CATL (3750.HK, HK$400.00, HK$1.85tn) Resilient Demand and Robust Expansion Plan Reinforce Long-Term Value

CATL reported 2Q26 revenue of RMB147.8bn (+57% YoY), in line with market expectations, and net profit of RMB24.3bn (+47% YoY). Profit growth lagged revenue growth due to higher raw material costs and the company’s volume-driven growth strategy. CATL also plans a record A-shares buyback of up to RMB40bn at no more than RMB573/share (cancelling up to 1.51% of total shares).  An interim dividend of HK$1.629 per share (+47.6% YoY) was declared for H-share, underscoring confidence in long‑term value and shareholder returns.

Strong Demand Drives Higher-than-Expected Shipments: In 2Q26, CATL’s battery shipments reached 232GWh (+55% YoY), exceeding market expectations of 222GWh.

1) Power battery shipments reached 174GWh, (+45% YoY), accounting for 75% of total shipments, significantly outperforming NEV sales growth of 13% YoY. Growth was mainly driven by three factors: (i) rising battery capacity per vehicle, with CABIA data showing that average battery capacity per Chinese NEV passenger vehicle increased by around 30% YoY in 1H26, supported by higher penetration of long-range models; (ii) accelerating electrification of commercial vehicles, where battery capacity per vehicle is more than 3x that of passenger vehicles, with CATL benefiting from its roughly 60% market share in commercial vehicle batteries; and (iii) continued market share gains with the capacity ramp-up, with CATL’s domestic passenger vehicle battery installation share rising to 46.7% in 1H26 (+5.6ppt YoY) and overseas market share reaching 33.7% (+3.7ppt YoY), further showing the strengthening of its global competitiveness.

2) Energy storage battery shipments reached 58GWh (+93% YoY), with its shipment mix steadily increasing to 25%, making energy storage a major growth driver for CATL. The strong growth is expected to be fueled by rising global renewable energy installations, improving economics of solar-plus-storage projects in China, and long-term demand from AI data center power infrastructure. Meanwhile, capacity expansion at the Shandong Jining facility (planned capacity above 100GWh, mainly producing 587Ah large-capacity storage cells) is gradually coming onstream, easing previous storage capacity constraints.

Exchanging Market Share for Margins: In 2Q26, CATL’s battery ASP stood at RMB0.56/Wh, broadly unchanged from 2H25. Despite lithium carbonate prices rising from RMB70k-100k/ton in 2H25 to RMB150k-200k/ton in 2Q26, the company did not transfer all of the rising costs and instead adopted a “volume-driven growth with stable pricing” strategy to prioritize market share. Power battery ASP increased to approximately RMB0.59/Wh (+4% QoQ), supported by a relatively mature lithium price linkage mechanism and smoother cost pass-through. In contrast, energy storage battery ASP declined to around RMB0.49/Wh (-3% QoQ), mainly due to the rising mix of lower-priced domestic energy storage projects (over 50% of energy storage shipments) and storage batteries (25% of total shipments), which diluted overall ASP, while fixed-price contracts delayed cost pass-through amid rising raw material costs.

As a result, 2Q26 blended GPM declined 1.7ppt QoQ to 23.1%, below market expectations of 25%. Breaking that down by segment, power battery and energy storage battery GPM in 1H26 declined by 4.2ppt and 3.7ppt compared with 2H25, reaching 20.6% and 24.0%, respectively. And the 2Q26 net profit of RMB22.5bn (+37% YoY), below market consensus of RMB23.4bn, and the NPM declined both YoY and QoQ to 16.4%, mainly due to lower GPM, strategic pricing initiatives, and increased R&D spending of around RMB6.1bn, which pressured short-term profitability.

Inventory Build-up Prepares for Seasonal Demand: At the end of 2Q26, CATL’s inventory increased to a historic high of approximately RMB131bn, up around RMB21.9bn QoQ. The increase was mainly due to: (i) preparation for seasonal demand growth; (ii) higher in-transit inventory due to longer delivery cycles for overseas energy storage systems; and (iii) increased raw material and semi-finished product reserves to mitigate cost volatility. Contract liabilities stood at RMB36.5bn, declining from 1Q26 but remaining at a high level, mainly reflecting the faster conversion of customer deposits into revenue as production capacity expanded, confirming robust downstream demand.

Accelerating Capex on TWh-scale Expansion Plan: CATL’s capacity utilization rate reached 95% in 1H26 (+5ppt YoY). Driven by demand despite capacity expansion, 2Q26 capex stood at RMB12.7bn, nearing the 2021 quarterly peak of RMB13bn and signaling a new upcycle. The company raised its 2026 production target to 1.2TWh (over 50% YoY growth). Current annualized capacity stands at 1,050GWh, with around 764GWh of capacity under construction. Domestically, new capacity at the Shandong Jining base has started ramping up since 1Q26. Overseas, the Germany plant (14GWh) started production in 2024 and has achieved stable profitability; the Hungary plant (100GWh planned capacity) has completed construction of its first 35GWh phase and is preparing for ramp-up; the Spain plant (approximately 50-60GWh) is expected to begin construction within 2026; and the Indonesia battery supply chain project commenced operations in 1H26. Overall, CATL is entering a TWh-scale expansion phase, leveraging scale and global capabilities to capture growth and strengthen its global leadership.

Our view: We believe that the company is well positioned to sustain overall GPM above 20% over the medium to long term, even under a strategy that prioritizes volume over price during capacity expansion phases.  It is achievable through CATL’s strategic investments in upstream key mineral resources such as lithium, nickel, and cobalt, as well as its presence in intermediate segments like cathode materials.  They together have built an integrated value chain spanning from resource extraction to material production, effectively mitigating the impact of raw material price volatility on costs.

Based on market estimates, CATL’s total planned long‑term capacity (including existing, under‑construction, and projected facilities) could reach 1.8‑2.0 TWh. The management is guiding a 20%-30% CAGR in sales volume over the next five years and an even more positive outlook for 2027, anticipating that near‑term growth could exceed the long‑term target due to strong demand from both the energy storage sector and overseas markets. We maintain our positive view on CATL. The counter is trading at 26x FY26E P/E. (Research Department)