TIP840: CATL: Powering EVs, Power Grids, and AI w/ Stig Brodersen, Manish Karira & Ralph Summerford

In today’s episode, Stig Brodersen is joined by Manish Karira and Ralph Summerford for a bull and bear debate on CATL, the world’s largest battery maker. Manish presents the bull case, arguing that a company most listeners have never heard of is becoming the backbone of the global energy infrastructure, powering EVs, stabilizing power grids, and feeding AI data centers. Ralph, a forensic accountant, presents the bear case, digging into price deflation, geopolitical risk, and whether CATL’s US licensing model is capital-light growth or a defensive retreat. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:02:58) Why Manish is bullish on CATL, the world’s largest battery maker with 40% global market share and a founder-led culture of relentless R&D. (00:14:43) Why energy storage for AI data centers and the LRS licensing model in the US are two growth engines the market may not have fully priced in. (00:30:59) The bear case for CATL, including price deflation, a temporary margin windfall, the unwinding of its interest-free supplier float, and key-man risk. (00:58:28) How battery swapping and leasing could transform CATL from selling a battery once to owning the asset for its entire lifetime. (01:03:09) How to think about CATL’s valuation at 18 times operating profit, its 150+ strategic stakes including DeepSeek, and why the Hong Kong shares trade at a premium to the mainland listing. Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Stig Brodersen’s ⁠Portfolio and Track Record⁠. Meet Ralph at our Intrinsic Value Conference in NYC on September 19. Connect with Ralph on LinkedIn or send him an email at [email protected]. Contact Manish Karira on LinkedIn. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. Ad-free episodes on our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Premium Feed⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. NEW TO THE SHOW? Get smarter about valuing businesses through ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Newsletter⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Check out ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Investor’s Podcast Starter Packs⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Follow our official social media accounts: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠X⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠LinkedIn⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ | ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Facebook⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Try our tool for picking stock winners and managing our portfolios: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠TIP Finance⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Enjoy exclusive perks from our ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠favorite Apps and Services⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn how to better start, manage, and grow your business with the ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠best business podcasts⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. SPONSORS Support our free podcast by supporting our ⁠⁠⁠⁠⁠sponsors⁠⁠⁠⁠⁠: ⁠⁠Plaud⁠⁠ ⁠⁠Plus500⁠⁠ ⁠⁠Netsuite⁠⁠ ⁠⁠Scribe⁠⁠ References to any third-party products, services, or advertisers do not constitute endorsements, and The Investor’s Podcast Network is not responsible for any claims made by them. Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

• 0:00Speaker 00

  You're listening to TIP.

• 0:03Speaker 01

  In today's episode, we're doing a bull and bear debate on CATL, the world's largest battery maker. My friend Manish Karira presents the bull case, and Ralph Summerford, another dear friend and forensic accountant, who spent his time chasing financial shenanigans, of course, plays the bear. Now, chances are that you've never heard of the company. Well, Ralph and I certainly hadn't either. We didn't even know it was pronounced cattle or CATL. But if you've ever been in a Tesla or in a BMW, odds are that it ran on one of the batteries. Manish walks us through how CATL came to control 4% of the global EV battery market, and why energy storage for AI data centers might be the growth engine the market hasn't priced in.

• 0:48Speaker 01

  Ralph digs into price deflation, an interest rate supplier float, and geopolitical risks that could hit with the stroke of a pen. You know, whenever we're bullish on a stock, we tend to surround ourselves with people who agree with us. You know, we like to sit in echo chambers. We like to all agree how smart we are because we all invest in the same thing. And if the thesis doesn't play out, we can always come up with a reason why Mr. Market is just manic and doesn't see what we see. But of course, it's only a question before he realizes how wrong he is. Well, sometimes it happens and sometimes it doesn't happen. The point I'm trying to make is that we invited Ralph here to be the bear. And not only today, but every quarter, we're going to have an episode just like this,

• 1:31Speaker 01

  where we're going to debate from a bull and a bear perspective. And I should also mention that both Ralph and Manish are members of a TIP mastermind community, and we meet online and in person. Now, members are automatically invited to our live events, like the Intrinsic Value Conference in New York City here on September 19. And you can read more about how to attend in the show notes. But without further ado, let's jump right into the episode.

• 2:47Speaker 01

  Welcome to the Investors Podcast. I'm your host, Dick Brodersen, and today I'm here with my friends Ralph and Manish. Pians, how are you today?

• 2:55Speaker 02

  Doing great.

• 2:56Speaker 03

  Doing great, Dick. Thank you for having us.

• 2:59Speaker 02

  Yeah, glad to be here.

• 3:01Speaker 01

  Fantastic. And so, Manish, you're presenting the bull case for a huge company. And perhaps it's a company that the audience doesn't even know about. And so, I'm happy to say that in the first part of this episode, you will give us an overview of the business. And then, we'll open the floor for perhaps a discussion among the three of us about some related things. But anyways, I'm getting way ahead of myself. So let's just jump right into it, Manish. Please tell us about the company.

• 3:29Speaker 03

  Thanks, Dick. So this company that I would like to introduce today controls 40% market share in a growing industry. Most people probably have never seen their products. But if you have been in a Tesla or an electric BMW or a Mercedes, there is more than a one-third chance that you are on the vehicle that was running on one of their products. The company I'm talking about is CATL, Contemporary AmpereX Technology Limited, the largest battery maker in the world. And as of the most recent stock price, its market cap is about $280 billion, which means they are roughly the size of Shell. And my main thesis on CATL

• 4:14Speaker 03

  is that this company is more than a battery company. I think it is fast becoming the backbone of the energy infrastructure. It powers EVs, it stores renewable power, and now increasingly, it's becoming the core power infrastructure player in the AI data centers.

• 4:33Speaker 02

  You know, Manish, I have to admit, when I first discussed this company with you when we talked about it, I'd never heard of CATL. I wasn't even sure if you pronounced it cattle or CATL. What's the founding story about this company?

• 4:51Speaker 03

  Yeah, it's not a well-known company in the Western world, but the company has a very interesting backstory. So CATL was founded by Robin Zheng, who is the CEO of the company. It was started in 2011, but the roots of the company date back to much earlier. So in the 1990s, Robin Zheng was working as a technical director at a company called SAE Magnetics, which was a subsidiary of the Japanese conglomerate TDK that used to make electronic components such as computer hard drives, disks, etc. So Robin Zheng saw firsthand the consumer electronics boom that was taking shape in the late 90s

• 5:35Speaker 03

  and the opportunity for the lithium batteries in those products. So he took his first big bet. He decided to quit TDK, and along with two other colleagues, he founded a lithium battery company called AmpereX Technology Limited, or ATL. So that's CATL without the C. So he founded ATL, and at that point, they did not have a battery technology of their own. And instead, they licensed a technology patent from Bell Labs. But that technology had a fatal flaw as the batteries would swell up after repeated charging. And Robin Zheng, being a deeply technical engineer, along with his team, somehow managed to solve this issue

• 6:19Speaker 03

  and turned this defective license into a product that landed them some big customers. And the key one being Apple in 2003, when the company started manufacturing batteries for the Apple iPod. So that wind cemented Robin Zheng's credibility and established ATL as a benchmark in the mobile battery world. Now, the success of ATL caught the eye of TDK, the former employer of Robin Zheng. And TDK decided to acquire ATL for about $100 million and also asked Robin Zheng to stay on and run the company as a TDK subsidiary. So it was like a full circle for Robin Zheng.

