(Yicai) Sept. 19 -- Contemporary Amperex Technology will make a CNY1.5 billion (USD211 million) upfront payment to Jiangxi Shenghua New Materials, in which it is a top shareholder with Fulin Precision, to secure supplies of lithium iron phosphate cathodes and other key battery materials.

CATL will provide Shenghua with CNY500 million (USD70.3 million) this month and CNY1 billion in November to finance new production lines for LFP cathodes and other battery materials, which will later be supplied exclusively to the Chinese battery giant, Fulin Precision said yesterday. Shenghua will repay CATL through product deliveries within three months from next March.

The advance will enable CATL to lock in the supply of LFP cathodes and help Shenghua complete the construction of new production lines for LFP cathodes and its raw materials as scheduled, Fulin Precision pointed out, adding that if the project goes well, it will help Shenghua hike its production capacity for LFP cathodes and boost sales.

Shares of Fulin Precision [SHE: 300432], an auto parts and cathode materials producer, finished 3 percent higher at CNY16.35 (USD2.30) apiece in Shenzhen today, while battery giant CATL gained 0.4 percent to close at CNY368.49 (USD51.81).

CATL bought an 18.7 percent stake in Shenghua by investing CNY339 million in the Yichun-based firm’s newly issued shares in March, thereby becoming its second-largest shareholder.

The two sides signed a new supply deal in June, under which Shenghua will prioritize the production of LFP cathodes that meet CATL's requirements from this year to 2029. In return, CATL will support Shenghua's capacity expansion projects with advance payments. 

Shenghua sold 126,200 tons of LFP cathodes last year, generating sales revenue of CNY4.8 billion and accounting for about 57 percent of Fulin Precision’s annual revenue, according to Fulin Precision’s earnings report.

Compared with the ternary lithium batteries widely used by global electric carmakers, lithium-iron phosphate batteries are cheaper, safer, more eco-friendly, and dominate China’s new-energy vehicle market by both installed capacity and applications.

Editor: Futura Costaglione