Report Interpretation

Overview

Goldman Sachs examines two drivers of CATL's share-price weakness: renewed concerns that automakers will reduce dependence on CATL, and doubts about Chinese ESS demand. The institution concludes that CATL's battery moat remains durable and that ESS fundamentals are stronger than installation data alone suggest.

Core views

CATL's A and H shares had both fallen 36% from their May peaks, which Goldman Sachs attributes to worries over EV-battery “de-CATLization” and the durability of domestic ESS demand. The institution argues that, at 12x next-twelve-month P/E for CATL-A and a roughly 4% dividend yield, the valuation is close to the trough of the prior de-CATLization cycle and already more than reflects those concerns. It reiterates Buy on the view that CATL remains a global battery leader with an enduring moat. On EV batteries, Goldman Sachs argues that supplier diversification is easier for OEMs to announce than to execute. Batteries account for 20-30% of NEV cost of goods sold, so sourcing is an obvious cost-reduction target; however, earlier diversification and in-house-production initiatives during the 2022-23 lithium-price upcycle were often later scaled back or reversed. The report attributes this to the capital intensity and poor utilization economics of internal production, alongside consumer preference for CATL batteries. CATL's domestic customer base is also diversified: no individual customer contributes more than 15% of China installations, while CATL supplies roughly 60% of PV OEMs excluding BYD, representing more than 95% of China's merchant PV battery market. The report supports the moat argument with CATL's market position. Its share is strongest in high-end vehicles, approaching 100% year-to-date for vehicles priced above Rmb400k, while it also leads the low-to-mid-end market. CATL has maintained roughly 70% share in both high-end and newly launched EV models since 2021, around 70% wallet share among its top 10 customers, and about 50% share of China's merchant PV battery market excluding BYD since 2020. Power-battery sales volume rose 50% year-on-year in 1H26, adding about 110GWh—nearly equal to combined 1H26 sales of covered Tier-2/3 players. Installation share increased by 0.7 percentage points year-on-year to 45% in China and by 4.3 percentage points to 34% ex-China in 7M26; overseas installations reached about 40% of CATL's total, from around 30% historically, and supplied 54% of year-to-date incremental growth. Geely and Li Auto illustrate the report's assessment of diversification constraints. Geely had invested more than Rmb70bn in battery capacity, but effective capacity was about 42GWh as of August 2026 and utilization was only around 60%. Its September 2026 transfer of a planned 30GWh Chongqing Fuling factory to the CATL joint venture, after nearly four years of construction, is viewed as evidence of execution and return challenges. CATL's wallet share at Geely increased after the companies deepened cooperation in July 2025. Li Auto returned its i8 to CATL-only batteries after negative consumer feedback and reported order cancellations under its dual-supplier structure. Goldman Sachs does not take a view on Li Auto's renewed diversification, but considers CATL's direct exposure manageable because Li Auto represented only 17GWh, or 3%, of CATL EV-battery sales in 2025. A Nielsen survey provides additional support for the “CATL Inside” argument: approximately 37% of Chinese consumers said they would forgo their preferred vehicle if it lacked CATL batteries, versus 20-30% for other battery brands. For ESS, Goldman Sachs reconciles weak 1H26 installations with robust upstream activity. Chinese ESS tender volume more than doubled year-on-year, and contracted volume rose 80%, while installations fell by a high-teens percentage. The institution considers seasonality and a difficult comparison with 2Q25 more plausible explanations than widespread project cancellations: roughly half of annual installations were completed in the fourth quarter in both 2024 and 2025, while projects were accelerated in 2Q25 ahead of the Document 136 policy pivot. Installations grew 68% year-on-year in 1Q26 before the high-base effect appeared in 2Q. Tenders reached 517GWh in 8M26, up 105% year-on-year, implying 857GWh on a simple annualized basis or 907GWh on a seasonality-adjusted basis; contracts reached 396GWh, up 80%, implying 737GWh and 730GWh, respectively. The report characterizes domestic ESS as early-cycle, with a 7% attachment rate at end-1H26. Capacity payments can improve project IRRs, and only about one-third of provinces had formally implemented a capacity-payment scheme year-to-date despite national guidelines introduced in late January 2026. Other policy tools—such as participation in frequency-regulation and peak-shaving markets, longer peak/off-peak pricing periods, shared construction costs, and lower operating charges—can also raise project returns. Goldman Sachs expects further provincial capacity-payment rollouts and policy refinements in 4Q26 and 1Q27. It also sees a geographic cushion: ex-China markets contributed about 65% of incremental ESS shipment growth in 1H26, overtook China to account for 56% of global ESS battery demand, and offer CATL higher-value system-integration and profitability opportunities. Therefore, the institution believes an unexpected domestic ESS slowdown would be manageable.