• 7:03Speaker 03

  He left TDK to build something of his own, and he was now back with them. But now with a large Japanese parent behind them, ATL was scaling its manufacturing and scaled their Apple relationship and started making batteries for the iPhone. And ATL ultimately grew into the world's largest smartphone battery maker. And what is interesting about Robin Zheng is that he didn't stop at that. After dominating the smartphone battery market, he started to set his sight on the next big wave in batteries, which was batteries for electric vehicles. Robin Zheng could see that China was making electric vehicles as a strategic industry and was providing state support to homegrown companies.

• 7:49Speaker 03

  But this is where there was a problem because ATL was owned by TDK, which was a Japanese company. He knew that a foreign-controlled ATL would not get the same support from the government as a domestic company would. So what does Robin Zheng do? He takes another big bet. He gathers a group of Chinese investors, led by himself and his deputy, and spun off ATL's EV battery division into a brand-new Chinese-controlled company called CATL. Robin Zheng and his co-investors took 85% equity in the company, and TDK kept the remaining 15%. And that's how CATL came into existence.

• 8:31Speaker 01

  Well, incredible. And thank you, Manish. You know, you could say so far, so good. But then, we're having this relatively small company. They're making smartphone batteries. But then, all of a sudden, in barely a decade, they're powering 4% of the world's EVs. Like, how does something like that happen?

• 8:50Speaker 03

  Yeah, so CATL has developed some key competencies which have led to this massive growth such as their strong focus on R and D, their vertical integration and the manufacturing scale advantage. And we can talk about these drivers in more detail later. But I believe there is one important factor which I think has been a key driver behind the rise of CATL. And that is their relationships with key customers during their growth phase. And two of them really stand out. The first one was with the German automaker BMW. So back in 2012, BMW wanted to build an electric vehicle and wasn't happy with any of the

• 9:30Speaker 03

  batteries on the market. They first approached BYD and BYD declined to provide batteries to external customers. So BMW took a gamble and gave this relatively unknown EV battery company CATL a critical contract to be their battery supplier in China. And it wasn't a purchase order for BMW from BMW. They basically embedded their engineers inside CATL's facilities to co-design the battery for their EV. And I think that education in German engineering and a stamp of approval from a global automaker is what put CATL on the map. So that was their first key relationship that gave them an initial recognition that they can make high-performance

• 10:15Speaker 03

  batteries for a demanding customer. And if BMW gave CATL the credibility, it was Tesla that gave them the global stage. Just a quick backstory. So when CATL was formed in 2011, there was another EV revolution happening in the US. Tesla had gone public and they had signed Panasonic to be their battery suppliers for their Model S cars. CATL did not enter Tesla's supply chain roughly a decade later, around 2020, when Tesla entered China and started sourcing batteries from CATL. And that's when the growth of CATL went vertical. So just to give you some numbers. So in 2020, CATL's revenue was roughly about

• 11:00Speaker 03

  $7 billion. And in 2025, just five years later, their revenue jumped by more than eight times to more than $60 billion. And it's not just the growth in revenue. The scale of CATL's battery production today is hard to picture. The company is on track to deliver close to 1,000 gigawatt hours of battery in 2026. And to just put that in perspective, that's enough electricity storage to power all of Singapore or the city of New York for about a week. Today, Robin Zheng is sometimes called the invisible king of the global battery supply chain. He still owns about 22% of the company and

• 11:40Speaker 03

  the founding team holds over 35%. So this is a founder-led, founder-controlled, deeply technical, R and D-focused company with skin in the game. And I believe with a very long time horizon.

• 11:54Speaker 02

  Well, Manish, if I could add one thing there, we as values investors always are looking for a company led by a founder who has more than a minor stake. In other words, they have skin in the game. And it's clear that Zheng has a personal stake in the game. And I hear that, I read that the estimates is greater than $53 billion is his personal stake. And another point about Zheng, he leads a culture of giving back to his community. He grew up very poor. He was from a very small city in China. And the manufacturing

• 12:35Speaker 02

  facilities of CATL are in a city of about 400,000, but it's located very close to its hometown. He's expressed his desire to give back and reward loyalty. And those are great attributes of a leader that we're always looking for. So what's the competitive advantage, Manish, that allows them to have such a high market share? Why aren't competitors catching up with them?

• 13:03Speaker 03

  Yeah, I mean, well, CATL has been number one in EV battery market share for nine straight years. Its nearest rival is BYD at around 16% market share. Now, most listeners would know BYD. It was Berkshire's famous investment in China led by Charlie Munger back in 2008. And that investment returned roughly 20 times before Berkshire fully exited last year. Today, BYD is the largest EV maker in the world and it's vertically integrated, meaning they make their own batteries. They do sell some batteries to others, but the

• 13:42Speaker 03

  vast majority is consumed by their own cars. So in a way, they are a competitor to CATL and in a sense, they are not. Where BYD and CATL do compete with each other is in the R and D space. Both companies want to be seen as the leading edge of battery technology. For example, this year, in March, BYD came out with a battery that charges from 10% to 97% in about nine minutes. And a month later, CATL came out with a competing product that goes from 10% to 98% in under seven minutes. And in this R and D competition

• 14:21Speaker 03

  between CATL and BYD, the Chinese lead over everyone keeps widening. And the third largest player in this sector is the Korean LG Energy Solutions. They have roughly about 9% market share. So this isn't a close race. CATL is about two and a half times larger than their nearest rival.

• 14:44Speaker 01

  You know, I always feel a bit torn about whenever I'm looking these market shares up because I think it very much also depends on who's the protagonist in the story, right? Sometimes you'll be looking at someone who has very low market share and you're saying, wow, look at all this growth they have ahead because you have such a small market share. And then, of course, you also have the other side of the spectrum where you have someone like CATL that has 40%. You're saying, wow, look like they have, they're the company, like they have the lead because they have all this market share. Whereas others would say they have, they have so much to lose, I guess. But what allows them to have such a strong lead in terms of market share? And why aren't competitors catching up?

• 15:23Speaker 03

  Yeah, so I would say there are probably three main reasons for that. I would say the first one would be scale economics. So if you look at CATL, you see a checklist like they are the cheapest producer, they have the biggest R and D budget, the best technology, and you might assume that the mode is one of those. But I think the mode is that these advantages feed each other and create a flywheel. Being the biggest makes them the cheapest. Being the cheapest makes them the most profitable. That profit funds a large R and D budget, which helps them build the best technology and win more

• 16:03Speaker 03

  customers, which makes them bigger still. And with the scale CATL has, they have been pushing upstream into mining with stakes in the mining companies. So they control the raw materials. And they have gone downstream by designing their cells straight into the car platforms. So for a competitor, it isn't about trying to catch up on one thing. They are chasing a flywheel that just keeps spinning faster every year. I believe the second advantage they have is the customer switching cost. Now, you might think that how can batteries have high switching cost? Well, once a battery is engineered into a car platform, it's designed years ahead of production and has to pass through a variety of safety, crash

• 16:48Speaker 03

  and durability testing before a single car gets shipped. So a design win isn't a one-year order. It's logged in for the entire life of that platform, which is typical about five to eight years. And that creates a sticky predictable revenue. And CATL has the broadest set of customers in the industry, Tesla, BMW, Mercedes, Volkswagen, and nearly every Chinese EV maker except BYD. So the switching cost creates another advantage. And the last one that I will talk about is the product complexity, especially in the energy storage space. So a grid-scale storage system looks like a giant block of battery, but a single

• 17:31Speaker 03

  gigawatt hour installation can contain on the order of several million individual components. And in one of the interviews, Robin Zheng mentioned that it contains more components than a Boeing 747. These storage systems are built to last more than 20 years. So the reliability bar is very high. And that makes them hard to manufacture at scale. So I would say that scale economics, switching cost, and product complexity are the three main sources of competitive advantage for them.

