CATL Shares Slide More Than 10% as Profit Miss Exposes Pressure on Battery Margins

Rising sales fail to protect earnings expectations

CATL shares fell more than 10% in Shenzhen and Hong Kong on October 21, 2026, after the Chinese battery maker reported quarterly profit below analyst forecasts despite revenue growth of nearly 59%. Investors focused on shrinking profit margins, new tax costs and weaker production expectations across the battery industry.

Net profit attributable to shareholders reached CNY21.246 billion in the third quarter, up 14.54% from a year earlier. Revenue rose 58.58% to CNY165.221 billion. The company was selling much more, but the profit it kept was growing far more slowly.

Shenzhen shares fell 10.32% by the morning close on October 21, with trading turnover of CNY21.605 billion, the highest among mainland A shares. Hong Kong shares also dropped more than 10%, reaching their lowest level since July 2025.

The selloff was much steeper than the broader market decline. Hong Kong's Hang Seng Index lost 0.35% by midday, while the Hang Seng Technology Index fell 0.75%. Shenzhen's benchmark index declined 0.31% at the morning close.

How far did profit fall short?

CATL's CNY21.246 billion quarterly profit missed several prominent forecasts. Bernstein had expected CNY22.9 billion, Goldman Sachs CNY24 billion, and CLSA between CNY25 billion and CNY26 billion.

The result was about 7.2% below Bernstein's estimate and 11.5% below Goldman Sachs' forecast. Against the upper end of CLSA's range, the shortfall was about 18.3%. Those gaps help explain why a company still delivering substantial profit growth faced such a sharp market reaction.

Third quarter revenue increased 11.8% from the preceding quarter, while attributable net profit fell 5.77%. Profit excluding nonrecurring items reached CNY18.862 billion, up 14.86% from a year earlier but down 9.84% from the second quarter. This adjusted figure removes certain items outside ordinary operations to give investors another view of earnings.

CATL's results for the first nine months remained stronger than its latest quarter alone. Revenue reached CNY442.137 billion, up 56.19%, and attributable net profit rose 31.60% to CNY64.53 billion. The latest quarter showed that earnings growth was slowing even as sales growth accelerated.

A widening gap between revenue and profit

CATL's quarterly figures show the change building through 2026. Attributable net profit growth slowed from 48.55% in the first quarter to 36.4% in the second and 14.54% in the third.

Revenue growth moved in the opposite direction, rising from 52.46% to 56.9% and then 58.58%. The gap between sales growth and profit growth widened from 3.91 percentage points in the first quarter to 44.04 percentage points in the third.

Gross margin fell to 20.69%, compared with 25.80% a year earlier and 23.15% in the second quarter. Gross margin measures the share of sales left after the direct cost of making the products, before other expenses and taxes.

For every CNY100 of revenue, CATL retained about CNY20.69 after direct production costs, compared with CNY25.80 a year earlier. That reduction of CNY5.11 illustrates how a company can expand sales rapidly while earning less profit from each yuan sold. Its net margin, measured using attributable profit, was 12.86%.

Materials, product mix and taxes squeeze margins

CATL told investors at its October 20 earnings briefing that changes in the mix of products sold affected profitability during the quarter. Different battery products earn different margins, so a larger contribution from less profitable products can pull down the company's average.

Citi analysts, including Jack Shang, attributed the earnings miss to a lower gross margin than expected, higher expenses and increased asset impairment losses. An impairment is an accounting charge taken when an asset's recorded value is reduced. The analysts also cited the recognition of shipments of products with lower margins, battery consumption tax and a reduction in battery export tax rebates.

Raw material costs added pressure. Lithium carbonate prices rose from below CNY60,000 per tonne around the middle of 2025 to above CNY210,000 in June 2026, before retreating to roughly CNY130,000 to CNY160,000 in September.

Battery selling prices also rose, but industry monitoring indicated that the increases lagged behind raw material costs. By August 2026, the average domestic price of mainstream 314 ampere hour lithium iron phosphate cells used for energy storage had reached CNY0.365 per watt hour, more than 20% above the level at the end of 2025. Manufacturers faced a squeeze between what they paid for materials and what customers paid for batteries.

September's tax change creates a longer cost test

CATL's taxes and surcharges rose to CNY2.214 billion in the third quarter from CNY597 million a year earlier, an increase of CNY1.617 billion.

The increase coincided with a policy change under Announcement No. 20 of 2026 issued by China's Ministry of Finance, General Administration of Customs and State Taxation Administration. The measure restored consumption tax on five battery categories, including lithium ion batteries, from September 1, initially at a transitional rate of 2%.

The third quarter included only one month under the restored tax. The fourth quarter is the first full quarter affected, and the rate is scheduled to rise to 4% in September 2027. That timetable gives CATL and its customers a continuing cost issue to resolve.

CATL said it was discussing how to share the impact of consumption tax and export rebate changes with customers, while introducing new technologies and products to reduce the pressure on profitability. The company did not specify how much of the additional burden customers would accept. For vehicle manufacturers buying batteries, those negotiations will help determine their own production costs.

