What Chinese Battery Maker CBAK Really Gets From Its New Deal

A Chinese lithium-ion battery maker announced Monday that it has reached a framework agreement with an economic development firm for financing. CBAK Energy Technology Inc. (NASDAQ: CBAT) through a wholly owned subsidiary has negotiated a deal with Jiangsu Gaochun Economic Development Zone Development Group to develop lithium battery projects to grow CBAK’s production capacity to 8.0 gigawatt-hours (GWh).

According to Thomasnet, CBAK’s current manufacturing capacity totals 2.5 GWh and the company ranks ninth in the world as a lithium-ion battery maker. The additional capacity would lift the company to fifth, behind only LG Chemical (17.0 GWh of capacity), BYD (16.0 GWh), Panasonic (8.5 GWh) and AESC (8.4 GWh).

No wonder a stock that closed at around $0.75 a share on Friday rose momentarily to $0.94 following the announcement. Shares have since dropped back.

Economic Development Zone (EDZ) funding is not the same as local government development funds such as the agreement recently reached between electric vehicle maker Nio Ltd. (NYSE: NIO | NIO Price Prediction) and the government of its home city of Hefei.

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Rather than using local government support to jobs and economic growth in a city, an EDZ relies on foreign investment and bond issues to pay the bill. These are considerably less guaranteed than the local government deals such as Nio’s. They are also likely to include high coupons.

Demand for lithium-ion batteries inevitably will grow as demand from carmakers and renewable energy companies rises. The question becomes how a company with a market cap of around $53 million competes with LG Chem’s $30 billion or Panasonic’s $20 billion valuations. The answer, of course, is only with a lot of help, both financial and political.

CBAK traded more than 2 million shares in the first 90 or so minutes of trading Monday, well above its average volume of around 127,000. Shares were up by about 13.5% at $0.84, in a 52-week range of $0.36 to $1.20.

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