J.P. Morgan maintains Overweight on CATL, viewing 2027 as normalization rather than a repeat of the 2023-24 battery overcapacity cycle.

Overview

J.P. Morgan revisits CATL's 2027 bear case after roughly 15% further declines in both A- and H-shares over the prior month. It maintains Overweight on both listings, arguing that the market is overestimating risks from OEM diversification, battery self-supply and lower utilization while underestimating CATL's scale, technology, cash generation and capital-return potential.

Core views

The report first addresses fears that Xiaomi's additional suppliers and Li Auto's in-house battery plans will materially erode CATL's volumes. J.P. Morgan argues that the direct exposure is limited: Xiaomi and Li Auto each represented only about 7-8% of CATL's domestic EV battery shipments year to date, while China domestic EV shipments account for less than 35% of CATL's total mix and are projected to fall toward about 30% by 2027. Multi-sourcing is described as a gradual, platform-specific supply-chain practice rather than an immediate replacement of incumbent suppliers. CATL's China EV battery market share increased from 44% in FY25 to 48% in 1H26; its passenger-vehicle share rose from 41% to 43%, and its share exceeds 50% excluding vertically integrated BYD and Tesla. The report also argues that product reliability, recalls and manufacturing consistency matter alongside price, making CATL's established operating record a competitive advantage. J.P. Morgan considers OEM battery self-production largely unproven at scale. Tesla's 4680 cells account for less than 4% of its battery requirements, while Volkswagen's PowerCo and Europe's ACC remain in ramp-up and have yet to demonstrate the scale, yields, costs and technology roadmap of leading suppliers. Battery production requires continued investment in chemistry, process engineering, yield optimization and large-scale execution; consequently, the report expects most OEMs to combine selective internal development with external sourcing rather than fully displace suppliers such as CATL. On the RMB20-40bn A-share repurchase program, the report says the lack of purchases as of 9 September should not be treated as a signal of weaker fundamentals. The program became effective on 12 August 2026 and has a 12-month execution window to August 2027. At the Rmb573 price cap, it could buy 34.9-69.8 million shares, or 0.75-1.51% of shares outstanding; at the then-current Rmb337 share price, the potential range rises to 59.3-118.7 million shares, or 1.35-2.69%. Unlike the first two programs, whose shares supported employee incentives and ESOPs, all shares in the latest program will be cancelled. The report emphasizes the eventual per-share value and capital-return effect rather than the timing of the first purchase. The central 2027 argument is that easing utilization should be operational normalization, not a new 2023-24-style overcapacity cycle. CATL operated above 95% utilization in 2025 and 1H26, which J.P. Morgan considers unsustainably high. It expects a healthier level of about 80-85% in 2027. The report distinguishes the current capex cycle from 2021-22: financing and subsidies are tighter, project economics are more demanding, and central-government scrutiny and approval requirements have constrained planned capacity additions. Therefore, actual capacity additions could be below announced plans. Lower utilization may moderately reduce profitability from peak levels, but the report does not expect severe excess capacity, irrational competition or widespread margin pressure. J.P. Morgan also disputes a simple utilization-to-margin linkage. Depreciation is only about 5% of battery makers' cost of goods sold, limiting the fixed-cost effect of lower utilization. CATL operated at around 60-65% utilization in 1H23 and 1H24 yet maintained relatively stable unit profitability and expanded gross margin. The report contrasts CATL's past emphasis on profit protection and overseas expansion with tier-two suppliers' aggressive pricing to defend volumes. It expects 2027 margin outcomes to depend more on competitive behavior, pricing discipline and product mix than on utilization alone. The report nevertheless models weaker unit economics. Net profit per Wh is expected to fall from Rmb0.10/Wh in 1Q26 to below Rmb0.095/Wh in 2H26 and about Rmb0.09/Wh in 2027. The main drivers are faster growth in lower-profit domestic ESS, where domestic ESS is projected to rise from about 23% of CATL's ESS shipments in 2025 to about 35% in 2027, plus partial initial absorption of a new battery consumption tax and lower export VAT rebates. Domestic ESS is expected to account for roughly 30% of total shipment volume in 2027, versus about 25% in 2026. The report's worst-case tax analysis assumes manufacturers absorb 100% of the tax burden, which is explicitly not its base case. Despite this normalization, J.P. Morgan leaves net-profit estimates broadly unchanged at Rmb95bn for 2026E and Rmb116bn for 2027E. It raises the 2026 shipment forecast to 1,000GWh from 940GWh on stronger production and demand. Global EV and ESS battery demand is forecast to grow 20-25% in 2027, supporting CATL shipment growth of 25-30%. The buyback is estimated to reduce the share count by about 1.5%, contributing to FY27E EPS of Rmb25.4, up 23% year on year. For 3Q26, the report forecasts 260-265GWh of sales volume, up 55-60% year on year, and net profit of about Rmb24.5bn, up 32%. On valuation, CATL traded near 11x P/E in early 2024 amid overcapacity, price competition and earnings downgrades. J.P. Morgan argues that applying this trough multiple again is excessively conservative because its base case assumes lower utilization and lower profit per Wh, not a repeat of broad oversupply. Under FY27E net profit of Rmb116bn, each 1x change in P/E equates to about Rmb25 per A-share. It maintains a Jun-2027 Rmb520 target for CATL-A based on 20.5x P/E and a HK$725 target for CATL-H based on 24x 2027E P/E. The H-share target embeds around a 20% premium to the A-share target, which the report attributes to limited H-share supply and the scarcity of a global battery leader outside A-shares.

