BROKERS’ NOTES: Buy CATL, sell Tesla

BUY: Contemporary Amperex Technology Co (CATL)

Recently listed in Hong Kong, this Chinese battery manufacturer has the benefit of being unconcerned about who wins in the electric vehicle (EV) wars, as it’s essentially providing the shovels, or in this case, the batteries.

CATL produces traditional lithium-ion batteries, which it supplies to several EV makers with a market share of about 35%. It has a range of cutting-edge new-age batteries — including the new-generation fully nano-crystallised cathode battery that gets an 80% charge in 10 minutes.

It has spent time securing its supply chains in upstream mining and raw materials, which insulates it from price shocks and potential supply issues.

The company has also been producing larger batteries for energy storage for electrical grids, as well as building out new factories across Europe with plans to enter the US market in 2026.

SELL: Tesla

A top tip for any CEO is to stay away from politics, but with Tesla, the problem runs deeper. The current budget bill before the US Congress will remove the federal $7,500 EV tax credit — a move that will hurt sales, which are already under pressure, especially in many European markets.

Tesla also urgently needs to refresh its line of EVs and start getting autonomous vehicles on the road. Elon Musk is bullish on this front, but the technology remains unproven, while Alphabet-owned Waymo is already handling about 250,000 paid trips per week.

The bigger issue for Tesla is the valuation, which has its forward earnings multiple at about 140 and its EV/sales above nine. This is an extreme tech valuation, and so far Tesla has been nothing more than just an EV company — and, as such, either needs to up its tech game or see its valuation markedly reduce.