CATL Claims Undervalued Stock: The Issue is Who Pays, Not What It's Worth

If a company spends 20-40 billion RMB to buy back its own stock, claiming "our share price is undervalued," how much would you believe? As a product manager, I've seen too many teams claim their products are "misunderstood by the market"—but few dare to verify this with real money. CATL's recent move is a rare instance of "voting with their feet."

Conclusion first: CATL management's judgment that the share price is undervalued holds up logically, but "undervalued" doesn't mean "should rise." The buyback plan is essentially a product-manager-style "market test"—set a price, lock positions, wait for feedback. The real risk isn't in the company fundamentals, but in the capital market's repricing of the "valuation anchor."

Why This Is a Product Manager-Style Operation

The most common thing product managers do is: discover users have cognitive bias regarding product pricing, then adjust price expectations through limited-time discounts, bundle sales, or even delisting and relisting. CATL's buyback is essentially doing the same thing—it believes the current share price (approx. 180 RMB, corresponding to a 2024 P/E of ~20x) is "mispriced," so it uses buybacks to create a "price support."

Key data: Net profit in H1 2024 was approx. 22.8 billion RMB, up 10.4% YoY; global market share for power batteries is 37.5%, and for energy storage batteries is 40%. These numbers are top-tier in any industry, yet the capital market gives it a valuation of only 20x—while the average P/E for comparable enterprises is 30-40x. Looking solely at fundamentals, there is indeed a discount.

But the issue is: Capital markets don't just look at fundamentals; they look at "how long this can last." When lithium carbonate prices dropped from 600k/ton to 100k/ton, battery capacity oversupply persisted from 2023 to 2024, and downstream automakers developing batteries in-house (Xiaomi, NIO) continuously eroded market share, CATL's "moat" is being washed away by the flow. Market cap dropping from 1.6 trillion to 800 billion wasn't without reason.

Buyback Logic: "Value Signal" or "Liquidity Trap"?

Management stated at the earnings call: "Internal assessments indicate our development prospects, financial status, profitability, and market position possess outstanding advantages." Translated into product language: We are confident in our product, but short-term user feedback (share price drop) is noise, so we use buybacks to reinforce brand perception.

But here is a common mistake product managers make: Using "supply-side logic" to counter "demand-side logic." Buybacks can indeed reduce circulating shares and boost EPS (Earnings Per Share), but long-term share price appreciation depends on "incremental capital willing to buy at higher prices." If overall market sentiment towards the new energy sector downgrades from "high growth" to "cyclical stock," even if EPS remains unchanged, the downward shift in P/E will continue to pressure the share price.

[!quote] A private equity fund manager said on WeChat Moments: "CATL's buyback is good news, but 20 billion is only 2.5% of its market cap; it cannot change the trend. What truly changes valuation is pricing power after industry consolidation."

This observation is sharp. Product managers know that a promotional campaign can boost short-term sales but cannot change user perception of a category. Similarly, buybacks can stabilize short-term share prices but cannot change the market's characterization of the power battery industry as moving from a "Golden Age" to a "Silver Age."

Who Is Paying for This "Undervaluation"?

If the buyback succeeds, CATL will hold a large amount of treasury stock. These shares can be released in the future through equity incentives, employee stock ownership plans, or cancellation. Note: The funds come from internal reserves; with approx. 200 billion RMB in cash on hand, they can fully afford it. This is equivalent to the company exchanging "cash" for "shares," essentially betting that its return on investment over the next three years will exceed the financial return rate of cash.

But there is an overlooked group: Institutional investors. Among CATL's top ten shareholders, foreign entities (like Vanguard, BlackRock) hold approx. 8% of shares. If foreign capital continues to reduce holdings due to geopolitical risks, even company buybacks cannot fill the gap. It's like a product manager desperately building features, but users don't trust you due to platform rules; no matter how good the product is, it's useless.

Has Clinical Validation Been Done? What Is Actual Doctor Feedback?

Borrowing the medical AI term "clinical validation": CATL's product (batteries) has indeed passed validation with customers (automakers)—Tesla, BMW, Volkswagen are all using them and placing continuous orders. But the feedback from "doctors" (capital market investors) is complex: They see CATL's cost advantage and economies of scale, but also the iterative risks of battery technology shifting from ternary lithium to sodium-ion and solid-state batteries. If the technology route is disrupted, the current "undervaluation" will become "overvaluation."

[!example] In 2023, CATL launched the Shenxing Battery (4C ultra-fast charging), but end-to-end costs were 30% higher than LFP. Automaker feedback was: Technologically advanced, but too expensive. This is like a medical AI product with 99% algorithm accuracy, but hospital procurement prices and insurance reimbursement ratios don't align, so it ultimately fails to land.

The core contradiction CATL faces now is not whether the product is good, but the mismatch between "product value" and the "capital market valuation system." It uses buybacks to attempt a "price anchoring," but ultimate success depends on whether the entire new energy industry can emerge from "capacity oversupply" and whether Chinese manufacturing can gain genuine trust from global capital.

Whether it's 20 billion or 40 billion doesn't matter. What matters is that when a company starts using buybacks to prove it is "undervalued," it has already acknowledged the short-term effectiveness of market pricing. The rest is left to time—and those "users" willing to catch the falling knife.

Original Link: https://www.ithome.com/0/981/394.htm