Zenergy seeks IPO charge-up in overheated battery landscape

The electric vehicle battery maker is following in the footsteps of many of its peers by selling shares to fund its operations 

Key Takeaways:

• Zenergy has filed for a Hong Kong listing, reporting it lost nearly 70 million yuan in the first three months of this year
• The company is just one of many EV battery startups in China, making the industry ripe for consolidation

By Lau Chi Hang

The global drive to reduce carbon emissions is fueling a boom for not only electric vehicles (EVs), but also for their many component suppliers. And while a rat race has evolved for survival among the many money-losing EV startups, another less visible race is also shaping up among a similar crop of EV battery makers quietly supplying the big names like Tesla (TSLA.US).

The major EV makers were the first to list shares to keep their engines running as they searched for elusive profits. Now, Jiangsu Zenergy Battery Technologies Group Co. Ltd. has joined a group of battery makers making similar listings as they also seek fresh funds to keep their engines running. The company provides a range of EV battery products, including cells, modules, packs, racks, and EV battery management systems. Zenergy was the world’s 10th largest EV battery maker by installed capacity last year, according to third-party data in its listing application filed late last month.

Zenergy hails from a storied family in China’s automotive component world, founded by Chen Jicheng and Cao Fang, younger sister of the country’s automative “glass king” Cao Dewang. After working with Chen at her older brother’s Fuyao Glass for more than a decade, Cao Fang started her career manufacturing energy storage system (ESS) batteries in 2014 with the launch of Jiangsu TAFEL. She later co-founded Zenergy with Chen in 2019.

Zenergy has grown rapidly in part by drawing on Cao Fang’s background and connections, coupled with China’s policy support for battery makers. The company’s revenue rose steadily from 1.5 billion yuan ($210 million) in 2021 to 4.16 billion yuan last year, according to its listing document. Its losses for the period grew from 400 million yuan in 2021 to 1.72 billion yuan the next year, before receding to 590 million yuan in 2023.

The rapid revenue growth continued this year, rising nearly 70% in the first quarter to 740 million yuan year-on-year. The company’s losses also continued shrinking, falling to nearly 70 million yuan in the first quarter from a 168 million yuan loss in the same period a year earlier.

Money-losing streak

Zenergy’s nonstop losses owe mainly to the huge initial investment required to both develop and then produce its high-tech batteries. Zenergy explained that such investment may not generate substantial returns until its production facilities reach a certain scale, which may take several years. Meantime, it must continue investing in the latest technologies to launch competitive products and stay ahead of industry trends. 

According to third-party data in the listing document, new enterprises in China’s EV battery industry typically incur losses for an average of three to five years while building up economies of scale that can bring efficiencies needed to operate profitably. But the road to profitability is becoming even more distant with so many companies entering the market, leading names like Zenergy to turn to capital markets to keep their production batteries charged.

Oversupplied

Even if it can raise new capital, Zenergy will still face many challenges in the current overheated EV battery market. The biggest of those is overcapacity. Ouyang Minggao, of the Chinese Academy of Sciences, predicted that China’s domestic EV battery production capacity will reach 3,000 GWh next year, even though only 1,200 GWh is really needed. Zhu Huarong, chairman of Chang’an Auto, also said domestic demand for EV batteries in 2025 will be about 1,000 GWh, even though planned capacity has already reached 4,800 GWh.

And while the number of EVs on China’s and the world’s roads is growing rapidly, the supply of batteries still far exceeds any future demand.

The overcapacity owes largely to too many players piling into the market – a common occurrence in China as companies rush to enter emerging sectors in search of profits, often enticed by government incentives. That’s turned China’s EV battery industry into a bloody rat race with a few major players at the top of the food chain. Even market leader CATL (300750.SZ) is suffering in the resulting carnage, with its market share down more than 5 percentage points from 48.2% in 2022 to 43.11% last year.

Moreover, competition is coming not only from other battery makers, but also from EV companies that are the main users of batteries. Some of those EV makers sought other suppliers or moved into their own battery production after suffering sticker shock when raw material prices spiked and supplies became limited in recent years, bumping up the competition to a new level.

Survival of the fittest

The intense competition has put steady pressure on EV battery prices, eroding margins for all producers with no end in sight.

“The takedown is accelerating,” Yang Hongxin, chairman of Beehive Energy, said after an industry forum last month. “EV battery makers have been getting knocked out of the market every year since 2020. There may be less than 40 by the end of this year, but the takedown will keep accelerating in 2025 and 2026.”

Zenergy will not only need to compete in the EV battery market, but also on the capital market due to many other investment options offered up by its rivals. The company says it wants to improve its economies of scale to break out from the crowd, but achieving that could be easier said than done. CATL already controls nearly half of the market, followed by BYD (1211.HK; 002594.SZ) with 27%, and CALB (3931.HK) and Eve Energy (300014.SZ). Its position as the 10^th biggest player may look good on paper, but Zenergy clearly has its work cut out convincing investors why they should park their dollars with the company.

What’s more, many of the largest companies are currently profitable and have plenty of cash to fund their operations, giving them more resources to weather the ongoing storm. In such a harsh climate, Zenergy could have difficulty winning over investors.

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