CATL's Growth Becomes "Heavier"

Author | Zhou Zhiyu

The lithium battery sector has recently faced significant headwinds.

As of July 24, the China Asset Management Battery ETF had fallen more than 21% from the beginning of July, with a drawdown exceeding 24% at one point on July 20. Leading companies such as CATL and EVE Energy also experienced notable stock price volatility.

What concerns the market is not the current lack of orders, but whether high demand growth can withstand rising raw material costs, price competition, and the release of new production capacity next year.

CATL's interim report provides partial answers. Revenue in the first half of the year increased by 54.8% year-on-year, net profit attributable to shareholders rose by 42.0%, and energy storage revenue grew by 87.5%, indicating that demand for power and energy storage batteries has not collapsed.

However, this financial report did not eliminate all pressures: operating cash flow grew by only 2.6%, inventory and finished goods increased significantly, and the comprehensive gross margin in the second quarter dropped from 24.82% in the first quarter to 23.15%.

Wallstreetcn learned that CATL built up some inventory in the first half of the year in preparation for demand in the second half. This is also a major factor contributing to the increase in inventory reported in the interim results.

In addition, CATL remains optimistic about the demand for power and energy storage batteries in the coming years, even believing that the growth rate in 2027 could be better. However, for the energy storage business, orders must go through production, delivery, and acceptance before they can be recognized as revenue, with payment collection occurring even later. The market still needs to verify whether these orders can be converted into profits and cash.

Revenue Lags Behind

Revenue, costs, and profits in the second quarter have become unsynchronized.

Calculated by subtracting the first-quarter report from the semi-annual report, CATL achieved operating revenue of RMB 147.79 billion in the second quarter, a quarter-on-quarter increase of 14.4%; operating costs were RMB 113.57 billion, a quarter-on-quarter increase of 17.0%; and gross profit was RMB 34.22 billion, a quarter-on-quarter increase of 6.8%. The comprehensive gross margin in the second quarter was approximately 23.15%, lower than the 24.82% in the first quarter.

Net profit also failed to keep pace with revenue growth. Net profit attributable to shareholders in the second quarter was approximately RMB 22.55 billion, a year-on-year increase of about 36.5% and a quarter-on-quarter increase of 8.7%. The net profit margin decreased from 16.06% in the first quarter to 15.26%.

There are multiple factors behind this. The lengthened confirmation cycle for the energy storage business primarily affects the pace at which revenue enters the financial statements, as well as inventory and cash flow. As for the decline in gross margin in the second quarter, it must be viewed in conjunction with changes in product mix and raw material prices.

Revenue for power battery products is typically recognized after the customer obtains control of the relevant goods and the contract delivery conditions are met. If energy storage systems require installation, commissioning, and grid connection acceptance, the recognition cycle will be longer. CATL's management mentioned on the evening of July 24 that the confirmation cycle for some energy storage projects might exceed six months.

Consequently, there is a time lag in the energy storage business: sales volume grows first, followed by revenue recognition; in projects with longer acceptance and payment terms, cash recovery is further delayed.

In the first half of the year, CATL's power battery system revenue was RMB 192.12 billion, a year-on-year increase of 46.0%; energy storage battery system revenue was RMB 53.26 billion, a year-on-year increase of 87.5%. The growth rate of energy storage revenue was nearly twice that of power batteries. However, calculated based on the revenue of power and energy storage battery systems, energy storage revenue accounted for approximately 21.7%; meanwhile, the share of energy storage sales volume disclosed by management was already close to one-quarter.

Within the energy storage business, the structures of cell, system, and project delivery differ, leading to different product prices and timing for revenue recognition. What truly lengthens the confirmation cycle is not simply selling more energy storage products, but the increased proportion of long-cycle system projects; this amplifies the time lag between sales volume, revenue, and cash flow.

Changes in inventory in the financial report corroborate this time lag. As of the end of June, the book value of CATL's inventory was RMB 130.82 billion, including finished goods worth RMB 47.64 billion, an increase of 110.7% from RMB 22.61 billion at the end of 2025; work-in-progress and self-manufactured semi-finished goods increased by 235% and 50.4%, respectively; goods shipped amounted to RMB 40.49 billion, a slight increase of only 4.7% from the beginning of the year. Inventory pressure stems more from advance production rather than delayed recognition.