• 18:02Speaker 01

  Let's take a quick break and hear from today's sponsors.

• 18:05Speaker 04

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• 21:12Speaker 01

  So Manish, CATL being the largest battery maker, I'm almost inclined to say that the market, or at least institutional investors, must understand this competitive advantage, or at least so we like to think. But we also say that institutional investors are one of the ones swinging the market and yet to see these crazy fluctuations of what 80% on average for the largest companies. So perhaps they do and perhaps they don't. But in any case, the angle we are looking for are what are the drivers that overall the market has not fully appreciated? So why is the market not pricing right now in your opinion?

• 21:49Speaker 03

  Yeah, so the competitive advantage that we have discussed are pretty well understood by the market. But what I think is underappreciated are two new growth engines that are still in the early stage of their lifecycle. And I believe the market hasn't fully underwritten them. The first one is the power infrastructure for the AI data center. So AI data center cause enormous spiky workloads that the power grid cannot smoothly deliver. So if you picture an AI data center, you have tens of thousands of GPUs all computing in parallel, and then they pause for a split second to synchronize, and then they fire another compute cycle.

• 22:34Speaker 03

  This massive parallel cycle creates spikes in the power demand, sometimes swinging hundreds of megawatts in seconds. But the legacy power grids are not designed to ramp up and down fast enough to follow these compute spikes. That's the gap that CATL batteries fill in. They sit in between this spiky compute loads and the steady power grid. They absorb these surges in power in between. And as the total power demand continues to climb at these data centers, the appetite for this kind of a storage buffering grows with it.

• 23:06Speaker 02

  Yeah, Manish, I have done quite a bit of research on data centers lately, and hopefully that's one of the topics that we'll cover in a future podcast. To put a little bit of insight into what a data center storage means to CATL. The data center industry estimates that by 2030, just a little over three years from now, that data centers will require twice as much power. That is, they will need 200 gigawatts of continuous power. And to put those continuous power watts into perspective, think about this.

• 23:44Speaker 02

  One gigawatt, one gigawatt of continuous power is required for the city of Seattle, Washington, or San Francisco, California. 10 gigawatts of continuous power is required for the city of New York or the city of Los Angeles. 200 gigawatts, that is 200 gigawatts of continuous power is required for the state of California. All that additional power for the data centers requires storage to furnish that clean, steady power that you talked about. It is truly mind-boggling when you think about this.

• 24:28Speaker 03

  Yeah, it's quite mind-boggling for sure. And CATL is already the world's number one energy storage supplier. And I think the two things make it even more attractive play. First is that the storage segment carries higher margins for CATL than the core EV battery business because of the complexity and the durability requirements that we talked about. And the second point, which I find more interesting, is that CATL isn't just selling batteries to these data centers. It is now systematically assembling a full stack energy ecosystem for the storage through power distribution inside the data center.

• 25:11Speaker 03

  They are even buying into the power equipment makers and servicing the entire energy stack. This, I think, has the potential to transform CATL from just an energy storage supplier to a strategic infrastructure partner for the entire AI compute build-out. And the second potential growth engine, which I think is still in the early stage, that can have a huge upside for the company, is the licensing model called LRS, which stands for license, royalty, and service. So CATL is effectively locked out of owning a factory in the US for geopolitical reasons. So rather than fight it out, they have found a workaround where they get into a licensing deal with an American company.

• 25:55Speaker 03

  And it's the American partner that Bilt owns and runs the manufacturing plant, while CATL just provides the license of its technology and collects a royalty fee. So CATL and Ford recently did this licensing deal for the Ford's Michigan battery plant. And in that, Ford owns the plant, land, equipment, and hires the workforce. CATL has no equity and only offers battery chemistry and technology and gets a royalty fee in return. CATL hasn't disclosed the economics of the licensing fee, but if it is in the 3% to 4% range that these deals are typically turned at, then that's a very high-margin capital light income.

• 26:40Speaker 03

  And that framework can extend beyond EV batteries to even data storage for the AI data storage compute that we talked about.

• 26:49Speaker 02

  Well, you're exactly right. And the royalty and licensing fees can be a goldmine. If anyone has watched the TV show Shark Tank, Kevin O'Leary, who's also known as Mr. Wonderful, one of the venture capitalists, he frequently offers to invest, but not for an equity stake. He's looking for a royalty or a licensing fee. And there's a big reason for that, as you pointed out. It can be a huge return on the investment without the big investment in brick and mortar.

• 27:23Speaker 03

  Yeah, so the important point here that I want to do highlight is that this is still in the early phase. The model is under scrutiny by the US lawmakers. So CATL obviously feels that this is a win-win solution for both parties, but the geopolitics has many dimensions, and it's not yet a sure short win. But if CATL can scale this LRS framework in the US, the high-margin royalty revenue can provide a big boost to the stock price.

• 27:52Speaker 02

  Manish, I'm going to stop interrupting you, except to say that the scrutiny by the US lawmakers is a big, big but. And I'll talk more about this later. For now, let's suffice it to say that a licensing deal of 3% to 4% of revenue would be wonderful, but it could easily get wiped out by the simple stroke of a pen.

• 28:19Speaker 01

  Well said, Ralph. So with that in mind, let's dive into the financials now. Let's talk about some of the risks that we might see in the numbers, like just here at the very top, as we're looking at the income statement, I see the revenue was flat from 2023 to 2025. How did that happen?

• 28:36Speaker 03

  Yeah, so let's get into the fun stuff. So starting with the revenue being flat from 2023 to 2025 that you mentioned, stick. So the biggest cost for CATL is the raw materials that go into the battery, which currently is mostly lithium. And lithium prices became dramatically cheaper over the last couple of years. And CATL passed those savings on as lower prices to its customers. So the company sold far more battery volume, made more profits, but the headline revenue barely moved. And the second point that I want to highlight in the financials is that there is a big mismatch between their net income and the operating cash flows.