What happened before and after the results?

CATL's decline began before the earnings release and deepened the following morning. The sequence separates the initial reaction to analyst concerns from the subsequent response to the quarterly figures.

• September 1, 2026: The restored battery consumption tax took effect at a transitional rate of 2%.
• October 20: Shenzhen shares closed down 2.97% at CNY259.08, while Hong Kong shares fell 6.58% to HKD411.80. JPMorgan lowered its rating on the Hong Kong shares before the earnings release.
• October 20 evening: CATL released its third quarter results and held an earnings briefing.
• October 21 morning: Shenzhen shares were quoted at CNY231.65 at 10:38 a.m. and finished the morning session down 10.32%. Hong Kong shares fell more than 10% by midday.

The CNY231.65 Shenzhen price was about 50.4% below the stock's high of CNY467.34 earlier in the year. The decline therefore extended a much larger retreat, rather than beginning with a single earnings announcement.

Banks cut forecasts but retain different views

JPMorgan downgraded CATL's Hong Kong shares from overweight to neutral and lowered its target price from HKD725 to HKD500. It retained an overweight rating on the mainland shares. Such ratings express a bank's investment preference, while price targets are forecasts rather than promised outcomes.

The bank's concern centered on profitability deteriorating faster than expected. Vehicle manufacturers already facing tax changes, reduced export rebates and trade barriers could seek to pass part of those costs to battery suppliers through tougher purchasing terms.

Citi cut its mainland share target from CNY500 to CNY479 and its Hong Kong target from HKD765 to HKD732. It reduced its profit forecasts for 2026, 2027 and 2028 by 9%, 14% and 15%, respectively, to CNY86 billion, CNY103 billion and CNY122 billion.

Even after those reductions, CATL remained Citi's preferred stock in the sector. Its revised mainland target was about 85% above the October 20 closing price of CNY259.08. Citi suggested that the next period of stronger share performance could begin in the first quarter of 2027, after investors had absorbed the negative developments.

JPMorgan also saw a possible longer term advantage for CATL. Its assessment was that handling cost pressure, whether by sharing it with customers or absorbing some internally, could strengthen customer relationships. Smaller battery manufacturers could face greater difficulty managing the same pressures.

Battery demand grows, but production plans soften

China's battery market continued to expand rapidly during the first nine months. Figures attributed to the China Automotive Power Battery Industry Innovation Alliance put combined domestic sales of batteries for vehicles and energy storage at 1,681.7 gigawatt hours, up 57.6%.

Energy storage battery sales reached 595.4 gigawatt hours, up 111.8%, while vehicle battery sales reached 1,086.4 gigawatt hours, up 38.2%. Storage represented roughly 35% of the combined total and was growing much faster. A gigawatt hour measures the amount of electrical energy a battery can hold.

Nearer term production expectations were less encouraging. Citi cited ZE Consulting's forecast that October output plans for the five largest battery manufacturers would increase just 1% from September, compared with an earlier expectation of 7%.

October normally falls within an important production period near the end of the year. Citi lowered its output expectations for CATL, CALB and EVE Energy after the revision. Other battery shares also weakened: CALB fell more than 4% in Hong Kong on October 21, while Ganfeng Lithium declined 3.6%.

CATL points to Europe and demand in 2027

CATL maintained a more positive assessment of demand for 2027 at its earnings briefing. The company pointed to increasing electric vehicle adoption, larger battery capacity per vehicle, the electrification of commercial vehicles and continued demand for stationary energy storage.

China's passenger vehicle market illustrated its argument. CATL said total passenger vehicle sales had declined during the year, but a growing electric vehicle share and more battery capacity in each vehicle had still supported growth in demand for batteries used in new energy passenger cars.

Europe remained another area of expansion. CATL said the first phase of its Hungarian factory had formally entered trial production, while its factory project in Spain was progressing. Production closer to customers would help meet local market requirements, according to the company.

JPMorgan also expected global demand for electric vehicle and storage batteries in 2027 to exceed market expectations by 20% to 25%. CATL's immediate challenge is turning that demand into profitable sales while paying higher costs and negotiating with customers over who bears them.

Key Points

• CATL shares fell more than 10% in Shenzhen and Hong Kong on October 21 after quarterly earnings missed analyst forecasts.
• Third quarter revenue rose 58.58% to CNY165.221 billion, while attributable net profit increased 14.54% to CNY21.246 billion.
• Gross margin declined to 20.69% from 25.80% a year earlier as product mix, material costs and tax changes weighed on profitability.
• The restored battery consumption tax applies for a full quarter from October and is scheduled to rise from 2% to 4% in September 2027.
• JPMorgan and Citi lowered investment targets or earnings expectations, although both retained positive views on parts of CATL's longer term prospects.
• CATL said its Hungarian factory had entered trial production and maintained a positive assessment of battery demand in 2027.