In a notable development within the electric vehicle and battery sector, two leading Chinese companies announced significant steps towards their initial public offerings (IPOs) in Hong Kong on the same day. On February 11, 2024, Contemporary Amperex Technology Co., Limited (CATL) submitted its application to the Hong Kong Stock Exchange. In conjunction with this, China Minmetals Rare Earth Co., Ltd. (CMRE) revealed its intention to prepare for a listing on the Hong Kong market. This follows the earlier announcement from Greebeam Co., Ltd. on January 20, 2024, whereby they began the process of filing for an IPO in Hong Kong as well.

All three companies cited the expansion of their international operations as a primary motivation for their moves to list on the Hong Kong Stock Exchange. The Times of Business Research has observed that these firms have been increasing their overseas production capacity in recent years, indicating a growing trend of new energy enterprises setting up manufacturing facilities abroad. The IPOs are expected to facilitate the provision of foreign exchange, critical for funding these overseas ventures.

The wave of IPOs by new energy firms is emblematic of a broader trend where companies in this industry are increasingly seeking to establish international manufacturing capabilities. As the demand for electric vehicles burgeons worldwide, these companies are finding it essential to diversify their production locations.

Establishing factories overseas has become a new trend in this pursuit, particularly as these companies face a significant shortfall in foreign exchange reserves. Recent reports indicate that CATL and CMRE have seen substantial increases in their overseas revenues. For instance, CATL's overseas revenue surpassed ¥100 billion in 2023, marking a 70.3% increase year-on-year, with international sales accounting for more than 30% of its total revenue. Likewise, CMRE reported its overseas revenue hitting ¥13.57 billion, up by 32.8%, with international sales constituting nearly 40% of its total revenue.

Moreover, profits from these international operations appear markedly more robust compared to domestic earnings. Data from financial service platform iFinD reveals that CATL, CMRE, and Greebeam's gross profit margins on overseas business were significantly higher than those from domestic operations in 2023 — 25.19%, 16.58%, and 13.8% respectively, exceeding domestic margins by 3.39, 4.37, and 2.22 percentage points.

However, these firms also face growing trade barriers as they attempt to expand their exports. Nations such as the United States, Turkey, and various European countries have implemented tariffs on Chinese electric vehicles and batteries. This regulatory environment has made establishing factories abroad not only advantageous but often necessary to circumvent these tariffs. Yet, with many of these firms reporting inadequate foreign exchange reserves, meeting the financial demands of international expansion proves challenging.

As of mid-2024, CATL has disclosed it primarily holds foreign currency reserves in dollars and euros, totaling approximately $6.735 billion and €3.858 billion respectively. The company has actively invested in three battery production plants globally, primarily in Europe, including facilities in Thuringia, Germany, Debrecen, Hungary, and Zaragoza, Spain, with the Thuringia plant having come online in January 2023 with an investment of about €1.8 billion, while the Debrecen plant is under construction at a cost of $7.34 billion.

By the end of 2024, CATL, in collaboration with global automotive giant Stellantis, announced a joint venture to construct a new battery production facility in the Aragon region of Spain, with a total projected investment of €4.038 billion and an estimated construction period of four years. This venture will mark CATL's third factory in Europe.

Furthermore, CATL is also exploring the establishment of a battery supply chain project in Indonesia and has previously considered building plants in Mexico or the USA. With CATL accelerating its overseas factory initiatives, the current foreign exchange reserves may fall short of covering extensive investment needs.

Similar circumstances are reflected in CMRE's situation, where its mid-year report shows total dollar reserves of approximately $344 million as of June 2024. CMRE has already set up four nickel raw material production bases in Indonesia and has plans for a comprehensive $10 billion production facility over the next 10 to 15 years. Additionally, they are collaborating with the Moroccan Al Mada Group to construct a battery component production facility near the port of Jorf Lasfar, with the total investment reaching $2 billion. The company's global footprint also extends to Korea and Finland, stressing a pressing need for adequate foreign exchange reserves to sustain these ambitious projects.

As part of their Hong Kong listings, CATL aims to raise at least $5 billion, while CMRE targets a fundraising amount between $400 million to $500 million. Nevertheless, these amounts may only partially cover initial overseas investment requirements, foreshadowing the potential need for further financing rounds down the line.

The appetite for electric vehicles, both in China and internationally, presents a dual-edged sword for these companies. According to the China Automotive Industry Association, electric vehicle sales in China are projected to reach 12.866 million units in 2024, up 35.5% year-on-year with penetration surpassing 40%. In stark contrast, electric vehicle adoption rates in the United States and Europe remain substantially lower, estimated at approximately 20% and 22% respectively.

This scenario reveals that while China is rapidly advancing in electric vehicle penetration, a slowing growth rate is inevitable. The anticipated year-on-year growth for 2024 is projected to see a decline of around 5 percentage points compared to 2023. Conversely, the lagging adoption rates in Europe and North America imply ample opportunities for growth, reinforcing the urgency for Chinese new energy firms to stake their claims abroad.

Furthermore, Chinese electric vehicle makers hold marked competitive advantages in the global marketplace, compelling overseas clients to form alliances with domestic suppliers. The increasing production capacity abroad is thus reflective of a mutual decision aimed at optimizing supply chain logistics during a period where Chinese manufacturers capture approximately 67.1% of the global power battery market, further cementing their stake in overseas markets.

Various overseas clients are opting to secure their supply chains through joint ventures with Chinese manufacturers. A notable example would be CATL’s investment partnership with Stellantis, where both firms maintain equal stakes in the Zaragoza plant, dedicated to supplying various Stellantis brands. Another illustration involves Funeng Technology, which has formed a joint venture with Turkish electric vehicle manufacturer TOGG, each party contributing equally to the venture.

Nonetheless, the journey of establishing overseas manufacturing facilities can be fraught with challenges. In June 2023, CMRE had intended to partner with POSCO Holdings to build a nickel refining facility in Pohang, Korea, with a planned fixed investment of around ¥2.2 billion. However, shifts in market conditions led both parties to repeatedly reassess operational costs and investment strategies, causing delays and ultimately the termination of the investment. Similarly, CATL's North American factory project remains stalled with no recent updates.

The swelling tide of Chinese new energy firms pursuing international manufacturing also raises concerns about potential trade frictions in their host countries. In May 2024, the U.S. Department of Commerce began an investigation into crystalline silicon photovoltaic cells imported from Cambodia, Malaysia, Thailand, and Vietnam, reflecting a growing scrutiny of overseas supply chains related to renewable energy. Should these trends continue, the scale and impact of potential trade disputes involving the electric vehicle supply chain are worthy of consideration.