Can battery swapping and energy storage power CATL’s next phase of growth?

Contemporary Amperex Technology Ltd (CATL) is exploring new avenues for growth through battery swapping and energy storage as the leading battery manufacturer faces intense competition and mounting profitability pressures. Established competitors, such as Nio and BYD, have already established themselves in battery swapping and energy storage, respectively.

However, CATL aims to evolve into a standard-setting platform with an integrated ecosystem to maintain its leadership. The firm has recently formed four strategic partnerships with car manufacturers, including Dongfeng Motor Corporation and Huawei Technologies, to promote battery swapping technology. In addition, CATL established a wholly-owned energy-storage technology subsidiary with a capital of 5 billion yuan (US$750 million) to develop AI software.

Internationally, CATL announced a 3 gigawatt-hour sodium-ion battery project with Intilion, a German energy storage solutions provider. The shift towards energy storage reflects the broader industry trend toward a higher-growth and more visible market segment. However, analysts warn that persistent price wars in mainland China could erode CATL's fundamentals if exports of EV batteries and its higher-margin energy-storage operations fail to contribute significantly to fourth-quarter earnings.

CATL's sharp slowdown in third-quarter profit growth has already led to a record low in its Hong Kong-listed shares, as investors worry about the impact of China's battery consumption tax, reduced export tax rebates, and rising overseas trade barriers on the company's performance.