Is Ning Wang's new cycle still increasing in "value"?

Author | Zhou Zhiyu

CATL’s annual report has eased investors’ concerns over the past period.

On the evening of March 9, CATL released its 2025 annual report. Revenue reached 722 billion yuan, with net profit attributable to the parent of 72.2 billion yuan, a year-on-year increase of 42%, with profit growth 2.5 times faster than revenue growth. More importantly, in the second half of the year, capacity utilization soared to 102.6%—while everyone was discussing who might be cleared out, this industry leader, holding nearly 40% of the global market share, is already running out of capacity.

Over the past year, lithium carbonate prices fluctuated sharply, second- and third-tier battery companies ramped up production aggressively, and price wars became a common narrative in the lithium battery industry. Wallstreet.cn learned that some of CATL’s orders are limited by capacity, while others spill over to other second- and third-tier competitors. The implication is not weak demand, but that the leading capacity cannot keep up.

Furthermore, CATL remains optimistic about the industry’s medium- and long-term growth prospects. Internally, CATL expects the industry to maintain a compound annual growth rate of 20%-30% over the next 3–5 years.

The capital markets have also made their judgment. After the earnings release, some institutions have already raised their profit forecasts for 2026 to over 940 billion yuan.

Looking back over the past few years, regardless of fluctuations in lithium carbonate prices, CATL’s profit per Wh has remained relatively stable. During the same period, most second-tier companies faced cost pressures during price hikes and lacked hedging tools during price declines. The same market conditions yielded different profit margins.

Where does profit come from? How does share gain happen? When the industry enters a new cycle, can this cyclical pricing ability be sustained? These three questions point to three different answers.

Securing Profits

Revenue of 423.7 billion yuan, up 17%. Sales of 661 GWh, up 39%. Net profit of 72.2 billion yuan, up 42%. These three growth rates are on completely different scales.

The sales volume growth far exceeds revenue growth, indicating a decline in unit prices. A simple estimate shows that revenue per GWh dropped from about 7.62 billion yuan last year to 6.41 billion yuan, a decrease of approximately 16%.

However, profit growth is actually leading.

The key lies in costs. The annual report shows that the proportion of direct materials in operating costs decreased from 76.48% to 71.79%, a drop of nearly 5 percentage points in one year. The cyclical decline in lithium carbonate prices is one reason; the large-scale deployment of PSL super-line production lines, which improved manufacturing efficiency, is another. While prices fell by 16%, costs fell even faster—creating a widening gap.

But what truly keeps CATL’s profits rock solid is not just cyclical luck but a set of systemic mechanisms.

CATL’s contracts with downstream automakers generally include lithium carbonate price linkage mechanisms, with transmission cycles of about 1 to 2 months. When raw material prices rise, costs can be passed on within one or two months. Meanwhile, CATL holds equity in upstream mineral resources, recycles 210,000 tons of waste batteries and materials annually through BAK Power, and has derivatives with a nominal principal of nearly 370 billion yuan for hedging and locking in exposure.

When lithium carbonate prices rise, the linkage mechanism transmits costs upward, and upstream shareholding benefits from price increases. When prices fall, inventory hoarding and recycling channels fully release cost reduction benefits. Both directions provide hedging, keeping net profit per Wh around 0.1 yuan/Wh. Compared to most second-tier companies, which are squeezed during upcycles and lack price-locking tools during downcycles, CATL remains passive on both ends.

Cash flow also verifies profit quality. The full-year operating cash flow net was 133.2 billion yuan, up 37% year-on-year, significantly higher than net profit. Financial expenses were -7.94 billion yuan, nearly doubling from the previous year—interest and exchange gains from 333.5 billion yuan in cash holdings have become a substantial “invisible profit.”

More critically, Q4 showed acceleration. Quarterly revenue reached 140.6 billion yuan (+37% YoY, +35% QoQ), with net profit attributable to the parent of 23.2 billion yuan (+57% YoY), the strongest quarter of the year. If the annual data reflects a trend, Q4’s data indicates the trend’s slope is steepening.

Of course, some noise needs to be distinguished. The full-year asset impairment was 8.66 billion yuan, concentrated in Q4. CATL’s management explained that the impairment of fixed assets mainly targeted early production lines, as old equipment no longer meets current operational and capacity needs; inventory impairments were made prudently, and overall asset scale shows a shrinking proportion.

But from another perspective, equipment impairments exceeded inventory impairments. This structure itself is a signal—rather than asset quality deterioration, it reflects technological generation replacement. Actively retiring early small-capacity lines and reallocating resources for new-generation processes like PSL is essentially using impairments to improve efficiency, trading short-term profits for long-term manufacturing upgrades.