Analysis framework

The report examines the bear case in sequence: customer and OEM-supply risks, the buyback's mechanics, industry supply-demand and utilization, unit-profit drivers, earnings forecasts and valuation. It combines market-share and shipment data, historical utilization and margin comparisons, tax-policy analysis, scenario analysis and P/E-based valuation.

Methodology notes

• Industry AnalysisSupply-demand framework

  Battery-industry capacity, demand and utilization analysis

  J.P. Morgan compares announced capacity additions, financing and policy constraints with projected EV and ESS demand to argue that 2027 should see normalization rather than overcapacity.

• Industry AnalysisVolume-price decomposition

  Shipment growth and profit-per-Wh analysis

  The report separates shipment-volume growth from unit-profit changes to explain why higher volumes can support earnings despite lower profitability per Wh.

• Valuation methodsP/E and PEG Valuation

  P/E multiple valuation

  The A-share target uses 20.5x P/E and the H-share target uses 24x 2027E P/E; the report also tests downside against CATL's historical 11x trough multiple.

Asset mapping & comparison

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

• CATL-A (300750.SZ)

  Primary covered security and J.P. Morgan's top pick in China's battery value chain.

  Strengths

  Technology leadership, scale, resilient profitability, diversified customers, global EV and ESS positioning, and capital-return potential.

  Weaknesses

  Unit profitability is expected to moderate through 2027 due to ESS mix and tax-policy headwinds.

  Comparison

  Target of Rmb520 uses 20.5x P/E, below CATL-A's historical 30x average P/E because of a lower growth profile than in the industry's early stage.

  Risks

  Lower-than-expected sales volume or margins, and US-China geopolitical risks.

• CATL-H (03750.HK)

  Primary covered security with an Overweight rating.

  Strengths

  The report assigns scarcity value to the limited H-share supply of a global battery leader outside A-shares.

  Weaknesses

  Subject to the same operating and industry normalization pressures as CATL-A.

  Comparison

  HK$725 target uses 24x 2027E P/E, around a 20% premium to the CATL-A target.

  Risks

  Lower-than-expected sales volume or margins, and US-China geopolitical risks.

Key data

• China EV battery market share48% in 1H26 vs. 44% in FY25CATL's share increased despite broader OEM multi-sourcing.
• Projected 2027 capacity utilization~80-85%J.P. Morgan views this as normalization from >95% in 2025-1H26.
• Net profit per WhRmb0.10/Wh in 1Q26; <Rmb0.095/Wh in 2H26; ~Rmb0.09/Wh in 2027Expected moderation is driven by mix and tax effects.
• Net profit forecastRmb95bn in 2026E; Rmb116bn in 2027EForecasts remain broadly unchanged.
• 2027 EPS forecastRmb25.4/shareRepresents 23% year-on-year growth and incorporates an estimated ~1.5% reduction in shares outstanding.
• A-share repurchase authorizationRmb20-40bnEffective 12 August 2026 through August 2027; all repurchased shares will be cancelled.

Impact & implications

J.P. Morgan believes the current valuation largely reflects worries about demand, utilization and competition, while giving limited credit to CATL's free-cash-flow generation, technology leadership, battery swapping, AIDC-related applications and other addressable-market expansion opportunities. It sees both share classes as undervalued under its 2027 normalization scenario.

Risks

• Lower-than-expected sales volumes could weaken earnings.
• Lower-than-expected margins could reduce profitability.
• US-China geopolitical risks could affect the investment case.

What to watch

• The first repurchase transaction and subsequent mandatory disclosure.
• Monthly repurchase progress disclosures and the approximate 12 February 2027 midpoint disclosure if no purchases have occurred.
• CATL's 3Q26 sales volume and net profit versus the report's 260-265GWh and roughly Rmb24.5bn forecasts.
• 2027 EV and ESS demand, capacity additions, utilization, pricing discipline and tax pass-through.