• 29:21Speaker 03

  So last year CATL earned about eleven billion dollars in profit, but it generated close to about twenty billion dollar in operating cash flows. So that's nearly double. This high operating cash flow allows the company to spend on CapEx, margin acquisitions, return cash to shareholders through dividends and buybacks. And the company still managed to have higher cash balance on their balance sheet after all of that. The reason why operating cash flow is so much higher than the profit is because CATL has a large negative working capital, meaning that it sells through its inventory and collects money from customers months before it has to pay to its suppliers. So in effect, its suppliers are its largest lenders,

• 30:06Speaker 03

  funding the growth for CATL almost interest-free. And this is similar to Amazon's playbook. They get paid on e-commerce sales today and pay the suppliers much later and let that float fund the flywheel. But this is where the risk also resides. There is a limit to how much you can stretch your payables. And the Chinese authorities are asking large firms to start paying the SME suppliers sooner. So for CATL, that likely means that part of their interest-free float might unwind and appeared of readjustment in how it funds its growth. I don't think it will break the model because much of CATL's payables are to large suppliers,

• 30:49Speaker 03

  which are outside the SME rule that the authorities are pushing for. But I would say it's still a real headwind to watch out for.

• 30:57Speaker 02

  Yeah, Manish, and there's a big debate around China's state involvement in domestic champions and how subsidies have helped companies like CATL and BYD. Does CATL have any government golden share or would it succeed without state support?

• 31:16Speaker 03

  Yeah, so let me just talk about golden share a bit. So golden share in China is basically like a special management share, typically given to the state or a government fund. And the main purpose is for the state to have some kind of regulatory oversight on the company. It does not impact the day-to-day operations of the company, but the state gets some veto powers and is mostly used for companies in the social media space where you want to have some control on what content gets distributed to the general population. So talking about CATL, CATL is a founder-controlled company with no publicly disclosed golden share.

• 31:58Speaker 03

  And yet, like virtually every strategic Chinese manufacturer, it did benefit from state support early on. The biggest support that CATL received was the restriction that functionally locked out foreign competition from the China support program and gave CATL a captive domestic market to scale up. It wasn't until Elon Musk negotiated Tesla's entry in China in 2019 that the state scrapped the restriction and allowed foreign competition to come back in. And I believe the second support that CATL received was, it came in the form of these consumer purchase subsidies that helped create the EV demand in China.

• 32:42Speaker 03

  So these subsidies are also now fully phased out at the end of 2022. But what is worth mentioning here is that the mindset, which is at the top of the company. So at the peak of the subsidy boom in 2017, Robin Zheng sent his staff a now-famous letter in Chinese, which roughly translates to "if you stand where the wind blows, even a pig can fly." His point being that a strong subsidy tailwind in the captive home market can make even a mediocre company look great. And his message was a warning to his team against the dependency on a subsidy

• 33:22Speaker 03

  and to build a cost and technology advantage that could help them win globally without the state support. And that warning got tested for real. So China removed the restrictions of foreign competition and the competition came running back in. LG, Panasonic, they all came back in. So basically, the wind stopped and CATL still holds a leading global share in the EV battery market. And they earn margins which are above the best of the industry. So the point here is that Robin Zheng didn't confuse a policy support with a durable advantage. He instead used the government support as a temporary support

• 34:04Speaker 03

  to internally build a system that now gives them a long-term competitive advantage.

• 34:10Speaker 02

  Now, for the other side of the story, because no thesis survives without the bear case. Behind the risk that we talked about, though, are there any more worth putting on the table before I get in there?

• 34:25Speaker 03

  Yeah, absolutely. So I think the first one, which I think is the biggest for CATL, is the geopolitical risk. So CATL is effectively walled out of the US market, which is the second-largest market for EV batteries. The company is on the Pentagon's list of companies that work for the Chinese military. This is something that the company has contested hard. Robin Zheng has sent executives to Washington to make the case, but so far without success. So CATL's counter to this restriction is the licensing model that I talked about. And as an example, that the Ford partnership in Michigan,

• 35:07Speaker 03

  where CATL licenses its technology rather than owning a manufacturing facility and then collects the fees on that license. I think it's a clever way to circumvent the restriction and it's a template that CATL could repeat with other partners. But having said that, as I mentioned, it's still in the early stage and it's not a done deal yet. So the risk is still very real and something investors need to watch out for.

• 35:34Speaker 02

  Let's go deeper, Manish, on the license royalty and service. I think you called it the LRS model. LRS is often spun as an asset-like growth. In reality, it may be better spun as a defensive capitulation. By surrendering direct ownership and customer relations to Ford and GM, CATL is admitting that direct Chinese ownership is politically toxic under the US Inflation Reduction Act. Accepting a mere three to four percent royalty fee turns that invisible king you mentioned into a low-rent IP landlord.

• 36:16Speaker 02

  This model makes CATL, what I would call a ghost in the machine, vulnerable to a stroke of the pen, where the US regulators can sever the IP link at any time and leave CATL with zero physical assets to reclaim. Not only a stroke of the pen loss by handing over the blueprint for high-density packs to Ford and GM, not only are you handing over the blueprint, CATL is training the very competitors who seek to exclude it. Let's call it LRS leakage. You're right, it's a threat that is very real.

• 36:58Speaker 03

  Yeah, I totally agree. As the LRS framework evolves, this will be an important aspect to watch out for. I mean, after all, CATL itself learned the manufacturing skills from other players such as BMW. So it's definitely possible for US manufacturers to learn from CATL. Although with the high R&D focus that CATL has, they are constantly moving up the technology curve, but then training competition can still be a threat to watch out for. I would say the second risk that I want to put on the table is the price war at home. So China's battery and EV sector has seen a brutal, brutal price war.

• 37:38Speaker 03

  So much so that Robin Zheng himself has publicly asked the industry to stop competing purely on price. The counter here is that the growth in the energy storage segment, especially the AI data center demand that we discussed. It is a new, higher-margin, faster-growing segment where CATL is number one and the company is moving into a full-stack power storage solution, where the competition is less intense. Again, storage is not immune to price pressure and its per-unit prices are falling too. But it's a higher margin than the EV batteries business and it's still in the early stage of the growth curve.

• 38:19Speaker 03

  And the third risk that I would talk about is the technology disruption risk. Now, battery technology is improving at a very high rate. As a rough rule, every two years, the energy density in the battery packs climbs by about 20%. And to add to that, there is faster charging, longer battery life, better cold-weather performance, and the innovation spans battery chemistry, materials, cell designs, et cetera. So the danger here is that the new chemistry, such as the solid-state or the sodium-ion batteries or something else, leapfrogs the existing LFP and the NMC batteries that CATL is dominant today.

• 39:01Speaker 03

  And the counter here is that CATL spends more on R&D than anyone in the industry. The company isn't relying on any single chemistry. It is already developing and scaling sodium-ion batteries in parallel. So the bet here is that whatever the next innovation is, CATL is likely working on it too. So the risk is real, but my view is that the disruptor and the incumbent may just turn out to be the same company here.

• 39:32Speaker 02

  Manish and I agree. Before we talk about valuation, let me jump in and amplify some of those risks and present a little bit more on the bear case for CATL. The bull case celebrates volume growth as a sign of dominance, but a forensic look at the numbers reveals a treadmill effect. Recall, I'm a forensic accountant in that pun I intended to make. In a recent fiscal period, CATL reported a 21.8% growth in shift gigawatt-hour volume, yet the top line revenue contracted by 9.7%.

