(Yicai Global) June 7 -- Shares in Contemporary Amperex Technology slumped as much as 7.6 percent today after US financial services firm Morgan Stanley downgraded its outlook for the Chinese car battery giant and slashed the stock’s target price on concerns that CATL is likely to lose ground in a highly competitive market and its margins will be squeezed.

CATL’s share price [SHE:300750] tumbled 5.4 percent to close at CNY207.30 (USD29). Earlier in the day it sank to CNY202.45 apiece. And Morgan Stanley expects it to fall to CNY180 (USD25.41).

There will be excess battery capacity in the short term and price competition is inevitable, Morgan Stanley said in a report released yesterday. Smaller battery manufacturers may adopt a more aggressive pricing strategy to gain market share in the second half, eroding CATL’s share.

CATL’s share of the China market could narrow to 47 percent this year from 55 percent last year, and to 40 percent from 45 percent in the long run, Morgan Stanley said. It is cutting its outlook for CATL’s share of the global market in the long term to 25 percent from 30 percent, much less than the market’s general prediction of over 30 percent.

Certainly, CATL's performance on the world's market so far this year defies such pessimism. Globally, CATL’s installed battery capacity surged 55.6 percent in the first four months year on year to 65.6 gigawatt hours, claiming 35.9 percent of the world's market, according to data from SNE Research.

“Some investors have argued that CATL's market share overseas is yet to see signs of decline. However, in our view, CATL's overseas market is under increasing scrutiny and becoming more uncertain, thus limiting visibility,” said Jack Lu, an analyst at New York-based Morgan Stanley.

Morgan Stanley’s downgrade probably also has something to do with the fact that US electric car giant Tesla’s Model 3 vehicles are now eligible for a federal tax credit of USD7,500, up from the earlier subsidy of USD3,750, but, according to the Inflation Reduction Act, over half of the auto’s body and key components would have to be made in the US in order to qualify.

As one of Tesla’s main suppliers, this has aroused market concerns that Ningde, southeastern Fujian province-based CATL could lose its largest client.

There has been no change in the strategic partnership between CATL and California-based Tesla and the firm will continue to develop in a sustained manner, the battery maker said on June 5.

Editor: Kim Taylor