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Shares of the Chinese battery materials supplier experienced a sharp decline after the company announced it is under investigation by the country’s securities regulator for potentially false statements related to a major contract.
As of 1:50 p.m., the stock was down 10.3%, trading at CNY33.50 (roughly USD4.81), having previously fallen by the 20% limit set by the exchange for a single trading day. Trading had been suspended since Jan. 14 following inquiries from the Shanghai Stock Exchange regarding a CNY120 billion (around USD17.2 billion) supply agreement with a leading battery manufacturer, announced the day prior.
The company confirmed receiving a notice of investigation from the securities authority concerning the value assigned to the supply deal with a prominent battery maker based in Ningbo. The company clarified that the CNY120 billion valuation was an estimate and that considerable uncertainty remains about whether this figure can be achieved. It also admitted that its previous announcement did not fully communicate potential risks and that some of the terms used lacked precision and clarity.
On Jan. 13, the company stated in an official filing that it would supply 3.05 million tons of lithium-iron phosphate (LFP) cathode materials, along with related services, to the battery manufacturer’s factories in China, from this quarter through 2030. Later that day, the exchange sent an inquiry requesting additional details on how the company plans to fulfill the large volume orders, whether there are undisclosed production capacities or potential acquisitions, and how the contract’s estimated value was calculated.
Historically, the company’s main focus was on ternary lithium battery cathode materials, and it only recently entered the LFP cathode market last year. In December, the company announced it had gained control of an LFP factory in Guizhou with an annual capacity of 60,000 tons. This rapid capacity expansion raised questions from the market as to how the company intends to meet the high demand from its partner in such a short timeframe.
The company responded yesterday by stating it would continue to grow its LFP production through both acquisitions and new facility developments, emphasizing it has sufficient cash reserves to fund new projects. Meanwhile, the battery maker only set the terms for this year’s supply, with quantities for subsequent years to be negotiated later; no detailed figures were disclosed.
Further, the exchange asked the company to conduct a self-assessment on whether the transaction might have led to insider trading or other violations. In response, the company disclosed that its general managers for the LFP division and legal department had engaged in short-term stock trades last month and earlier this month, respectively. However, both sold all their shares before the supply deal was publicly announced.
The short-term trades by the LFP division head were supposedly motivated by optimism about the company’s sodium-ion battery plans, while the legal department executive attributed their trades to an operational mistake.
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