Chinese battery group spun off from missile maker falls on trading debut

One of China’s biggest electric vehicle battery producers has staged a weak debut on Hong Kong’s stock market as investors shunned a group that was spun off a company that makes missiles and fighter jets for the Chinese military.

China Aviation Lithium Battery’s shares fell as much as 2.2 per cent on Monday, marking the latest disappointing first day of trading for a mainland Chinese company in Hong Kong.

The initial public offering of CALB, which sold 8 per cent of the company, raised HK$10.1bn (US$1.3bn) after pricing at the bottom of its range, with a pre-IPO valuation at Rmb70bn ($9.8bn). More than half of the share offer, or about $735mn, was covered by 15 cornerstone investors.

CALB is a spin-off from the Aviation Industry Corporation of China, a state-owned defence group and supplier to China’s People’s Liberation Army.

Despite rapidly becoming China’s third-largest and the world’s seventh-biggest EV battery group, analysts have questioned CALB’s profitability and raised concerns about allegations of intellectual property theft levelled by rival Chinese battery maker Contemporary Amperex Technology. CALB denies the accusations.

In 2021, CALB reported an operating loss of Rmb479mn. Its net profit of Rmb112mn was driven by government grants totalling Rmb365mn. CALB’s gross profit margin of 7 per cent last year lagged margins of about 20 per cent among industry peers, according to Bernstein.

Neil Beveridge, an analyst with Bernstein in Hong Kong, said the group’s history and state ties stood as a potential “obstacle” to winning over foreign customers as it pursued a $26bn international push.

Avic group still owns a 10 per cent stake in CALB through a listed subsidiary. The Changzhou city government remains CALB’s biggest shareholder, with a 30 per cent stake. CALB’s biggest customer, state-backed carmaker Guangzhou Automobile Corp, holds a stake of about 4 per cent.

CALB’s chair Liu Jingyu, an Avic veteran, told reporters in an online briefing last month that the company was confident about its battery offering.

“We’re able to keep a client when they become a client,” she said. “Our company is able to become a supplier with high penetration in client’s product lines.”

CALB relies on Chinese customers for the majority of its sales, in contrast to CATL, the world’s largest battery maker, which boasts foreign clients including Tesla, Peugeot and BMW.

Analysts noted that the company did not spend as much on R&D as its competitors, with expenditure at 4 per cent of revenue in 2021, trailing industry leaders including CATL and South Korea’s Samsung SDI, which spent 6 per cent of their sales on R&D.

But Liu insisted that the company was investing in line with its peers. “The electric battery industry is not an industry you can crack into with cheap products, it’s an industry that needs strong back-up in technology knowhow,” she said.

The listing comes as the Biden administration is increasing pressure on US companies to reduce their reliance on Chinese industry. Companies across the clean tech supply chain are also competing for access to resources as EV demand booms.

Liu was promoted to lead the battery group after serving in executive positions in the Avic group.

Under her leadership, CALB has secured long-term supply deals with leading Chinese materials groups.

In May, it formed a new partnership with Tianqi Lithium, one of the world’s largest lithium groups, to jointly develop new mines.

Additional reporting by Maiqi Ding in Beijing and William Langley in Hong Kong