UOB Kay Hian
Report Date: Thursday, 31 July 2025

CATL 2Q25 Earnings: Record Margins, Robust Growth, and Strategic Positioning in EV and Energy Storage Sectors

Overview: CATL Delivers Strong 2Q25 Results, Margins at All-Time High

Contemporary Amperex Technology Co. Ltd. (CATL), the global leader in lithium-ion batteries for electric vehicles (EVs) and energy storage, has reported its 2Q25 results, showcasing significant year-on-year (YoY) and quarter-on-quarter (QoQ) growth. The company’s net profit soared to Rmb16.5 billion, marking a 33.7% YoY and 18.3% QoQ increase. Gross and net margins hit record levels, underscoring CATL’s resilient business model and product competitiveness amid a dynamic industry landscape.

Stock Snapshot and Performance

• Current Share Price: HK\$426.60
• Target Price: HK\$420.00 (Upside: -1.5%)
• GICS Sector: Industrial
• Market Cap: HK\$1,215,706 million (US\$176,189 million)
• Shares Issued: 4,387 million
• 52-Week Range: Rmb300.06 – Rmb166.00
• Major Shareholders: Zeng Yuqun (Ruiting Investment) 23.32%, Huang Shilin 10.60%

Key Financial Highlights: 2Q25 Performance

Operational Insights: Sales Volumes and Product Mix

• 2Q25 lithium-ion battery sales: 150GWh (+36.4% YoY, +25.0% QoQ)
• Power batteries: 120GWh (+41.2% YoY, +25.0% QoQ)
• Energy storage batteries: 30GWh (+20% YoY, +25% QoQ)

Power battery sales surged, supported by robust commercial vehicle electrification and accelerated adoption in Europe. The average selling price (ASP) remained stable quarter-on-quarter as CATL maintained pricing power through technological premium, even amidst heightened competition.

Margin Expansion Driven by Premiumization and Efficiency

• Gross margin jumped to 25.6%: +4.8ppt YoY, +1.2ppt QoQ
• EBIT margin climbed to 18.7%: +1.7ppt YoY, +1.2ppt QoQ
• Net margin reached 16.3%: +3.9ppt YoY, +2.4ppt QoQ

Margin improvements were fueled by:

• Shift to premium products (2nd-gen Shenxing power batteries, 587Ah energy storage cells)
• Enhanced scale efficiencies from >90% capacity utilization
• Significant FX hedging gains (Rmb3.6b)
• Rigorous cost controls

These factors enabled CATL to achieve record profitability despite broad industry pricing pressures.

Strategic Growth Drivers and Market Positioning

• Automotive Power Batteries:
  • 2025-27 sales volume estimates: 450GWh/540GWh/650GWh
  • Strong commercial vehicle electrification (+35% YoY in 1H25), driven by logistics solutions (Kun-style chassis ecosystem)
  • European market share up 0.6ppt, with localized production in Germany and Hungary ramping up by late 2025
  • New products: sodium-ion batteries (500km range), Shenxing 2.0 LFP (800km/4C charging)
• Energy Storage Batteries:
  • 2025-27 sales volume estimates: 130GWh/160GWh/185GWh
  • Growth driven by policy support in China and overseas diversification (>50% non-US sales in 1H25)
  • European and Middle East expansion offsetting softer US demand
  • Innovations: 587Ah cell (optimized energy density/safety), 9MWh Tianheng system (45% smaller footprint), rising AI data center demand

Pricing Power and Cost Management

CATL has successfully maintained stable ASPs despite industry-wide price pressure through:

• Premium product differentiation (sodium-ion, 587Ah storage cells, Shenxing 2.0 LFP)
• Strategic customer agreements with raw material-linked pricing clauses
• Geographic mix optimization (>50% overseas storage sales, overseas ASPs 20-30% higher than domestic)
• Rigorous cost controls via scale and vertical integration (e.g., lithium mining)

Financial and Valuation Metrics

Cash Flow and Balance Sheet Strength

• Operating cash flow (2025F): HK\$89,635 million
• Capex (growth) (2025F): HK\$69,933 million
• Ending cash & cash equivalents (2025F): HK\$275,324 million
• Net debt/(cash) to equity (2025F): 46.3%

Outlook and Strategic Recommendations

• Management projects continued volume growth in both automotive and energy storage batteries, bolstered by robust global demand and innovation in premium product segments.
• CATL is maintaining its 2025-2027 net profit forecasts at Rmb66.1 billion, Rmb79.5 billion, and Rmb94.2 billion, respectively, on the back of sustained sales and strong product differentiation.
• The company’s multi-pronged approach to pricing, cost control, and technological leadership positions it well for ongoing margin expansion and growth.
• Valuation is based on a 10-year DCF model (WACC: 11.0%, terminal growth: 4.0%), implying 26x 2025F PE. The recommendation is to maintain BUY with a target price of Rmb390.00.
• The H-share (3750 HK) is downgraded from BUY to HOLD, as the market price has reached the target of HK\$420.00.

Key Takeaways for Investors

• CATL continues to dominate both EV and energy storage battery markets, leveraging premiumization, scale, and continuous innovation.
• Record-high margins, strong cash flow, and a robust balance sheet underpin the company’s resilience and growth prospects.
• Despite sector-wide pricing pressures, CATL’s strategic positioning and operational excellence enable it to capture high-value opportunities globally.
• Investors are advised to watch for sustained volume growth, further product innovation, and global market expansion as key catalysts for future performance.