Foreign Holdings of CATL Stock Hit Record 10.8% Despite US Tariffs

Key Takeaway

• Foreign holdings in CATL stock hit a record 10.8%, driven by optimism despite US tariff hikes on Chinese EV batteries.
• China considers raising tariffs on imported cars with large engines to 25%, potentially impacting European and US carmakers.
• US tariff hikes on Chinese EVs could benefit the domestic battery supply chain, with South Korean firms like LG Energy Solution and Samsung SDI leading investments.

Record Foreign Holdings in CATL

Foreign holdings in Contemporary Amperex Technology Co. (CATL) reached a record high on Tuesday, with global funds showing resilience despite Washington's plan to increase tariffs on Chinese electric vehicle (EV) batteries. Data compiled by Bloomberg indicates that overseas investors' holdings of CATL stock climbed to 10.8%, the highest since the shares were included in the Stock Connect program in early 2019. This program allows Hong Kong traders to buy stock in China and vice versa.

The surge in foreign ownership follows a significant one-day increase on March 11, the largest in over a year. This optimism is partly driven by a recent analysis from JPMorgan Chase & Co., which suggested that the US's move to increase tariffs on a wide range of Chinese imports is likely to have minimal impact on CATL’s earnings. The index heavyweight has been a focal point for investors, reflecting broader confidence in the company's market position and future prospects.

Potential Tariff Increase on Imported Cars

China is considering raising temporary tariffs on imported cars with large engines to a maximum of 25%, according to the China Chamber of Commerce to the EU. This potential move could significantly impact European and US carmakers. The consideration comes in response to the Biden administration's recent decision to increase tariffs on Chinese EVs to 100% and the European Union's ongoing investigation into alleged unfair advantages provided to Chinese automakers through government subsidies.

Liu Bin, the chief expert at the China Automotive Technology & Research Center, suggested in an interview with the Chinese state newspaper Global Times that the temporary tariff rate on imported cars with engines larger than 2.5 liters should be increased. World Trade Organization rules permit setting a tariff on imported vehicles up to a maximum of 25%.

Impact on Global Auto Market

The potential tariff increase by China could have broad implications for the global auto market. In 2023, China imported 250,000 cars with engines larger than 2.5 liters, which accounted for about 32% of all imported vehicles. In contrast, China exported 1.55 million EVs last year, with approximately 638,000 going to Europe and 52,200 to North America, according to customs data.

The move to raise tariffs is seen as a response to the growing scrutiny and trade barriers faced by Chinese EVs in the US and EU markets. Chinese EVs are under the spotlight due to China's control over a significant portion of the battery supply chain and its position as the world's largest EV producer. With a price war and a slowing economy at home, Chinese automakers are expanding overseas, leading to allegations of exporting excess auto capacity and raising cybersecurity concerns over the tech-laden vehicles.

US Tariff Hikes and Investment Opportunities

The US's decision to impose higher tariffs on Chinese EVs is expected to impact the US battery supply chain and create investment opportunities, according to Bernstein. The White House stated that the tariff hikes on Chinese EVs and other products are necessary to protect American industries from unfair competition. Bernstein noted that these tariffs would benefit the US battery supply chain, where demand is projected to grow at a compound annual growth rate of 25% to 30%.

The Inflation Reduction Act (IRA) subsidies aimed at reshoring the battery supply chain to the US are also having the desired impact. South Korean companies, such as LG Energy Solution and Samsung SDI, currently dominate the US battery supply chain and have ramped up investment in North America. Bernstein analysts highlighted that "Korean companies have so far been the biggest beneficiary of the IRA and shift to EVs." They gave Samsung SDI and LG Chem an outperform rating and LG Energy Solution a market perform rating.

Street Views

• JPMorgan Chase & Co. (Neutral on CATL):

  "The US’ move to increase tariffs on a wide range of Chinese imports is likely to have minimal impact on CATL’s earnings."