Analysis framework

Goldman Sachs tests the two market debates through historical OEM sourcing cases, CATL's customer and wallet-share trends, installation and shipment data, consumer-survey findings, project tendering and contracting data, and provincial ESS policy developments. It then separates CATL's power-battery and BESS businesses in its valuation framework.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation

  The report values CATL's power-battery and BESS businesses separately to reflect their different growth profiles and the potential for BESS-led rerating.

• Industry AnalysisSupply-demand framework

  ESS project pipeline versus installations

  The report compares tenders, contracts, shipments and installations to argue that weak near-term installations reflect timing and seasonality rather than a collapse in underlying ESS demand.

• Competition & strategyEconomic Moat and Competitive Advantage

  CATL's competitive moat

  The report evaluates customer diversification, share by price segment, OEM sourcing experience and consumer recognition to assess CATL's ability to retain battery-market leadership.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CATL (300750.SZ; 3750.HK)

  Primary covered company and beneficiary of resilient power-battery leadership, overseas growth and expanding ESS demand.

  Strengths

  Diversified customers, leading share across EV price bands, strong consumer recognition, and growing ex-China exposure.

  Weaknesses

  Market sentiment remains pressured by concerns about OEM diversification and domestic ESS installations.

  Comparison

  CATL's customer concentration is lower than that of most battery OEM peers, and its 1H26 sales-volume increase nearly matched combined sales of covered Tier-2/3 players.

  Risks

  Global EV or ESS demand could grow more slowly than expected; competition, raw-material costs, BESS integration and overseas execution may weaken results.

• Geely Group

  Customer and case study of OEM in-house battery production and sourcing diversification.

  Strengths

  CATL's wallet share at Geely increased after deeper battery technology and supply-chain cooperation.

  Weaknesses

  Geely's in-house battery capacity utilization was around 60% as of August 2026.

  Comparison

  Geely's sourcing strategy shifted toward a more balanced model after earlier in-house expansion.

  Risks

  Further changes in Geely's battery sourcing strategy could affect CATL's customer mix.

• Li Auto

  Customer and case study of supplier diversification.

  Strengths

  Li Auto reverted the i8 to CATL-only batteries after consumer feedback under a dual-supplier structure.

  Weaknesses

  Li Auto's share of the medium-to-high-end EV segment fell from 12% in 2023 to 9% in 8M26.

  Comparison

  Li Auto represented only 3% of CATL's 2025 EV-battery sales, limiting CATL's direct exposure.

  Risks

  The outcome of Li Auto's renewed cooperation with Tier-2 battery makers remains uncertain.

Key data

• CATL-A 12-month target priceRmb565.00Versus Rmb293.50 current price; 92.5% upside.
• CATL-H 12-month target priceHK$947.00Versus HK$489.40 current price; 93.5% upside.
• CATL installation share45% in China; 34% ex-China7M26 shares, up 0.7 percentage points and 4.3 percentage points year-on-year, respectively.
• China ESS tenders517GWh8M26 volume, up 105% year-on-year.
• China ESS contracts396GWh8M26 volume, up 80% year-on-year.
• Ex-China ESS demand share56%Share of global ESS battery demand in 1H26.

Impact & implications

Goldman Sachs believes CATL's scale, broad customer base, high-end leadership and consumer recognition make it more difficult to displace than market sentiment suggests. It also argues that a fourth-quarter ESS installation pickup, policy implementation and expanding overseas ESS markets could shift attention back from demand concerns to project fundamentals.

Risks

• Slower-than-expected global EV demand growth.
• Weaker-than-expected global ESS demand growth.
• An unexpected increase in raw-material costs, particularly battery metals.
• Slower-than-expected progress in BESS integration.
• Execution and trade-policy risks in overseas expansion.
• More intense-than-expected competition in power and ESS batteries.

What to watch

• CATL's EV-battery market-share trajectory in China and overseas markets.
• Changes in OEM battery-supplier diversification plans.
• Market-share performance of EV models using alternative battery suppliers.
• A seasonal ESS installation pickup in 4Q26.
• Provincial capacity-payment rollouts and other ESS policy refinements in 4Q26 and 1Q27.
• Year-end supply-chain checks for greater visibility on demand.