CATL's growth has become more "weighty."

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Author | Zhou Zhiyu

The lithium battery sector has not had an easy time recently.

As of July 24, Battery ETF Huatai Fund had dropped more than 21% since the beginning of July, and on July 20, the decline exceeded 24% compared to the start of the month. Leading companies like CATL and EVE Energy have also seen significant stock price fluctuations.

What the market worries about is not whether there are current orders, but whether high demand growth can withstand raw material price increases, price competition, and the release of new capacities next year.

CATL’s interim report gave part of the answer. In the first half of the year, revenue grew by 54.8% year-on-year, net profit attributable to the parent increased by 42.0%, and energy storage revenue grew by 87.5%, indicating that demand for power and energy storage has not collapsed.

But this financial report did not eliminate all pressure: operating cash flow only grew by 2.6%, inventories and merchandise stocks increased significantly, and the composite gross margin in the second quarter fell from 24.82% in Q1 to 23.15%.

According to Wallstreetcn, CATL prepared some inventory in the first half of the year in anticipation of demand in the second half. This is also a main reason for inventory increase in the interim report.

Additionally, CATL remains optimistic about power and energy storage demand in coming years, and even believes the growth might improve in 2027. But for energy storage business, orders must go through production, delivery, and acceptance before revenue is recognized; payment comes even later. The market still needs to verify whether these orders can be converted into profit and cash.

Revenue Lagged

In the second quarter, revenue, cost, and profit have become unsynchronized.

Restoring from the interim minus Q1 report: CATL achieved Q2 operating revenue of 147.79 billion yuan, up 14.4% quarter-on-quarter; operating cost of 113.57 billion yuan, up 17.0%; gross profit of 34.22 billion yuan, up 6.8%. Q2 composite gross margin was about 23.15%, lower than Q1’s 24.82%.

Net profit also did not keep pace with revenue growth. Q2 net profit attributable to parent is about 22.55 billion yuan, up 36.5% year-on-year and 8.7% quarter-on-quarter. Net profit margin dropped from 16.06% in Q1 to 15.26% in Q2.

Multiple factors are behind this. Energy storage business recognition cycle is lengthened, first affecting the rhythm of revenue entering the statement, inventory, and cash flow; as for Q2 gross margin decline, it needs to be viewed in conjunction with product structure and raw material price changes.

Power battery products usually recognize revenue after the customer obtains control of goods and meets delivery conditions. If the energy storage system needs installation, commissioning, and grid acceptance, recognition cycle is even longer. CATL’s management mentioned on the evening of July 24 that some energy storage project recognition cycles may exceed 6 months.

This creates a time lag in energy storage business: sales increase first, revenue is recognized later; for projects with long acceptance and payment terms, cash recovery is further delayed.

In the first half, CATL’s power battery system revenue was 192.12 billion yuan, up 46.0% YoY; energy storage battery system revenue was 53.26 billion yuan, up 87.5% YoY. Growth of energy storage revenue is nearly double that of power batteries, but according to the revenue of both systems, energy storage accounts for about 21.7%; management disclosed energy storage sales volume share is nearly a quarter.

In energy storage business, cell, system, and project delivery have different structures, product prices, and points of revenue recognition. What lengthens the cycle is not simply selling more energy storage, but the higher proportion of long-cycle system projects; this enlarges the time gap among sales, revenue, and cash flow.

Inventory changes in the financial report confirm this time gap. As of end-June, CATL’s inventory book value was 130.82 billion yuan, of which merchandise inventory was 47.64 billion yuan, up 110.7% from year-end 2025’s 22.61 billion; products-in-process and self-made semi-finished products increased by 235% and 50.4% respectively; goods shipped was 40.49 billion yuan, up just 4.7% from the start of the year. Inventory pressure comes mainly from pre-production, not delayed recognition.

CATL’s management says this inventory includes products prepared in advance for second half demand. This shows there is a time gap between stocking and revenue recognition, also meaning cash might be occupied earlier in the production and delivery chain.

Financial report shows, CATL’s first-half operating cash flow was 60.22 billion yuan, up just 2.6% YoY, much less than the 54.8% revenue growth. But this gap can’t be explained by stocking alone: contract liabilities fell 25.9% from the start of the year, accounts payable rose 26.3%, and the company manages funds via supply chain finance to buffer capital usage.

During the period, the company announced a 6.5 billion yuan dividend and 20 to 40 billion yuan stock buyback, but management emphasizes this buyback is not a routine arrangement, decided by market situations, mainly because they believe the share price is undervalued.

Industry data also shows, there is a time gap from energy storage project win to grid connection. SMM statistics show that in the first half, global energy storage battery cell shipments reached about 486 GWh, up 93% YoY; domestic energy storage bidding volume was up 110%, but grid-connected volume dropped 35% YoY. This shows a difference in the pace of project landing.

Single Wh Profit Is Not the Answer

Single Wh profit can be used to observe unit profitability in the battery business, but cannot replace segment gross margin, net profit, revenue recognition, and cash flow.

Interim report discloses, power battery system revenue was 192.12 billion yuan, operating cost 152.49 billion, gross profit 39.63 billion, gross margin 20.63%; energy storage battery system revenue 53.26 billion, operating cost 40.50 billion, gross profit 12.76 billion, gross margin 23.96%.

These data correct a common judgment: overall gross margin decline cannot be simply attributed to rising energy storage share. In the report, energy storage battery system gross margin is actually higher than power battery; under unchanged conditions, raising energy storage share will not naturally lower battery system gross margin.

Second quarter sales, revenue, and cost of power and storage segments were not separately disclosed, so it is impossible to accurately calculate each business’s single Wh profit from the financial report. From single Wh net profit alone, according to Wallstreetcn estimates, Q2 single Wh net profit was 0.095-0.98 yuan/Wh, slightly lower than Q1.

