The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Katrina Hamlin

HONG KONG, Feb 27 (Reuters Breakingviews) - Contemporary Amperex Technology 300750.SZ needs to diversify again. While the $163 billion group’s sales of batteries to carmakers have soared, the top line for energy storage solutions is growing faster. It offers the Chinese company a hedge against any slowdown in electric vehicle demand but not against geopolitical risk from souring Sino-American relations.

Global demand for systems used to manage electricity supply could triple over the next five years, according to the prospectus for CATL's upcoming secondary listing in Hong Kong. One day, this industry could outshine autos: founder and CEO Robin Zeng says demand for developing low-carbon grids that require such storage will be “10 times” larger.

CATL is reaping the benefits: the energy storage business accounts for about a fifth of revenue, up from barely nothing at the time of its 2018 initial public offering, per Visible Alpha. The unit’s gross profit rose 36% last year, versus 14% for car batteries. With a 28% gross margin in January to September 2024, the upstart outpaced the profitability of its EV batteries by 4 percentage points.

However, taking that further sets CATL against a formidable obstacle. The U.S. is the largest buyer of energy storage outside of China. Zeng said in November he wanted to invest more there, but expansion has stalled as successive administrations ratchet up security measures and tariffs.

Last year, $86 billion Duke Energy DUK.N disconnected newly installed CATL energy storage units from a U.S. marine base after lawmakers raised concerns. Meanwhile, President Donald Trump has proposed a 10% tariff on China imports, and 25% levies on batteries imposed by his predecessor come into effect next January.

So it is unlikely that CATL will be able to deepen its presence much stateside. It generates a single digit percentage of revenue there, S&P estimated in February. Around 75% comes from China. No wonder the company is pursuing other ways to expand. It is looking at creating batteries to power boats and planes. For EV batteries, it is targeting Europe: the listing will fund facilities in Hungary. But that assumes Brussels doesn’t follow Washington’s lead.

For energy storage, CATL could look to emerging markets including India, the Middle East and Latin America, or wherever renewable power is installed. Its peers chasing customers in these regions include $80 billion Sungrow 300274.SZ and rival BYD 002594.SZ, 1211.HK, which is working on the world’s largest energy storage project in Chile. These markets may not prove as profitable for CATL as the world's largest economy, but a broader geographic footprint looks essential.

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CONTEXT NEWS

Contemporary Amperex Technology filed for a Hong Kong listing on February 11, stock exchange disclosures show. Bank of America, CICC and China Securities International and JPMorgan are sponsors for the deal.

The secondary listing for the company could raise up to $7 billion, IFR reported on the same day, citing sources. The Chinese battery maker is listed in Shenzhen.

(Editing by Una Galani and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on HAMLIN/katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))