What's going on?
On Monday, shares of the world’s largest electric vehicle battery maker – Contemporary Amperex Technology Co. Ltd. (CATL) – soared by 44% as it debuted on the stock market in China (tweet this), reaching a value of over $12 billion
What does this mean?
CATL makes batteries for electric vehicles, going head to head with the likes of Panasonic, which produces batteries with Tesla. Despite charged competition, the company boasts some big-name customers in the car world, like Volkswagen, Nissan and BMW.
According to Chinese stock market rules, newly-listed stocks are allowed to rise a maximum of 44% on their first day of trading. Hitting this figure suggests investors may have high hopes for CATL. It raised $850 million by selling 10% of its shares, but at a valuation of half what it was aiming for.
Why should I care?
For markets: Investors try to look past the rules.
At the time of an Initial Public Offering (IPO), stocks on the Chinese stock market aren’t allowed to have a share price that’s more than 23x their profit per share (a.k.a. P/E ratio). Last year, CATL suffered a dip in profitability because it cut prices on its batteries to gain market share. As a result, its starting valuation was closer to $8.5 billion rather than the $20 billion it was hoping for. Its stock rising by the maximum amount on Monday may mean investors believe the company is more valuable than the stock exchange allowed it to be on day one.
The bigger picture: The car manufacturing scene is electrifying.
It’s not just Tesla leading the electric vehicle (EV) charge – car manufacturers around the world are spending more on EVs than ever before. For companies like Volkswagen – one of China’s leading players – Chinese subsidies for electric vehicles and restrictions on traditional vehicles should help spur demand for its EVs. In fact, CATL’s likely to build a factory in Germany, putting it even closer to some of its key clients while it develops new battery technologies.