CATL’s management says unit Wh gross margin and net profit have been relatively stable over the past ten plus quarters.

Unit Wh gross margin is relatively stable, but overall profit and cash flow in the report can still be affected by a series of factors; delayed revenue recognition and pre-stocked inventory change the final cash conversion efficiency.

This year, raw material prices have become a variable again. According to industry data cited by Ministry of Commerce commodity price web, the average price of energy storage-type lithium iron phosphate cathode material rose from about 29,000 yuan/ton in Q3 2025 to about 57,000 yuan/ton in Q2 2026, almost doubling; power-type lithium iron phosphate also rose from about 36,000 yuan/ton to 58,000 yuan/ton. Lithium carbonate accounts for about 60% to 65% of LFP cathode material cost.

Consumption tax policy has also introduced a new variable in price transmission. From September 1, 2026, lithium-ion batteries and related products will be taxed at a 2% consumption tax rate; from September 1, 2027, the rate will increase to 4%. This means in addition to raw material price linkage, battery companies must handle how to share the added tax in the industry chain.

CATL management responded in investor calls on July 23 that regarding export rebates and consumption tax changes, the company will fully communicate and share the responsibility with customers, expecting limited impact on overall operations. The metal price linkage mechanism remains in effect, with rebates tied to customer purchase volume by contract.

Raw material pressure is prompting CATL to extend resource assurance upstream. Management said the company started upstream supply chain layout in 2019; in the first half established Time Resource Group for integration of resources and mining investments. For Yichun Jianxiawo’s resumed production progress, management did not confirm specific arrangements, emphasizing announcements by the company or local government as standard.

So, temporarily stable unit Wh gross margin does not directly mean stable final profit. Tax, rebates, product structure, overseas service, and project delivery costs may affect gross margin, net profit, and cash flow respectively.

Competition over energy storage project prices is not over, increasingly moving to the system and engineering side. According to Polaris Energy Storage Network, domestic energy storage EPC bids reached 61.88 GW/177 GWh in the first half; the 2-hour EPC bid average price was about 1.063 yuan/Wh, 4-hour projects averaged about 0.931 yuan/Wh; during the same period, 44 EPC projects published bid failures or terminations.

But EPC bids and project failures only show competition and landing risk at the project end, not directly prove battery makers have incurred inventory or accounts receivable. Only if suppliers have stocked, shipped, or met part of contract obligations will project delays transfer pressure to suppliers.

For CATL, what needs observation is: under rising raw material prices, customer rebates, and longer energy storage project cycles, can unit profit be transformed into overall profit and cash flow.

Energy Storage Is Hotter, Competition Is Crowded

High growth in energy storage is attracting more competitors, with competition extending from cell pricing to capacity, product, and delivery capabilities.

According to TrendForce, in Q1 2026, global energy storage battery cell CR10 was 82%, CATL’s share about 22%; but in the large storage segment, the gap among the second to fifth largest players is less than three percentage points. Leading enterprises control scale and client advantages, mid-tier players are quickly catching up in capacity, product, and overseas orders.

Therefore, growing energy storage demand does not automatically synchronize with CATL’s profit: order increases can drive shipments, but more entrants increase customer bargaining, project pricing, and overseas delivery pressure.

On April 9, 2026, four departments jointly held a seminar for power and energy storage battery enterprises, listing capacity warning, standard price competition, shortening supplier payment terms, and curbing “internal competition externalization” as work items. Policy now covers competition order, meaning profit pressure from competition is no longer just a commercial issue between companies.

Overseas markets provide new demand, but not an easier path to growth. In large overseas projects, clients usually require full solutions covering front-end design, engineering construction, and long-term O&M. Competition is no longer just about equipment sales.

Changes in the UAE RTC project show overseas markets are not simply about having demand to secure orders. For battery enterprises, competition overseas has extended from cell performance to system integration, pricing, and delivery capabilities.

Management remains optimistic about European demand: in performance reports, they noted European EV growth about 30% in H1, penetration over 30%, and energy storage growth possibly faster. This supports overseas business demand, but does not eliminate cost pressure from localization, certification, and system services.

CATL management also said the AIGC data center business is an extension from selling batteries to energy systems. Management says the company hopes to use energy storage, medium voltage, power electronics, software and grid experience to cover data center gray zone (distribution, UPS, medium voltage, power electronics, etc.) and white zone (server rooms with IT equipment), and provide backup power solutions.

But this is not yet a revenue line proven by financial reports. The management’s timetable is that zero-carbon solutions will gradually land over the next one or two years, with AIGC only part of it. What the market ultimately cares about is whether these businesses can turn into orders, delivery, and profit.

CATL faces another issue: can current high utilization rates continue into the future. In the first half, its battery system capacity utilization rate was 94.86%, and capacity under construction was 764 GWh. But the capacity here is aggregated for power and energy storage batteries, and lithium and sodium batteries can be produced on the same line, so cannot be directly regarded as future storage supply.

TrendForce believes that as overseas localized capacity and new supply come online, global energy storage battery cell markets may shift from temporary tightness to moderately loose supply-demand.

Market concerns about 2027 focus on sustainability of power passenger car demand, increased battery load per commercial vehicle, and energy storage project yields, policies, and grid connection rhythm. CATL management maintains a forecast of 20%-30% compound annual growth over the next five years, and says the short term in 2027 may be even better.

This still needs verification by orders and project landing. CATL’s growth is getting heavier, and the real pressure is here: orders must become projects, and projects must translate to cash.

Risk Warning and DisclaimerThe market has risks, investment requires caution. This article does not constitute individual investment advice, and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are suitable for their particular circumstances. Investing accordingly is at your own risk. ```