With governments across the world tightening carbon regulations and setting cleaner energy targets, the growth of battery electric vehicles (BEV), and battery production is to witness good growth, as per a report by Moody’s Investors Service.
A sharp rise in production will pose operational risks and increase the challenge of keeping leverage stable.
March 01, 2021. By News Bureau
With governments across the world tightening carbon regulations and setting cleaner energy targets, the growth of battery electric vehicles (BEV), and battery production is bound to witness good growth, as per a report by Moody’s Investors Service.
But a sharp rise in production will pose operational risks and increase the challenge of keeping leverage stable, according to a new report from Moody's Japan K.K.
Commenting on the report, Motoki Yanase, a Moody's Vice President and Senior Credit Officer said, "Automakers' compliance with emission standards will increase battery electric vehicle (BEV) and battery production amid tightening carbon regulations. The International Energy Agency projects global battery capacity for BEVs and plug-in hybrid vehicles will grow by 24% on a compounded annual basis between 2020 and 2030.”
Although this will drive battery makers' production volumes and revenues -- and in turn their profits -- large investments for rapid expansion comes with operational risks and the challenge of maintaining healthy leverage, all of which could weaken credit quality, he further added.
As per the report, the four companies namely: Contemporary Amperex Technology Co., Ltd. (CATL, Baa1 stable), LG Chem, Ltd. (Baa1 stable), Panasonic Corporation (Baa1 negative), and SK Innovation Co. Ltd. (SKI, Baa3 negative) - which account for more than half of global production -- are set to benefit from rising battery demand.
Strong relationships between battery makers and automakers, as well as maintaining leverage, will be critical for EV battery makers' credit quality. Maintaining healthy financial leverage against increasing investment will also be key for battery makers' credit quality, the report added.
Companies with a clear strategy to expand BEV sales and a strong understanding of the market demands will see their revenue, and profit stable in the long run. Both - automakers, and battery makers need to keep their strategies in sync for bolstering their future prospects.
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