Inventory increased from 106 GWh at the start of the year to 186 GWh at year-end, a 75% increase. But breaking down the increase, a significant portion is shipped goods—storage systems are shipped from factory to installation, debugging, and acceptance, which can take months. Many shipped but not yet accepted goods inflate the book figures. Essentially, this is “revenue to be recognized,” not unsold inventory. Additionally, during lithium carbonate uptrends, early stocking of low-cost raw materials is a proactive cost management measure.

The digestion pace remains to be monitored. But from the profit structure, this growth is genuinely valuable: cost optimization outpaces price declines as the underlying logic, linkage mechanisms and upstream layout lock in profit stability as institutional safeguards, Q4 acceleration confirms the cyclical position, and the impairment structure hints at proactive manufacturing evolution.

Full Capacity Siphoning

High-quality profit is one thing; high-quality share gain is another.

There are many cases in the market where share is gained through price cuts—such growth is “pseudo-inflated.” CATL’s share increase by 2025 is fundamentally different.

According to SNE Research data, in 2025, global power battery usage will reach 1,187 GWh (+31.7%). CATL’s power battery sales will be 541 GWh (+41.85%), outperforming the industry by nearly 10 percentage points. The global market share is 39.2% (+1.2 ppt), maintaining first place for nine consecutive years. Overseas market share surpasses 30% for the first time. Energy storage shipments have ranked first globally for five consecutive years.

Meanwhile, gross profit margin of power batteries remains steady at 23.84%. Energy storage margins are 26.71%, also stable. Overseas gross margin is 31.44%, about 7.4 percentage points higher than domestic. Share is expanding without sacrificing profit margins.

The incremental growth is not driven by price cuts. So where does it come from?

A key structural change is underway: power battery sales growth of 41.85% significantly exceeds the global new energy vehicle sales growth of 21.5%. Batteries are growing at a much faster rate than vehicles.

There are two main drivers. First, the energy per vehicle is increasing systemically—pure electric models are shifting from “optional long-range” to “standard long-range,” with the energy capacity of extended-range models rising from 40 kWh to 60–80 kWh, and higher-level autonomous driving features further increasing power consumption and energy needs. Second, new energy commercial vehicle sales will grow 63.7% YoY in 2025, with penetration rising to 26.9%. Commercial vehicles, especially electric heavy trucks, have much higher energy per vehicle—each new electric heavy truck’s battery demand is roughly equivalent to 3–4 passenger cars—creating a demand leverage.

These two factors combined have created a significant gap between battery installed capacity and vehicle sales. Those with sufficient high-quality capacity to fill this gap will capture share.

Wallstreet.cn learned that CATL’s capacity is fully booked, causing some orders to spill over to other second- and third-tier competitors.

Industry chain sources indicate that some second- and third-tier manufacturers have high production expectations for 2026, with estimates ranging from 50–60% to 80–100%. Previously, UBS China Basic Materials Research head Ding Yueli told Wallstreet.cn that the overall lithium carbonate market in 2026 will remain relatively tight.

According to Ding’s estimates, demand from EVs next year is expected to grow 15% YoY, with energy storage being a key variable. UBS understands that top companies aim to double lithium carbonate demand from storage next year, with some large firms expecting over 70% growth.

Data shows that CATL’s capacity utilization rate in the second half of the year is 102.6%, already operating over capacity. Year-end contract liabilities reached a record high of 49.2 billion yuan—an almost direct indicator of on-hand orders, more concrete than any verbal commitments.

Regarding concerns that aggressive second-tier capacity expansion might trigger price wars, CATL’s management believes that lithium industry always has ample supply; what’s scarce is high-quality capacity—this is what customers truly need.

By the end of last year, CATL’s under-construction capacity was 321 GWh. Wallstreet.cn also learned that CATL’s planned capacity in 2026 will be even larger, with further increased capital expenditure.

But there’s an important distinction: same capacity expansion, but CATL’s each GWh is tied to long-term supply agreements and technical partnerships, with expansion decisions fully based on customer order visibility, not linear extrapolation of industry average growth. If second-tier companies ramp up aggressively without similar deep customer binding, they risk “overcapacity upon commissioning.”

In other words, the high growth of second-tier firms is partly built on the fact that the leader “cannot accommodate” all demand. Once CATL’s confirmed capacity is released, spillover will flow back. The measure of expansion quality should not only be GWh but also order conversion rates and customer structure.

This is the essence of “hidden capacity clearance”—not CATL grabbing others’ share, but demand finding its way to CATL.

The Next Phase

Whether CATL’s value can be sustained in the new cycle ultimately depends on the industry’s structural changes.

Today, energy storage is shifting from selling cells to selling systems, redefining the competitive landscape.

Energy storage shipments reached 121 GWh (+29%), but revenue only grew 9% to 62.4 billion yuan. Cell prices are being squeezed, profit margins are approaching bottom. However, system integration shipments increased over 160% YoY, with more than 70 projects delivered globally—value is migrating from cells to systems.