CATL's management stated that this inventory includes products prepared in advance for demand in the second half of the year. This indicates a time lag between stocking and revenue recognition, implying that cash may be tied up earlier in the production and delivery chain.

The financial report shows that CATL's operating cash flow in the first half of the year was RMB 60.22 billion, a year-on-year increase of only 2.6%, far lower than the 54.8% revenue growth rate. However, this gap cannot be explained solely by stocking up: contract liabilities decreased by 25.9% from the beginning of the year, while accounts payable increased by 26.3%. The company is also managing funds through supply chain finance and other methods to buffer capital occupation.

During the same period, the company announced a dividend of RMB 6.5 billion and a share repurchase plan of RMB 20 to 40 billion. However, management emphasized that this repurchase is not a normalized arrangement but depends on market conditions, mainly because they believe the current stock price is undervalued.

Industry data also shows a time lag between winning bids and grid connection for energy storage projects. According to SMM statistics, global energy storage cell shipments in the first half of the year were approximately 486 GWh, a year-on-year increase of 93%; however, domestic energy storage bid volumes increased by 110% year-on-year, while grid-connected volumes decreased by 35% year-on-year. This set of data illustrates differences in the pace of project implementation.

Profit Per Wh Is Not the Answer

Profit per watt-hour (Wh) can observe the unit profitability of the battery business, but it cannot replace segment gross profit, net profit, revenue recognition, and cash flow.

The semi-annual report disclosed that in the first half of the year, power battery system revenue was RMB 192.12 billion, with operating costs of RMB 152.49 billion, corresponding to a gross profit of RMB 39.63 billion and a gross margin of 20.63%; energy storage battery system revenue was RMB 53.26 billion, with operating costs of RMB 40.50 billion, corresponding to a gross profit of RMB 12.76 billion and a gross margin of 23.96%.

This set of data corrects a common judgment: the decline in comprehensive gross margin cannot be simply attributed to the increased proportion of energy storage. In the semi-annual report, the gross margin of the energy storage battery system was actually higher than that of power batteries; assuming other conditions remain unchanged, an increase in the proportion of energy storage does not naturally suppress the gross margin of battery systems.

Sales volume, revenue, and costs for the power and energy storage segments in the second quarter were not disclosed separately, so it is impossible to accurately calculate the profit per Wh for each business from the financial report. Solely looking at net profit per Wh, Wallstreetcn estimates that the net profit per Wh in the second quarter was RMB 0.095–0.98/Wh, a slight decrease from the first quarter.

CATL's management stated that the gross profit and net profit per unit of electricity have been relatively stable over the past ten-plus quarters.

While gross profit per unit of electricity is relatively stable, overall profits and cash flow in the financial statements are still affected by a series of factors. Delayed revenue recognition and advance inventory buildup will change the final cash conversion efficiency.

In the first half of this year, raw material prices have once again become a variable. Citing industry data, the Ministry of Commerce's Commodity Price Network stated that the average price of lithium iron phosphate (LFP) cathode materials for energy storage rose from approximately RMB 29,000/ton in the third quarter of 2025 to approximately RMB 57,000/ton in the second quarter of 2026, an increase of nearly double; the average price of LFP for power applications also rose from approximately RMB 36,000/ton to RMB 58,000/ton. Lithium carbonate accounts for approximately 60% to 65% of the cost of LFP cathode materials.

Consumption tax policies have also added new variables to price transmission. Starting September 1, 2026, battery products such as lithium-ion batteries will be subject to a 2% consumption tax, which will increase to 4% starting September 1, 2027. This means that in addition to raw material price linkages, battery companies must also handle how the new taxes are shared across the industrial chain.

In response during an investor exchange meeting on the evening of July 23, CATL's management stated that the company would fully communicate with customers regarding changes in export tax rebates and consumption taxes, sharing the burden jointly, and expects little impact on overall operations. The metal price linkage mechanism is still being implemented, and rebates are linked to customer purchase volumes according to agreements.

Raw material pressures have also driven CATL to extend its resource security upstream. Management stated that the company began laying out its upstream supply chain as early as 2019. In the first half of this year, it established Times Resource Group to integrate resources and layout mining investments. Regarding the resumption of production at the Jianxiawo mine in Yichun, management did not confirm specific arrangements, emphasizing that announcements by the company or local government should prevail.

