The electrification of the auto industry is now one of the major industrial trends of the century. Governments the world over are committed to reducing pollution and greenhouse gasses. Consequently, the world is gradually shifting from internal combustion vehicles to electric vehicles (EVs). The Chinese EV market, or what it calls “new-energy vehicles,” is booming. China-based manufacturers account for most global EV deliveries. As such, there have been incredible opportunities for EV battery producers there.

A case in point is China-based CBAK Energy Technology, Inc. (CBAT - Get Rating). CBAT is a leading high-tech enterprise that develops , manufactures, and sells new energy high power lithium batteries. The applications of the company’s products and solutions include EVs, light EVs, electric tools, energy storage, uninterruptible power supply (UPS), and other high-power applications.

Capitalizing on the favorable industry trends, the stock has gained a whopping 883% over the past year. However, shares of CBAT have been stumbling lately and have lost 38.2% over the past three months.

Click here to checkout our Electric Vehicle Industry Report for 2021

Let’s take a closer look at the factors that could influence CBAT’s performance:

Hefty Product Developments

CBAT  recently unveiled the first domestic 4680 cylindrical battery at the 14th China International Battery Fair 2021 exhibition. Tesla (TSLA) unveiled a similar battery at its Battery Day Event back in September 2020.

Furthermore, on March 15,CBAT signed a memorandum of cooperation with a leading European hydrogen energy group to promote the development of hydrogen fuel cells. The memorandum includes areas such as hydrogen fuel cell production, hydrogen fuel cell stack, hydrogen transportation, hydrogen storage, hydrogen refueling stations.

And in  February, CBAT began trial production of its special 26650 lithium battery, which is expected to be different from the company’s current 26650 batteries. The Special 26650 Battery is a self-developed battery model specifically designed for use  in ultra-low temperature environments. The company believes that it will fulfill  mass delivery for its Special 26650 Battery by the second half of 2021.

Overcrowded EV Market

There has been growing excitement by  investors about the world gradually going electric, and the EV  industry has been one of the fastest-growing segments in 2020. Improved automotive performance, government subsidies, and cost-efficiencies are motivating consumers to switch to EVs. As a result, the booming EV space is giving rise to many new companies, arguably overcrowding the industry.

The EV sector has surged to unprecedented highs on  investor optimism and analysts fear the formation of an EV bubble that could pop anytime. Hence, the EV industry has been experiencing pullbacks in the recent months with investors rotating away from overvalued EV stocks. This is evident in the KraneShares Electric Vehicles and Future Mobility Index ETF’s (KARS) 4.7% decline over the past three months. Experts believe that the EV industry slowdown will   continue this quarter.

Recent Financial Results

In the fourth quarter (ended December 31, 2020), CBAT’s total net revenues surged 69.3% year-over-year to $37.6 million, largely due to a  28.7% year-over-year increase in net revenues from sales of batteries worth $22.7 million. However, its net revenues from sales of batteries for EVs decreased to $259,955 during the year from $4.5 million in the prior year, mainly attributable to changes in  the Chinese government’s new energy vehicle subsidy policies. CBAT r reported a net loss of $7.8 million compared to the year-ago net loss of $10.9 million.

Stretched Valuation

In terms of trailing-12-month EV/Sales, CBAT is currently trading at 10.95x, 411.8% higher than the 2.14x industry average. CBAT is trading well above the industry average in terms of trailing-12-month P/S as well (7.64x versus 1.74x).

In terms of trailing-12-month P/B, CBAT’s 7.00x is 111.8% higher than the 3.30x industry average.

POWR Ratings Indicate Bleak Prospects 

CBAT has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. Of these categories, CBAT has a Value Grade of D, consistent with its significantly higher-than-industry valuation ratios.

CBAT has an F grade for both Quality and Stability, indicating the company’s poor fundamentals and that the stock is more volatile than  its industry peers. Of 89-stocks in the B-rated Industrial – Equipment industry, CBAT is ranked #78.

Beyond what we’ve stated above, we have also  given CBAT grades for Growth, Momentum, and Sentiment. Get all the CBAT ratings here.

If you’re looking for top-rated stocks in the Industrial – Equipment industry, with an Overall POWR Rating of A or B, you can access them here.

Bottom Line

CBAT has been investing heavily in its EV battery business and is expanding production capacity and forming strategic alliances to increase its market share. However, it’s worth noting that its  net revenues from batteries for EVs decreased significantly in the last fiscal year, and both EV and light EV battery sales contribute only a small portion to CBAT’s overall top line. Moreover, investors must acknowledge that the company is still not profitable despite operating for more than two decades. Hence, the stock’s incredible run over the past year has made it largely overvalued. So, we believe it’s wise to avoid betting on it now.

Click here to checkout our Electric Vehicle Industry Report for 2021

CBAT shares were trading at $4.41 per share on Monday afternoon, down $0.22 (-4.75%). Year-to-date, CBAT has declined -12.85%, versus a 12.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...

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