Beijing is forcing corporate heroes to make tough choices
A PLAN by Contemporary Amperex Technology Co., Limited (CATL) to set up a fund to invest in members of its supply chain is a pragmatic move for the world’s leading electric-vehicle (EV) battery maker. But a company whose cash pile more than doubled to $40 billion in just two years shouldn’t need to seek external investors.
Unless it’s Chinese.
CATL is looking to raise $1.5 billion from sovereign wealth funds and private offices of the super-rich, the Financial Times reported last week. Mercedes-Benz Group AG and families connected to other automakers have also been approached, the newspaper said. The Ningde, Fujian-based company plans to put about 15% of its own cash into the fund.
Overseas expansion is a long-term goal for the Chinese company that already operates at least six facilities on foreign soil. Customers include Tesla Inc., Stellantis NV, and Ford Motor Co. An extensive foreign customer base makes CATL a rarity among major Chinese firms and helped its overseas revenue expand to 33% of the total last year from just 4% in 2019.
With so much cash, and more coming from abroad, CATL has enough firepower to make its own investments without ceding control to others. And there’s good reason why it would want to expand quickly. The long-term growth trajectory of EVs is strong. Batteries and their related components are a major expense in the purchase of a new vehicle, but as prices decline economies of scale will be a major competitive factor.
Sure, tying up with others in the sector offers strategic benefits by ensuring both clients and suppliers have skin in the game. But it also means having to answer to investors in the fund whose interests may not fully align with that of the battery maker.
What’s really at play, though, are the speedbumps CATL faces in quickly getting money overseas. Capital controls imposed by Beijing are hurting thousands of local companies and their foreign stakeholders, many of whom are increasingly reticent to invest in the world’s second-largest economy.
One reason Beijing imposes these restrictions is to better manage the yuan and prevent a collapse in the currency. They’re also designed to keep cash at home, so it can be reinvested in local industries instead of funding offshore manufacturing or repaying investors.
That worked for an inward-looking economy more concerned with building a local production base than an overseas footprint. CATL, however, is unique in being a Chinese company in a crucial part of global supply chains where foreign manufacturing makes more sense. Big and heavy EV batteries are best made near a car’s final assembly site than in a low-priced labor hub like China.
It doesn’t help that President Xi Jinping has publicly expressed having mixed feelings about the company’s overseas expansion. Instead of wholeheartedly supporting one of the nation’s global leaders, Xi said he’s both happy and worried about CATL’s development.
Its decision, soon after Xi’s concerns were voiced, to pause plans for a $5-billion Swiss share sale heightens the sense that its next-best option is to raise money from foreigners through an offshore fund. That’s an ironic and unintended consequence of China’s desire to keep money and manufacturing within its borders.
Given the freedom to invest cash anywhere at any time, CATL would have a real chance of becoming a truly global Chinese company with its name on factories across the planet as well as on the investor list of numerous international suppliers. Instead, it’s in a position where it may need to tap outsiders to share the investment, and the spoils that come with it, or risk losing its global leadership position.
That’s not the kind of dilemma Beijing should be forcing on its national champions at a time when China needs industrial heroes more than ever.
BLOOMBERG OPINION
