China Battery Maker Lishen Banks on Electric Car Boom for IPO

(Bloomberg) -- A canceled order by Motorola Inc. led to Lishen Battery scrapping plans for an initial public offering in 2007. Almost 10 years later, the Chinese state-owned manufacturer will again seek a listing, this time to raise funds to produce more electric-vehicle batteries.

Tianjin Lishen Battery Joint-Stock Co., as the company is known in full, is considering a listing in Shanghai or Shenzhen to expand its annual capacity to 20 gigawatt hours -- about 18 percent more than the estimated total battery consumption last year in China -- by 2020, according to President Qin Xingcai. As a publicly traded company, Lishen will also be better placed to attract and retain talent to compete globally with the likes of Samsung SDI Co. and Panasonic Corp., he said.

“With our vehicle battery business picking up, we are much more mature now and the risks are lower,” Qin said in an interview this month at his office in Tianjin, referring to the company’s struggles to survive a decade back. Demand will continue to be supported by a “complete local supply chain, an enormous EV market and favorable government policies,” he said.

EV manufacturers and battery suppliers are raising funds to tap on a projected fivefold surge in global demand for vehicle batteries by 2020, with China probably accounting for more than half of global capacity by then, according to Bank of America Merrill Lynch estimates. Lishen Battery’s close competitor, Contemporary Amperex Technology Co., is seeking to list on the over-the-counter stock market, while Warren Buffett-backed BYD Co. trades on the Shenzhen stock exchange.

Funding Expansion

“Chinese vehicle battery makers will definitely play a significant role in global competition,” said Gao Xiaobing, a Shenzhen-based analyst at Gaogong Industry Research Institute. “The industry is still in the early stage and needs to burn a lot of money. Companies are thirsting for financing to expand.”

Underpinning the projected surge in demand is China’s commitment to boost yearly sales of new-energy vehicles by a factor of 10 in the next decade, which has helped attract a raft of startups to develop new-energy vehicles. That in turn will spur consumption of vehicle batteries, which is estimated to surge to 142 gigawatt hours by 2020 from 16.9 gigawatt hours last year, according to Gaogong Industry Research.

Lishen Battery, based in Tianjin, estimates revenue will increase 55 percent to 6.5 billion yuan ($974 million) this year. Sales of EV batteries will probably double to 4 billion yuan, according to Qin.

The company has poured 5.2 billion yuan this year to build three new EV battery plants in Tianjin, Suzhou and Qingdao to more than triple its output to 10 gigawatts by the end of next year. Its local customers include FAW Car Co., Guangzhou Automobile Group Co., and Brilliance China Automotive Holdings. The company said it’s also teaming up with foreign car companies such as Daimler AG’s Mercedes-Benz to develop batteries.

Lishen Battery started out making batteries for mobile phones and watches in 1997 and supplied multinational companies including Motorola and Apple Inc. The company is controlled by state-owned China Electronics Technology Group, whose businesses include developing software to identify potential terrorists.

Second Attempt

Back in 2007, Qin said the company had to withdraw its IPO in Hong Kong after racking up losses due to canceled orders from Motorola, which itself was on a downward spiral that led to its eventual breakup into two companies in 2011. A directive at that time by the central government to state-owned companies to prioritize domestic stock-market listings also hindered its overseas IPO plans.

“It is still a good timing for those battery makers to take advantage of investor enthusiasm for this industry,” said Neil Wang, Greater China president at consultancy Frost & Sullivan. “Now is a critical time for battery manufacturers to expand production and secure their relationship with downstream original equipment manufacturers.”

To contact Bloomberg News staff for this story: Yan Zhang in Beijing at yzhang1044@bloomberg.net. To contact the editors responsible for this story: Chua Kong Ho at kchua6@bloomberg.net, Subramaniam Sharma

With assistance from Yan Zhang