Product iteration directions are clear: mass production of 587 Ah large cells, Tianheng’s 6.25 MWh systems connected at scale, TENER Stack’s 9 MWh global debut. Integration is increasing, delivery units are larger. CATL revealed that energy storage is increasingly about providing comprehensive solutions—compared to 314 Ah cells, 587 Ah cells can nearly double throughput, improving IRR for owners by 2–3 percentage points.

A 2–3 percentage point IRR increase can mean hundreds of millions in net present value for a single energy storage project. The market still focuses on how many cents per Wh cell prices have fallen, but the real decision factors are shifting—cost per kWh (LCOS), grid stability, smart dispatching—these are becoming the comprehensive scoring criteria for energy storage projects. Those who can integrate electrochemistry, power electronics, and AI algorithms across domains will score higher on this new evaluation.

Another new variable on the demand side is the rigid need for energy storage in AI data centers. AI training and inference workloads have sharp, pulsed fluctuations; data centers need storage to smooth power surges and shave peaks. Some grid operators already require new large loads to have self-regulation capabilities. For data centers, the opportunity cost of power outages or delayed grid connection far exceeds marginal battery price increases—this is a nearly price-insensitive rigid demand.

Current entrants mostly focus on single-point capabilities—some only make cells, others only inverters. But the ultimate competition in energy storage requires full-stack capabilities from cells to cabinets, PCS, EMS, and grid coordination. The cell price war has hit rock bottom; future pricing power lies in system integration.

On the other hand, overseas localization is shifting from a bonus to a prerequisite.

CATL’s overseas revenue reached 129.6 billion yuan (30.6%), with overseas gross margin at 31.44%, 7.4 percentage points higher than domestic. The high premium is driven by localized capacity, which enhances customer stickiness and delivery reliability.

Hungary’s Phase 1, over 30 GWh, has completed commissioning and is ramping up; Indonesia is under construction, Spain is in planning. Wallstreet.cn learned that CATL’s overseas factories’ investment is about 1.5 to 2 times that of domestic plants, and Hungary’s orders are saturated.

External factors are pushing this trend. The EU allocated up to 3 billion euros in March to support local battery manufacturing; Zimbabwe restricts lithium ore exports to promote local processing; Indonesia pushes for local nickel ore processing. The global lithium battery supply chain is shifting from “China manufacturing, global export” to “regional production, local delivery.”

LG, SK, Samsung SDI are building factories in North America; Chinese companies are expanding in Europe and Southeast Asia. The battery industry is replicating the regionalization path of semiconductors. The window for overseas expansion won’t stay open forever—early movers will benefit.

Meanwhile, “implicit capacity clearance” has already begun.

On the surface, the industry does not seem to be shrinking—second- and third-tier companies ramp up aggressively, new capacity continues to come online. But CATL’s second-half capacity utilization at 102.6%, steady or rising gross margins, and expanding market share suggest that the prosperity of second-tier firms is partly built on the overflow from the leader.

Deeper, the asymmetry lies in profit tools. CATL’s price linkage mechanism transmits cost fluctuations, with nearly 3,700 billion yuan in hedging lock-in exposure, upstream mineral holdings, and 210,000 tons/year recycling to hedge resource risks. Whether lithium carbonate rises or falls, profit per Wh remains around 0.1 yuan/Wh. Smaller firms are more passive on both sides; under the same market conditions, their profit margins differ significantly.

CATL’s expansion logic has shifted from scale priority to certainty priority—its 321 GWh under construction is backed by locked-in long-term contracts and technical partnerships, with order visibility confirmed by record-high contract liabilities of 49.2 billion yuan. In contrast, if second-tier firms’ aggressive capacity expansion lacks similar deep customer binding, their capacity release may come with margin pressure.

Spillover orders to second-tier firms may accelerate flow back—capacity utilization and profit concentration could happen faster than market expectations. This is the meaning of “hidden capacity clearance”: capacity isn’t retreating; profits are consolidating.

Since first topping global power battery shipments in 2017, CATL has taken eight years to capture nearly 40% of the global market share and achieve annual profits exceeding 70 billion yuan. Going public in Hong Kong, building factories worldwide, systematizing energy storage, mass-producing sodium batteries—this company is transforming from a battery manufacturer into a defining force in new energy infrastructure.

But the challenges of the new cycle are also escalating. Lithium carbonate prices are entering a new wave of volatility; overseas localization windows are narrowing; competition in energy storage is shifting from cells to systems. Whether CATL can maintain profit stability amid full capacity expansion and outperform policy shifts in its global layout is not just a corporate issue but a key factor in how far China’s lithium battery industry can go in the global energy transition.

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