Battery Giant CATL Plunges After Quarterly Earnings Slump

(Bloomberg) -- Contemporary Amperex Technology Co. Ltd. shares tumbled Thursday after the electric-vehicle battery maker posted its sharpest-ever drop in quarterly earnings and disclosed a sizable derivatives liability.

Shenzhen-traded CATL fell as much as 14%, the biggest intraday decline since the company listed in June 2018, as Chinese markets reopened after a five-day holiday. Ningde, Fujian-based CATL had delayed the release of its first-quarter results by a couple of days. The stock closed down 8.2%, its biggest one-day fall in more than nine months and at its lowest since May 21 last year.

CATL's net income slid 24% to 1.49 billion yuan ($225 million) for the three months through March, while underlying profit dropped 41% to 977 million yuan. The world's biggest maker of EV batteries said it has been grappling with higher input costs.

CATL's 1.79 billion yuan derivatives liability was its first such charge since listing, and it didn't explain the origins of it to investors. A person familiar with the matter said CATL is among a group of companies that amassed short positions in nickel along with Chinese entrepreneur Xiang Guangda, whose Tsingshan Holding Group Co. is the world's biggest nickel and stainless steel company.

The company said its hedging in nickel futures had a small impact on its business, and that prices for some raw materials have risen more than it expected, according to a record released Thursday of a meeting with 120 investors that took place the day before.

In an additional question and answer session Thursday, CATL said it intended to raise prices in the second quarter following talks with customers, which would help “reasonably repair” flagging profitability. The company also said it expects annual production capacity to meet demand, despite Covid outbreaks in China, which have had a relatively small impact on its operations.

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Even though CATL generates about 20% of its revenue overseas, it reports no foreign exchange gains or losses, Morgan Stanley analyst Jack Lu said. About 1.2 billion yuan of hedging losses in the first quarter was booked under “other comprehensive income, leaving risks for the amount to be reclassified to profit and loss, depending on when CATL closes the positions,” he said.

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Shares in CATL, which supplies batteries to carmakers including Tesla Inc. and Nio Inc., are down 36% this year. The company has a global market share of about 35%, with nearest rival LG Energy Solution trailing at about 16%.

CATL's market share in China, the world's biggest market for electric cars, was 49.8% in the first quarter, down 4.2 percentage points from the end of last year, as automakers sought to diversify battery suppliers, according to Fitch Ratings Inc.