competitive landscape and the industry's evolving dynamics.

The inquiry surrounding CATL's standing as a critical player in the electric vehicle market and its future growth trajectory presents compelling questions for investors keen on the renewable energy sector.

Ultimately, the investment landscape surrounding CATL reflects both its potential and the uncertainties inherent in a burgeoning industry that continues to evolve rapidly.