CALB Group: Stock of the Week

Key Takeaways for CALB Stock

- XPeng’s strong sales number is good news for CALB

- The Portuguese project will take time to complete

-  The CALB stock is fairly valued

Major Tesla rivals in China experienced strong electric vehicle sales in the third quarter, thanks to the launch of new and more affordable models. Notably, XPeng sold more than 40,000 vehicles, marking its second-highest record. This success has had a positive impact on China Aviation Lithium Battery (03931), XPeng's largest battery supplier. CALB’s stock has rallied 30% from its low, outperforming its larger competitor CATL (300750)’s 12% loss. 

While the picture looks rosy for CALB, before you buy, you should keep three factors in mind.

Three Things to Keep in Mind Before Buying CALB Stock

First, after its impressive stock market performance, CALB is currently considered fairly valued by Morningstar analysts, who have assigned it a 3-star rating.

Next, it’s important to note that CALB is a smaller player in the industry, holding a 7% market share in China trailing behind CATL and BYD (01211). Due to its size, CALB faces challenges in being at the forefront of new battery technology development. Our analyst, Vincent Sun believes that CALB needs to catch up in terms of technology to compete on pricing. CALB’s low pricing power makes it more sensitive to fluctuations in raw material price.

Finally, the battery maker’s recent expansion of its production line to Portugal is a strategic move to establish a foothold overseas. However, this project will require time to complete, and investors should keep an eye on whether the company may experience a slight power drain and face margin pressure.

 CALB Group Bulls Say

- EV battery demand will remain resilient driven by the global vehicle electrification trend. As one of the leading players, CALB will benefit from the robust demand growth.

- With the proceeds raised through its IPO, CALB’s aggressive capacity expansion plan for its EV battery production will ensure the company delivers robust revenue growth.

- CALB has industry-leading battery technology research and development capability, which will enhance its relationship with leading carmakers for resilient order growth.

 CALB Group Bears Say

- Given low pricing power, increases in the raw materials prices will significantly impact CALB’s profitability, resulting in volatility and uncertainty in earnings forecast.

- CALB lacks overseas expansion strategy to meet local regulatory requirements. The recently announced production plant in Portugal takes time to complete and potentially lower profitability will further drag down its margins.

- Forecast of CALB’s growth depends on swift battery capacity expansion. Potential delay in the production rampup will lead to earnings downgrade.