• 40:13Speaker 02

  This price deflation acted as a massive 130% drag on growth. This happened because CATL's long-term agreements utilize raw material indexation. The company is contractually obligated to pass manufacturing efficiency gains and commodity savings directly to their OEMs. CATL is running exponentially faster to stay in the same place. Financially, so it's surrendering its pricing power to maintain utilization. Also, the recent 15.5% profit margin expansion achieved while the revenue was shrinking

• 40:57Speaker 02

  is a mathematically temporary windfall. It's not a new baseline. It doesn't indicate technological superiority. Rather, call it a cost wedge profitability fluke. What an investor will likely see is that 15.5% net profit will regress to a tighter 11% to 12% historical bands. Last year, CATL reported almost two times as much cash flow as profit. This two times delta exists because CATL uses its dominant position to squeeze suppliers by a higher days payable outstanding.

• 41:40Speaker 02

  Essentially, it's an interest-free loan from its supply chain, like you said, at Amazon. However, the Chinese authorities have already now demanding and mandating that large firms pay SMEs faster. As this interest-free loan is called in, CATL's funding model face a painful readjustment, stripping away the cash used for buybacks and dividends. The interest-free flows, like that enjoyed by Buffett and other insurance companies, will go away. Although yours truly believes that the energy storage system is a cyclical buffer to slowing EV sales, the ESS, the energy storage systems,

• 42:24Speaker 02

  is sensitive to utility capital budgets, to global interest rates, and to AI spend. This ESS buffer can be viewed as a high beta on the global microenvironment. CATL's uncontested expansion may slow. Being the largest, they're the biggest target for all the competitors. They may be the slowest mover towards solid-state disruption, and they have the most to lose from the next-generation chemistry, unless, of course, they invent it. With subsidies from the Chinese government gone, recall the pig in the wind, CATL faces a gravitational pull not seen since 2011.

• 43:07Speaker 02

  Some of those gravitational pulls include, one, a utilization risk. With new plants in Hungary and Germany, CATL has a massive fixed overhead. Any minor slowdown in European EV adoption due to subsidy cliffs will leave this capacity unabsorbed, turning growth assets into margin aches. Commodity concentration. Despite the vertical integration, CATL remains a shadow commodity trading house. Its stock price may be viewed by bears as a proxy for lithium and nickel volatility, not a reflection of R&D prowess.

• 43:52Speaker 02

  The European Protectionist Wall, the EU Carbon Border Adjustment Mechanism, SEBAM, acts as a targeted tax on Chinese cells. And a key founder, key man risk. CATL is inextricably tied to Robert Zeng's personal standing. With a 22.5% ownership, deep ties to Beijing, any shift in his political standing represents an existential unhedgable risk for shareholders. And I will remind folks about Alibaba.

• 44:30Speaker 03

  Good. Thanks, Ralph. These are valid risks.

• 44:33Speaker 02

  I'll get off my soapbox now. Go ahead.

• 44:36Speaker 03

  Yeah, no, I agree. I think these are valid risks, especially the geopolitical risk linked to European protection. And anybody investing in China has to be comfortable with taking on the geopolitical risk. That's something which is always there. For the other ones, let me try to kind of address them one by one. So the first one is the utilization risk linked to the fixed overheads at these overseas plants in Hungary and Germany. So it is true that a slowdown in the European EV industry will have some impact on CATL. But I would also say that being the lowest-cost producer,

• 45:18Speaker 03

  CATL might be better placed in managing the downturn compared to the competition. I mean, we have seen subsidies getting removed in China, resulting in overall EV slowdown. But the dominance of CATL in China has continued. Now, with regards to your point about commodity price volatility linked to the lithium prices, basically. So the company is actively developing new battery chemistries, such as the sodium-ion batteries, as a response to this very risk. So sodium as opposed to lithium is widely available. The issue currently with sodium-ion batteries today is that the energy density is lower compared to the lithium-based batteries.

• 46:02Speaker 03

  But again, as that technology improves, this could be a good hedge for CATL against the commodity price volatility. And finally, on a point about key man risk, well, that again is a very real risk. Robin Zheng has been the key driver behind the company and is the largest shareholder. I am less worried about a shift in the political standing because, first of all, CATL operates in a sector that China wants to grow. So they have a strong mutual alignment on that. And secondly, Robin Zheng maintains a low profile and rarely speaks in public.

• 46:42Speaker 03

  So the chances of him rubbing the regulators or the state authorities the wrong way is quite low. But again, it's a valid risk and something I would categorize as low probability, but with potentially high impact and very difficult to hedge.

• 46:59Speaker 01

  Let's take a quick break and hear from today's sponsors.

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• 50:02Speaker 01

  All right, back to the show. Now, let's get to the fun stuff. I think you already said, Manish, that we were getting to the fun stuff, but I wanted to talk about the valuation. So with all of this kept in mind, how do you think about the current valuation? And is it a buy right now?

• 50:20Speaker 03

  Okay, so as of today, the current stock price for shares trading in Chenzhen, CATL's market cap is around $280 billion. And with a cash sitting on the balance sheet, the enterprise value, which is what you actually pay for the operating business, is close to $250 billion. Now, against a $14 billion of operating profit over the last four quarters, that's about 18 times multiple EBITDA. And if you look at the P multiple, that's roughly trading at about 21 times, which I think for a global leader like CATL is neither demanding nor cheap.

• 51:01Speaker 03

  The company has a high return on invested capital of around 17% and a return on equity of about 25%. So there is a good enough chance that the operating business roughly doubles in value over the next five years. And if the multiples remain where they are, you can expect about 15% annual return before you add a dividend yield of another point or two. So to summarize, it's a dominant cash generative founder-led business with high returns on capital that can potentially double the value of the business in five years. There are obviously both upside and downside cases.

• 51:43Speaker 03

  We discuss about the growth engines around AI data centers and the licensing model. If they surprise on the upside, then the returns can be even more meaningful. And the downside case is that the domestic price war intensifies and the LRS model doesn't scale in the US due to geopolitical tension.

• 52:04Speaker 02

  Most of the listeners are probably based outside of China. So how can a non-Chinese investor buy the stock, Vanish? Isn't it listed in two places?

• 52:17Speaker 03

  Yeah, yeah, that's correct, Ralf. So CATL is dual-listed. The A shares are traded in China with the ticker 300750 and the H shares are traded in Hong Kong with the ticker 3750. So same company, same one share, one vote, same dividend per share. But if you look at the stock price and after adjusting for the FX rate, you will notice that the Hong Kong shares trade at a big premium of roughly 30 to 35% to the mainland China shares. And that's actually opposite to the norm. Normally, for a dual-listed Chinese company, it's the mainland A shares that trade at a premium

• 53:00Speaker 03

  because Chinese domestic investors face capital controls and they cannot freely buy in Hong Kong. So their demand gets concentrated into the local listing. But for CATL, it's the opposite case. And the reason is pure supply and demand. So the Hong Kong float is relatively small and the demand from global investors is quite high. The Hong Kong and Chinese shares are not fungible, meaning that you can't buy in one market and freely convert and sell it in the other market. It's a bit like TSMC, whose US-listed shares have long traded at a premium to the domestic Taiwan shares. So if an international investor, if you have access to the Chinese shares,

• 53:45Speaker 03

  then that is a cheaper way to get access to this business. Some brokers provide access to domestic Chinese listings using something called the Northbound Stock Connector. But this is usually limited to the institutional investors. For smaller retail investors, Hong Kong shares are the only option. These are freely accessible to everyone, but you will have to pay a premium to own them. Now, CATL has been widening the Hong Kong float. So after the Hong Kong IPO in 2025, they did a follow-on placement in 2026. And yet, the global demand was so high that the premium hasn't compressed much. My personal view is that, in the long run, Hong Kong shares

• 54:31Speaker 03

  should trade at a premium of about 10 to 20% range, using TSMC as the reference. So TSMC has averaged at around 15% premium. But how and when that gap will compress is hard to say.