Therefore, the temporary stability of gross profit per unit of electricity does not directly imply stable final profits. Taxes, rebates, product structure, overseas services, and project delivery costs may separately affect gross profit, net profit, and cash flow.

Price competition in energy storage projects has not ended, with competition increasingly moving towards the system and engineering ends. According to Polaris Energy Storage Network, the scale of domestic energy storage EPC bids in the first half of the year reached 61.88 GW / 177 GWh. The average winning bid price for 2-hour energy storage EPC was approximately RMB 1.063/Wh, and for 4-hour projects, it was approximately RMB 0.931/Wh. During the same period, 44 energy storage EPC projects issued notices of bid cancellation or termination.

However, EPC quotations and project cancellations only indicate competition and implementation risks at the project level; they do not directly prove that cell manufacturers have already borne inventory or accounts receivable pressures. Only when suppliers have stocked, shipped, or partially fulfilled contract obligations can project delays transmit pressure to the supplier side.

For CATL, what needs to be continuously observed is whether unit profits can be converted into overall profits and cash flow amidst rising raw material prices, customer rebates, and lengthened energy storage project cycles.

Energy Storage Heats Up, Competition Intensifies

The high growth of energy storage is attracting more competitors, with competition extending from cell pricing to capacity, products, and delivery capabilities.

According to TrendForce, the CR10 of global energy storage cells reached 82% in the first quarter of 2026, with CATL holding a share of approximately 22%. However, the share gap between the second and fifth largest players in the large-scale energy storage sector is less than 3 percentage points. Leading enterprises hold advantages in scale and customers, while mid-tier enterprises are rapidly catching up in capacity, products, and overseas orders.

Therefore, growth in energy storage demand does not automatically equate to synchronous profit growth for CATL: increased orders can boost shipments, but more participants also increase pressure on customer bargaining power, project pricing, and overseas delivery.

On April 9, 2026, four departments jointly held a symposium with enterprises in the power and energy storage battery industry, listing capacity warnings, regulating price competition, compressing supplier payment periods, and addressing "involution spreading outward" as work items. Policy levels have included competitive order in governance scope, indicating that profit pressures caused by industry competition are no longer just commercial issues between enterprises.

Overseas markets provide new demand but do not offer an easier growth path. In large overseas projects, customers typically require complete solutions covering front-end design, engineering construction, and back-end long-term operation and maintenance. Competition is no longer just about single equipment sales.

Changes in the UAE RTC project illustrate that having demand in overseas markets does not guarantee securing orders. For battery companies, overseas competition has extended from cell performance to system integration, pricing, and delivery capabilities.

Management remains optimistic about European demand: during the earnings call, they mentioned that electric vehicle growth in Europe was approximately 30% in the first half of the year, with penetration exceeding 30%, and energy storage growth might be even faster. This provides demand support for overseas business but does not eliminate cost pressures brought by localization, certification, and system services.

CATL's management also stated that the AIGC data center business is extending from selling batteries to selling energy systems. Management said the company hopes to utilize its experience in energy storage, medium voltage, power electronics, software, and grid operations to cover the gray areas of data centers (electrical infrastructure areas such as distribution, UPS, medium voltage, power electronics, etc.) and white areas (server rooms where IT equipment such as servers are located), providing backup power solutions.

However, this is not yet a revenue stream verified by financial reports. The timeline provided by management is that zero-carbon solutions will gradually be implemented over the next one to two years, with AIGC being just one part. What the market ultimately needs to see is whether these businesses can form orders, deliveries, and profits.

CATL faces another issue: whether the current high utilization rate can be sustained in the future. The company's battery system capacity utilization rate reached 94.86% in the first half of the year, with 764 GWh of capacity under construction. However, this capacity figure combines power and energy storage battery systems, and lithium and sodium batteries can share production lines, so it cannot be directly viewed as future energy storage supply.

TrendForce judges that with the release of overseas localized capacity and new supply, the global energy storage cell market may shift from a phase of tightness to moderate supply-demand balance.

Market concerns for 2027 focus on the sustainability of passenger car demand on the power side, the increase in battery capacity per commercial vehicle, as well as energy storage project yields, policies, and grid connection pace. CATL's management maintains its judgment of a 20%–30% compound annual growth rate over the next five years, stating that 2027 might see even better short-term performance.

This still requires verification through orders and project implementation. CATL's growth becoming "heavier" means the real pressure lies here: orders must turn into projects, and projects must convert into cash.