CATL's 58.6% Sales Surge Fails to Carry Through to Profit, Triggering Broker Downgrades

CATL is negotiating with customers over how to split the costs of changed tax rules, a discussion that goes to the heart of the battery maker's profitability question: how much of the added burden can it pass on? The answer matters more than ever after Thursday's quarterly report, which showed revenue racing far ahead of earnings and prompted two major brokers to slash their price targets.

The stock fell 12% on the day. Citi cut its target to RMB 479 from RMB 500, citing a lower-than-expected gross margin, higher expenses and larger impairment losses. Nomura went further, reducing its target to RMB 408 from RMB 632 on short-term pressure on unit profitability. Neither house disputed the growth story — both questioned what it earns.

A tax bill with a rising trajectory

Since September 1, batteries have carried a consumption tax of initially 2%, making the fourth quarter the first fully affected period. The rate is scheduled to climb to 4% on September 1, 2027. At the same time, export tax relief is shrinking: the rebate on battery products was trimmed from 9% to 6% on April 1, and a full phase-out is planned from January 1, 2027. Even with demand growing, that adds up to a mounting drag — one that a successful cost-sharing deal with customers would limit, but which CATL would otherwise have to absorb largely on its own. No outcome of the talks has been confirmed.

Storage growth cuts both ways

The product mix sharpens the challenge. A larger share of lower-margin energy storage products weighed on profitability, and Morgan Stanley has warned of margin pressure from price competition in that segment. Energy storage accounted for roughly a quarter of drive and storage battery volumes in the third quarter, according to company figures. CATL expects global demand for both battery types to grow 20–30% in 2027 — a signal of market potential rather than a guarantee of results. Higher volumes help only so much when mix, taxes and price competition squeeze the profit earned per battery sold.

The numbers behind the miss

For the third quarter of 2026, CATL reported net profit attributable to shareholders of RMB 21.25 billion, up 14.54% year on year. Revenue reached RMB 165.22 billion, a gain of 58.58%. Analysts polled by Reuters had expected around RMB 26 billion in profit, so the company kept growing but fell short of the market's bar. Reuters also pointed to intensifying competition in the battery market and slowing growth in Chinese car sales — an environment that explains why analysts are scrutinising near-term profitability so closely.

Expansion continues regardless

CATL is pressing ahead on product and infrastructure plans. On Wednesday it unveiled a new generation of batteries for heavy trucks alongside a battery-swapping solution. According to Reuters, the company plans 900 truck swapping stations by the end of 2026, rising to 2,000 by 2027. Those projects point to further expansion, but they do not answer the question Citi and Nomura raised about near-term earnings power. The distinction matters for anyone weighing the shares: CATL is pursuing fresh growth, while today's target cuts call into question the economic return on that growth.

The next real test is the commercial effect of the customer negotiations. An agreed cost split could cushion the tax pressure. At the same time, CATL must show that its expanding storage business delivers a sustainable earnings contribution despite the price war. Until that is clear, the projected demand increase remains an opportunity — not proof of a profitability recovery.