• 54:46Speaker 02

  Yeah, we've covered a lot about CATL here. If you had to boil it down and distill it to a single bottom line for an investor looking at a stock right now in mid-2026, what's the takeaway?

• 55:01Speaker 03

  A listener's to takeaway is that CATL is not just an EV battery play. It has the potential to become the backbone of the future energy infrastructure and increasingly for the AI data centers. It is not without risks. You have to be comfortable with the geopolitical friction. And if the AI storage growth continues and the LRS licensing model proves scalable, then there is a very real compelling story for this business.

• 55:30Speaker 01

  So without taking any sides, you know, I don't want to get here too much mellow between a bull and a bear. I have to say still, like reading up on CATL, I was more excited about batteries that were not for vehicles, but really for stabilizing power grids and AI data centers. And in my past, actually, in my very first job right at college, I was working with power grids, which I never thought would come in handy, ever. But here we are, 12 years into running the Invest Podcast. And apparently now, it makes sense that that was my first job. And yeah, I was just, I'm amazed by how many technological changes you've seen within power grids. And I know, like, for most people, they're probably, I don't know, turning the light on and off or whatever.

• 56:15Speaker 01

  But like, for someone who are sort of like looking at from the nerdy inside of power grids, like, it's almost like the laws of physics have changed over the past 15 years. And even before everyone talked about AI, you have these sophisticated tools that could pretty well predict demand and supply. And you need that to stabilize the grid. So, you know, one reason why coal and nuclear have been used or are still being used for electricity generation is because they had such a low marginal cost, but also because they refer to what is baseload. So, you know, we use electricity all the time. And so it's very predictable, which is very useful. And you can, you will always have so and so much that you need.

• 56:59Speaker 01

  Of course, you have different times during the day where you need more electricity. For example, you know, generally more during the day than during the night. But then you also, like, even during the day, you have, you know, whenever you wake up before you go to work and then, you know, that, then there's a peak period. And, you know, then you come back from work and you fire up the TV and you cook dinner or whatever. And so, like, you can predict that pretty comfortably what's going to happen. So you can more or less see that demand of electricity on a curve. And then you have supply. And as the world has started to rely more on renewables, that energy has become somewhat more intermittent. Because, you know, you're looking at something like solar,

• 57:39Speaker 01

  you don't always know, you know, clouds in the sky, how much, or the wind blowing for that matter. And then, you know, to the latter, you know, if you're thinking about something as simple as wind, then you're just thinking, well, you just, you just need to blow and the more blows, the more electricity you generate. That is directional correct, but you also have something called cutout speed. It's roughly 90 kilometers an hour and above that. The turbine pitches, you know, with the blade, it just, it just stops. I think that's probably the easiest way to think about it. So it's not like a linear curve, I guess that's what I'm trying to say. But of course, from a purely physics perspective, you have bigger issues than just predicting demand and supply. And, you know, for the longest time with renewables, the issue has been that you can't store the energy.

• 58:22Speaker 01

  Because from the moment the wind hits the turbine's blade, electricity has to be used the moment that it's being made. You can think about it as it's a pipe and not a bucket. And then there is another dimension, and sorry for geeking so much out here, but like, the longer it has to travel, the more transmissions it has to go through, then it also uses some of that power. Anyways, I get too carried away here. But of course, with today's battery technology, much of that is changing and it will continue to change in favor of better storage. So you're looking at a company like CATL that would benefit from the underlying tailwind, no pun intended, even if you look, you know, beyond the AI data centers.

• 59:06Speaker 01

  But of course, the data centers accelerate the need for batteries. And if you're looking at electricity, you know, you also have several issues. The most important, the one that we're probably most aware of as consumers, is grid stability. And so you need the right frequency. Perhaps you heard that the frequency we use in Europe is 50 Hz. It's 60 Hz in the US. And it's for purely historical reasons that you have different frequencies. The story is that in the 1890s, the German company AG, they picked 50 Hz because it fits the metric system better. And then in American Westinghouse, they went with 60 Hz, partly because they literally observed that lights flickered less at 60 Hz.

• 59:50Speaker 01

  So that became the standard. And for someone who traveled around Japan a bit, I can't help but mention that in Japan, they ordered German equipment in Tokyo. But then Osaka in the southern part, they ordered American. So actually, to this very day, Japan runs in two different frequencies. You know, in the northern part, it's one and this other, it's another. And it's pure by accident, you know, it started 130 years ago and it's still going on today. So you can't share that. Power unless it runs through really, really expensive converters and it's actually quite complicated. And of course, you don't have the same issue between Europe and the US because they have their own power grids. And even like within those regions, you actually have a ton of smaller power grids and it all patched together.

• 1:00:34Speaker 01

  It's actually kind of freakish whenever you really get to study how the power grids work. But I'm telling this story because I find it to be like a microcosm of how much randomness we're facing. But it's something we still have to act on today. And it's important because every power plant and every appliance needs to be in sync. If supply and demand fall out of balance, even for seconds, the frequency drifts. And if it drifts too far, the way that the grid protects itself is through what we call blackouts. So it's very severe whenever something like that happens. And this is actually my long wind away of talking about AI data centers in particular. Because I think the complexity of that from a power grid perspective is that if I can use the analogy of a stadium.

• 1:01:19Speaker 01

  So picture a stadium with 70,000 people and then a person here is a GPU. So everyone is talking, eating, walking around at random. And all of that randomness, you can think about this, like it all blends into a steady hum. That's a normal data center. But then you have an AI data center. So that's not just 70,000 people doing their own thing, independent of each other. It's 70,000 people who watch the same game. So everyone cheers at the same time whenever there's a goal. And it's not a steady hum, you know, it's cheering and then back to a steady hum. And the grid isn't built for that.

• 1:02:00Speaker 01

  Remember what we talked about before about, you know, you're predicting, yes, we're coming back from work and then we go to sleep. Like it's a very, very gradual decline. That is not the way the power grids has to work today. But that's the way that they're being built and you can't just build a new power grid. That's not really how it works. In theory, yes, in practicality, it's very, very complicated, very expensive and all kinds of issues. We probably shouldn't go into today here. But what is amazing about the CATL batteries is that they sit between the data center and the grid and it absorbs those dots. And an AI data center is, you could say it's even worse than a football stadium. Because you might get a few goals throughout those like 90 minutes. But then whenever you're training a model, it will take you weeks to train a model.

• 1:02:43Speaker 01

  And then you have this cheering and then steady hum like, and it happens every second or two. So it's incredible tiresome for the grid to work with. And so of course, the manager, everything I just said, I guess, just proves that someone is going to sell a lot of batteries. It doesn't prove that it's going to be CATL necessarily is going to be the winner. The storage market is growing faster than CATL's storage shipment. So competitors are taking their share right now. But why, and sort of like very much putting the spotlight on you here, why does CATL win the market and not just participate in it?

