CATL Profit Growth Slows as EV Market Cools

CATL headquarters. (Reuters-Yonhap) The earnings growth of China’s CATL, the world’s number one electric vehicle battery maker, has faltered. The net profit growth rate for the third quarter of this year recorded the lowest in 7 quarters. The slump in the Chinese electric vehicle market and the moves by countries around the world, including the United States and Europe, to keep Chinese electric vehicles in check appear to have had an impact. This is expected to be an opportunity for the domestic battery industry, including LG Energy Solution. While China is being kept in check, domestic companies are continuing a streak of winning orders for energy storage systems (ESS) for artificial intelligence (AI) data centers, utilizing their local production lines in the United States. Domestic battery makers are also a strong alternative for major automakers to execute a ‘break away from Chinese batteries.’ According to Reuters and others on Oct. 21 (local time), CATL, the world’s number one electric vehicle battery maker, announced through its third-quarter earnings report the previous day that its net profit recorded 21.25 billion yuan (about 4.2 trillion won, $3.23 billion), up 14.54% from the same period last year. This figure falls significantly short of the net profit growth rate of the second quarter (36.5%) as well as the market forecast of 41.2% compiled by market research firm London Stock Exchange Group (LSEG). It is also the lowest since the fourth quarter of 2024 (13.6%). Third-quarter sales increased by 58.58% year-on-year to 165.22 billion yuan (about 32.8 trillion won, $25.23 billion). Although the growth rate was higher than the second quarter (56.9%), it fell short of the LSEG compiled market forecast of 60.2%. The South China Morning Post (SCMP) reported that CATL’s stock price has been showing weakness after Chinese electric vehicle makers Xiaomi and Li Auto announced last month that they would collaborate with other battery manufacturers. The Chinese battery industry has grown rapidly for several years, driven by domestic subsidies and price competitiveness. However, as indiscriminate facility expansion and excessive competition continue, even the frontrunner CATL is facing checks from domestic companies in the domestic market. Furthermore, as the Chinese domestic automobile market continued its slump for 12 consecutive months until September, major battery manufacturers are staking their lives on expanding overseas exports. The tax reform by the Chinese authorities has also added to the industry’s burden. In order to curb oversupply and cutthroat competition in the battery industry, the authorities ended the lithium-ion battery consumption tax exemption in July for the first time in 10 years and applied a 2% tax rate starting in September. Following the reduction of the export value-added tax refund rate, a complete abolition was confirmed for next year. Nevertheless, the global electric vehicle battery market share of CATL, which expanded its supply to overseas automakers, rose to 39.4% from January to August this year, up from 37.7% in the same period last year. On the other hand, the market share of the second-place BYD dropped from 17.1% to 15.1%. The market foresaw that the blow could spread not only to the industry leader CATL but also to small and medium-sized battery makers. An official from Citigroup analyzed, “If even CATL cannot completely pass on the consumption tax burden to its customers, second-tier companies will also find it difficult to handle.” The moves by global automakers to ease their dependence on CATL are also a threat factor. As major automakers diversify their orders to stabilize supply chains, they are fueling competition to lower unit prices within the market. Investment bank J.P. Morgan recently downgraded its investment opinion on CATL’s Hong Kong stocks to ‘neutral,’ stating that if the profitability of the Chinese electric vehicle industry deteriorates faster than expected, it could affect the demand for CATL battery products. Analysts say that such moves by global automakers to diversify their supply chains will act as an opportunity for South Korean battery companies. The three major domestic battery makers are rapidly converting their existing lines exclusively for ESS to respond to the slowdown in electric vehicle demand. They are intensively targeting the North American ESS market, which is growing rapidly due to the proliferation of AI data centers. LG Energy Solution, Samsung SDI, and SK On are increasing the production of lithium iron phosphate (LFP) batteries locally in the United States while simultaneously preparing for the mass production of next-generation products such as solid-state batteries. CATL also plans to expand the proportion of its ESS business, which currently accounts for about 1/4 of its total sales, to half by 2030. In addition, it recently unveiled a next-generation battery for heavy-duty trucks and announced a plan to expand its battery swap network.