Under the shadow of market overcapacity in power batteries, CATL once again used equity to bind car company customers.

Today (July 17) CATL announced that the company will deepen strategic cooperation with BMW Brilliance. BMW Brilliance will purchase a battery production capacity construction project from the company for 815 million yuan. BMW Brilliance will also purchase specified models of power battery products from CATL on a long-term basis and pay an initial advance payment of 2.8525 billion yuan to the company.

Ningde Times agreed that when the company implements domestic or overseas equity financing (such as the company implements A-share non-public or H-share IPO), BMW Brilliance has the right to make equity investment in the company, and the upper limit of the investment is 2.8525 billion yuan. The two parties signed the "Strategic Cooperation Agreement" on July 17, 2018.

The agreement specifically shows:

1. In order to confirm the product production capacity for long-term supply, BMW Brilliance purchased a battery production capacity construction project from the company with a project amount of 815 million yuan. The project will be used to produce and supply designated products for BMW Brilliance or its designated affiliates.

Second, BMW Brilliance will purchase specified models of power battery products from the company on a long-term basis, with an initial advance payment of 2.8525 billion yuan.

Third, the company agrees that when the company implements domestic or overseas equity financing (such as the company implements A-share non-public or H-share IPO), BMW Brilliance has the right to make equity investment in the company. The upper limit of the investment is 2.8525 billion yuan. The specific investment plan shall be subject to the plan reviewed and approved by the company’s shareholders meeting at that time.

Fourth, the company and BMW Brilliance signed a "Project Procurement Agreement" and a "Long-Term Procurement Agreement" on July 17, 2018. The aforementioned agreements have been signed and come into effect.

The validity period of this strategic cooperation agreement is 54 months from the effective date of the agreement.

According to disclosures, the legal representative of BMW Brilliance Automotive Co., Ltd. is Wu Xiaoan, with a registered capital of 150 million euros. Its main business includes the production of BMW and Henuo passenger cars and their engines, power batteries, parts and accessories; sales and leasing of its own products; provision of after-sales services for its products; research and development and technology transfer related to automotive technology and power batteries.

CATL said that after the signing of this cooperation agreement, the company will steadily advance its strategic cooperation with BMW Brilliance and rely on the advantages of the company and BMW Brilliance in their respective fields to further enhance the company's sustainable profitability, core competitiveness and operating performance. This strategic cooperation will help deepen the company's cooperation with internationally renowned vehicle manufacturers and enhance the company's market position and influence.

Currently, overcapacity in the power battery industry has caused industry concern, and the capacity utilization rate of CATL, the industry leader, has also declined.

Ningde Times previously stated in its prospectus that in recent years, with the country's support for the new energy vehicle industry, the new energy vehicle market has been developing rapidly and market competition has become increasingly fierce. As one of the core components of new energy vehicles, power batteries continue to attract new entrants to compete through direct investment, industrial transformation or acquisitions and mergers. At the same time, existing power battery companies are also expanding their production capacity, and market competition is becoming increasingly fierce.

"If future market demand is less than expected, the market may experience structural and periodic overcapacity. As a leader in the power battery industry, CATL has strong technological and scale advantages. However, as market competition pressure continues to increase and customer demand continues to increase, the company's future business development will face certain risks of intensified market competition," CATL warned.

At present, CATL is frequently forming alliances with car companies and has implemented equity binding with some car company customers.

In June 2017, the SAIC Era Advanced Power Battery System Industrialization Project and Era SAIC Advanced Power Battery Industrialization Project, with a total investment of over 10 billion yuan, started construction in Liyang. According to local media reports, the main customer of this project is the vehicle company affiliated to SAIC Motor. The first phase is expected to have a total investment of 10 billion yuan, covering an area of about 800 acres, and will form a power battery production capacity of 18GWH; by 2020, the total power battery production capacity will be 36GWH, which will exceed Tesla's previously planned annual production capacity of 35GWH.

SAIC Era is SAIC Era Power Battery System Co., Ltd., CATL holds 49% and SAIC holds 51%; Era SAIC is Era SAIC Power Battery Co., Ltd., Ningde Era holds 51% and SAIC holds 49%.

CATL has recently received a lot of good news from overseas markets:

On July 10, CATL announced that the company received a letter of appointment from BMW on May 16, expressing BMW's intention to purchase power battery products from the company, and clarifying CATL's obligation to provide products for it. The battery demand equivalent to the estimated sales volume of the relevant models is equivalent to approximately 4 billion euros, but it did not clearly agree on the specific purchase volume of battery products that BMW will purchase from CATL.

On July 9, CATL’s official WeChat public account tweeted that the company signed an investment agreement with the Thuringia state government in Germany to establish a battery production base and an intelligent manufacturing technology research and development center in Erfurt. The German factory is scheduled to be put into production in 2021, and will have a production capacity of 14GWh after reaching production in 2022, which will be used by world-renowned car companies such as BMW, Volkswagen, Daimler, Jaguar Land Rover, and PSA.

(See the link for details: "Breaking News! Contemporary Amperex Technology (CATL) received a huge order of US$4.7 billion from BMW, established a production base in Germany, and implemented a stock incentive plan!")

Ningde Times interim report preview:

Net profit attributable to the parent company in the first half of the year is expected to be 880 million to 938 million, a year-on-year decrease of 51.2% to 48.19% (there was investment income from the transfer of Pride equity last year). In the first half of the year, non-net profit was 670-710 million, a year-on-year increase of 31.43%-39.56%. Among them, the 2Q net profit after non-profit deduction was 402 million yuan-444 million yuan, a year-on-year decrease of 41.31%-35.18%.

CATL installed capacity data

According to new data from Gaogong Lithium Battery, the total installed capacity of power batteries nationwide in the first half of the year was 15.54GWh, of which CATL’s installed capacity reached 6.53GWh, accounting for 42%. Compared with 33% of the market share in 2017, the market share increased significantly. CATL’s total sales volume of power batteries is expected to reach 19.8GWh in 2018.

This article is compiled from WIRED New Energy: Tencent Automobile, CATL, Tianfeng Securities, Beijing News