• 1:03:16Speaker 03

  First of all, stake, that's a very interesting way to explain the battery use case for in an AI data center, especially with the World Cup just concluding. Well, with regards to your point about storage market growing faster than CATL's storage shipment, that is true. Even though CATL is the number one player in energy storage space and the segment grew installations by roughly 30% last year. But that was below the overall industry growth rate of close to about 80%, if I'm not wrong. I believe one key reason why this segment did not grow at a faster rate for CATL last year was because of capacity constraints.

• 1:03:59Speaker 03

  So CATL's utilization rate last year was around 97%, meaning that they sold pretty much what they could produce. Now this year, some of those constraints should ease up as new manufacturing capacity comes online. So it will be important to see if CATL can start regaining market share in this segment. In fact, if you look at the latest quarterly result, CATL's energy storage sales for the first half of 2026 grew by about 88% year on year and the storage volume nearly doubled year on year. So this gives some data point around the CATL's potential market share position in the energy storage space.

• 1:04:45Speaker 01

  Thank you for painting some color around that, Manish. You know, the other thing I want to talk about is battery leasing. And I'll admit that whenever I first read about this, it sounded a bit strange to me. At least in Europe and North America, this is somewhat novel idea. In China, it's already happening at scale. And so the concept is simple, actually very, very smart, I should say. You buy the car but not the battery and you subscribe to the battery. And like I mentioned, like the first time I was like, what? You're, you're, you don't buy a battery. But anyways, I started to think about it in a different way and I was thinking, okay. So this is sort of like whenever you have a phone plan and you don't pay the $2,000 upfront for the phone, you pay monthly.

• 1:05:31Speaker 01

  And then whenever the phone gets old, you swap it for a new one. And whenever I thought about it like that, I was like, oh, okay, that makes sense. And so it's the same idea, except the battery is roughly a third of the price of electric car. Historically, it's even more so removing it lowers the sticker price significantly and allows for more people to enter the market. And then there's swapping. So instead of, I'm going to say charge for an hour, I think you already mentioned, man, it's actually today you do it much, much faster. But anyways, you, you, you drive to a station and then very short period of time, you know, they, you have a machine that changed the battery. Now, I should say, to be clear, most Chinese EV drivers are, you're still, you know, charging at home.

• 1:06:14Speaker 01

  But for someone driving to the grocery store, swapping is a nice to have, I guess, but certainly not a need to have. But I've learned that there are already several thousand swap stations across the country. And of course, then you have taxis and trucks where the vehicle earns money, you know, every hour it moves. So swapping becomes perhaps more the default, I don't know. But for those drivers, you know, time is money. And so time added charter is therefore also lost income. And I guess what I found interesting as an investor is how this could potentially change CATL's business model. They stop being a company that sells your battery once.

• 1:06:56Speaker 01

  And instead, the battery stays in the pool that CATL and its partners own and operate. And they never lose the battery, you know, it comes back, it gets checked, it reused and eventually recycled. And so CATL owns the whole lifetime of the asset. And so, you know, you as a user, which is very, very nice, you don't have to worry about the battery getting old. And I think, you know, going back to this example here with someone with an iPhone, for example, we all know the feeling like we bought this expensive gadget or, but also a gadget can be without them. After a few years, you're like, oh my God, like it's just like, the battery is just terrible, right? And so Apple needs new money, we need to buy a new one, whatnot.

• 1:07:38Speaker 01

  And with an EV, the same problem knocks thousands of dollars off the car's value. But then under this model, that's not their problem, it's not the consumer's problem anymore. And of course, capitalism is brutal. We always talk about that here on the show, but the batteries are heavy, stations are expensive, the automakers have to agree on standards. So I'm not saying by any means that battery leasing is just a free lunch. But Manish, you're the bull, so how big could this become?

• 1:08:09Speaker 03

  Yeah, so battery swapping is popular in China and CATL has close to 2,000 stations and growing. The company builds modular battery packs that are co-developed with major Chinese automakers. So it basically locks in the customers. And the cost of setting up the network is shared with various partners. So it is not CATL alone taking the entire cost upfront. The advantages of battery swapping, as you mentioned, are cost and time. So the average swap time is less than 100 seconds. So taxis and heavy commercial vehicles can be on the road for longer with low downtime.

• 1:08:51Speaker 03

  The risk here is that with the battery charging time coming down, the time advantage might not be that significant, especially for smaller vehicles. But what CATL is also doing is that they are adding superchargers to these swapping stations. So the same station can cater to both a battery swapping as well as fixed battery vehicles. And I think this is where the scale of CATL, both in battery packs and charging network can help them to provide a faster payoff for these stations.

• 1:09:26Speaker 01

  Thank you, Manish, for that color. You know, one thing I realized as I was diving deeper into CHTL was that they're not just making different types of batteries. To your point before in this episode, you know, it takes stakes in other companies and so far, more than 150. Now, one of them is DeepSeek, and this might be my lack of understanding of the Chinese market. But whenever I looked at all their investments, that was the one that sort of like stood out to me. And perhaps many of our listeners would know that name. You know, it's China's AI darling. If you wonder, this is the lab that shook everyone in Silicon Valley here in early 2025. You know, they're building this frontier model on the cheap. And in June, they took outside money for the first time.

• 1:10:11Speaker 01

  So it was roughly $7 billion at a valuation above $50 billion USD. CHTL itself put in $700 million. And I should say for the record that these numbers come from press reports. These are all private deals, similar to whenever you have between, say, Microsoft and OpenAI. There are certain reports, but it's not like an official document. You can just go in and see these are all the terms. So anyways, the rationale is straightforward. You know, AI centers that we already established, they're power hungry. CHTL are investing in a future customer. And this is, you know, to the point before, not just a Chinese phenomenon. You know, you have Nvidia committed more than $40 billion to equity stakes in 2026. And of course, you can, I can't help but myself, but scrutinize like how that carousel works,

• 1:10:55Speaker 01

  where they're taking different stakes in each other. That seems to be some kind of voucher thing anyways. I don't, I don't want to digress, but it is kind of interesting how this ecosystem is built around the biggest tech companies, not just in the US, but also in China. But they also do it differently. You know, if you look at the biggest tech companies, compare the strategic stakes to the market caps, actually Chinese companies hold roughly 10% of their market cap, whereas Americans, it's only 4%. Now, in China, they've been doing it for the better part of 15 years. The stakes are also broader too, like supply chains, you know, you're looking at mines, customers, as we saw there with DeepSeek, political alignment. American big tech companies, at least for now, looks a little lighter.

• 1:11:40Speaker 01

  It could change. This certainly went heavily in for the past 18 months and all, most all of it was in, is specifically in AI. And of course, then you have a lot of this on paper prices, meaning, you know, whatever the latest funding round would tell it to be. So that sort of like gives you some kind of distorted numbers, but still gives you a way to perhaps be directionally correct. Now, Manish, you talked to us about CHTL trading at around 18x operating profit. How do you treat these 150-plus stakes? Did you give them any value? And should investors see CHTL as a battery maker with a side portfolio? Or is the portfolio even a part of the mode?

• 1:12:22Speaker 03

  Yeah, I think the CHTL's investment portfolio, I think, is more strategic than financial. It helps them to achieve vertical integration. It spans upstream mining companies to downstream automakers and power infrastructure player in the energy storage system. Their investment in DeepSeek, I believe, is a part of their AI data center integration play, although I think investing in a foundational AI model lab is going to the extreme end of vertical integration. In terms of valuation, it is tricky to value these investments because most of them are private and depending on their stake, they are treated differently in the financial

• 1:13:06Speaker 03

  accounting point of view. I believe the simplest way to look at it is to see the long-term equity investment line item on their balance sheet. So as of last quarter, this number was about $11 billion, so slightly less than one time operating profit. So when we look at 18x operating profit, I did not account for the value of these long-term investments, but if you include them at book value, then it drops to about 17x. But I would categorize these numbers, these investments, more as a competitive advantage play through vertical integration and less as a financial investment play.

• 1:13:47Speaker 01

  All right, Manish and Ralph, this was what we had planned here for the Bull Bear thesis here. I wanted to ask you here before we transition into the final segment, you both presented your case, but do you have any concluding remarks? I don't know, Manish, have you become more bearish after speaking with Ralph or perhaps we even converted Ralph? I don't know.

• 1:14:10Speaker 03

  Yeah, it'll be interesting to hear from Ralph, what does he think? I'm like, I think it's always interesting to hear the other side of the argument, you know, as Charlie Munger has said that you have to argue the other side better than the other player. So I think understanding the bear thesis is extremely important and seeing whether you are missing anything. I mean, it is, capitalism is brutal, so it's, it's always a learning game. And this was a fantastic episode. I really enjoyed it and would love to hear what Ralph thinks about this business.

• 1:14:43Speaker 02

  It was extremely enlightening to me, Manish. I mean, like I said at the beginning, cattle, CHTL, I didn't know which way to go there, but I do now. I learned so much about batteries that I didn't know. And it is, I think, as Stig pointed out, the industry has changed and so much has changed and what we've learned and where we're going. It's the same way that my education started coming about when I got thrust into a data center and learning about data centers.

• 1:15:23Speaker 02

  So it's truly amazing and I believe it's like so many of the people I hear talking about AI. And I heard Sam Altman yesterday at a podcast saying, "The world has changed. It is totally different." And then I heard a scientist speaking about a week ago and saying that this is the greatest time in the world to be alive, that so many things are happening. And I'm in complete accord with that. And getting into something like CHTL and speaking about this and learning about it just really excites me.

• 1:16:02Speaker 02

  I'm like Stig, it's so many things have changed and we are in the, right in the middle of that change. And I just want to say to you, Manish, thank you for bringing this to us and giving us such a great education about it. And I really dug deep to try to get a bear case going here to say these things.

• 1:16:24Speaker 01

  Thank you, Ralph. Thank you so much. Yeah, I have to say, I really enjoy this Bull Bear format. And I should say that one of the reasons why we decided to go this route is perhaps it's our own biases, I don't know. But very often, whenever you're bullish about a company, you end up speaking with other people who are also bullish. And so you sort of like end up in the same echo chamber and you pat each other on the back and everyone agrees that we're all so smart because we are invested in this same company. And so having someone who is the bear, but also, you know, has the permission to kind of, I wouldn't say root, but you're sort of something like, if people are excited about a stock, you generally don't want to be the guy who's like, "Well, you're probably all wrong."

• 1:17:09Speaker 01

  You know, it's like that guy doesn't get invited back, right? So like giving someone, in this case Ralph, the permission to be the bear and you ask the critical questions, you know, I think that's just so, it's so incredible and important. So, so thank you, Ralph, for playing along. And I don't know if you want to play Bull next time or if it's more fun to be the bear, but just want to, want to say thank you for providing such a compelling bear case.

• 1:17:34Speaker 02

  Well, I appreciate that. And I would say that for the audience listening, you know, you think of a CPA that I am and a career that I've spent as being a CPA and the work that I've done there as being no, as always saying no, but I look forward to being the Bull.

• 1:17:52Speaker 01

  Fantastic. All right. So before we let the listeners go, I just wanted to say that if anyone are interested in hearing more from Ralph, he'll be speaking at the TIP Intrinsic Valor Conference in New York City. That is on September 19th. And Ralph, what will you be speaking about?

• 1:18:09Speaker 02

  Well, of course, Stig, I am going to be speaking about investments, but more importantly, I'll be sharing the story of how investing actually became my third career. My first career, as I mentioned, is a traditional CPA, a prepared financial statements, audited financial statements, tax returns, consulting. And then that led into my second career as a forensic accountant. And that's where I investigated all these financial shenanigans, partners cooking the books, massive Ponzi schemes, like we all heard about Bernie Madoff and multi-billion dollar bank frauds. And so if you name the fraud, I probably investigated it.

• 1:18:53Speaker 02

  But people often ask me if tracking down the frauds uniquely prepared me for a career in investments. And I honestly have to tell them, no. It was helpful foundation, certainly, but it wasn't until I found a community of lifelong learners, like the ones right here in TIP. That I truly learned how to dig into the fundamental analysis of a business. I met people like Manish, who really gets in there and digs into the economic moats and figures out what makes a business genuinely investable. And that just really excited me.

• 1:19:33Speaker 02

  So blending my past careers with the new one, it's been an incredible education for me in learning how to invest. And the people I've met along the journey have become forever friends. That evolution and in the frameworks I've picked up along the way, that's exactly what I'm going to be sharing in New York.

• 1:19:55Speaker 01

  That's fantastic. Thank you, Ralph. We'll make sure to link to the conference in the show notes. We also have a bunch of other cool stuff. We have a dinner with William Green and a bunch of other activities there. So you can read more about it on our website. I wanted to give the audience the opportunity to connect with you. If they want, how can they do that?

• 1:20:15Speaker 02

  Well, I still have a LinkedIn page. I think it's linked to my, to my firm, which I formally retired a year ago, but it's still linked there, but I still have a LinkedIn page. And you can also email me. My email address is ralph dot summerford, S U M M E R F O R D at gmail dot com.

• 1:20:39Speaker 01

  Fantastic. Thank you, Ralph. I also wanted to mention that not only do we have the event in New York City, we also have an event in Q1. We're still finalizing on the exact date, but it will be sometime in Q1 in Singapore, exclusive for Mastermind members. And Manish is going to be hosting that on behalf of TIP. And again, we'll be talking a ton more about that in the next quarters episode between the three of us. But Manish, where can the audience engage with you?

• 1:21:09Speaker 03

  Thanks, thanks. This was wonderful and I look forward to the Singapore event with the Mastermind members. And those who want to connect with me, you can find me on LinkedIn. My profile ID is Manish hyphen Carrera. And yeah, I look forward to connecting with you.

• 1:21:23Speaker 01

  Thank you, Manish, and thank you, gents. I look forward to having your back here for next quarters episode. And yeah, like we talked about, perhaps we should turn the tables. Perhaps Manish, you're going to be better next time and Ralph, you're going to find an amazing company and be bullish.

• 1:21:39Speaker 02

  Yeah, CPAs are not always negative.

• 1:21:42Speaker 01

  Fantastic.

• 1:21:45Speaker 03

  Yeah, great. I look forward to being, to taking the other opposite side of the argument.

• 1:22:44Speaker 00

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