Battery Sector Enters Earnings Delivery Phase; Tactically Upgrading CALB and Putailai

Overview

This is an in-depth industry report by J.P. Morgan on the China battery and materials supply chain, published on May 30, 2026. The core judgment of the report is: the investment theme of the battery sector is shifting from the first phase of ASP (average selling price) recovery to the second phase of earnings realization driven by volume, capacity utilization, and cost control. Based on this, the bank made rating adjustments, tactically upgrading CALB and Putailai to Overweight (OW), while maintaining CATL as a core holding and industry top pick. The report also significantly raised the global 2026-27 battery demand forecast (mainly due to ESS exceeding expectations), and detailed the similarities and differences between the current battery cycle and the 2021-22 super cycle, emphasizing that the current cycle is a milder, more rational recovery cycle.

Core views

**Investment Theme Switch: From ASP Recovery to Earnings Delivery** The report believes that the battery sector's rally has moved from the ASP rebound-driven phase from 2H25 to early 2026 into the next phase—where investors will focus more on whether companies can deliver stable earnings through volume growth, capacity utilization improvement, cost control, and cash flow quality. An earnings recovery story relying purely on further price increases may face challenges. **Strategy Recommendation: Range Trading for Materials and Second-Tier Battery Makers, Hold CATL Through the Cycle** The report recommends a range-trading strategy for materials and second-tier battery makers (like CALB, Putailai), buying when stock prices are weak and profit-taking when market expectations are too crowded. For CALB and Putailai, opportunities come more from volume growth and operating leverage rather than ASP elasticity, but they should still be viewed as cyclical trades rather than long-term compounding targets. In contrast, CATL is the only core holding in the sector that can demonstrate through-cycle performance, worthy of long-term holding due to its scale, technology leadership, stable unit earnings, and strong cash flow. **Demand Outlook: Global Battery Demand Forecast Significantly Upsized, but Beware of Slower China ESS Shipments in 2H2027** The report downgraded the global BEV + PHEV sales forecast (21.2 million and 23.6 million units for 2026/27, down about 10-11%), but as the expected ESS upgrade significantly offset the EV weakness, the global EV + ESS battery demand forecast was raised to 2.6TWh in 2026 and 3.3TWh in 2027 (previously 2.2/2.7TWh). The core upside revision comes from China ESS, but it warns that China ESS shipments may face a slowdown in 2H2027, as demand may be front-loaded before the national targets at the end of 2027. **Cycle Comparison: Current is a Recovery, Not a Super Cycle** The report uses extensive space to compare two battery cycles. The 2021-22 super cycle was driven by near-zero interest rates, an explosion of EV penetration in China, aggressive capacity expansion, and extreme raw material price increases; while the current cycle occurs in a higher interest rate environment, with more dispersed demand (EV + ESS), more rational capacity expansion, a much smaller magnitude of ASP recovery, and valuations far below the 2021 peaks. The report believes that the market will value earnings sustainability and cash flow quality more, rather than simply linearly extrapolating price increases. **Earnings Distribution: Shifting to Battery Cell Leaders, CATL is the Only Through-Cycle Winner** In the previous cycle dominated by upstream resources, profit peaks were concentrated in raw materials like lithium. When downstream cell segment earnings improve, not all segments benefit. Most supply chain companies' current profits are still 20-80% lower than the previous cycle peak. CATL is the only leader with stable earnings growth throughout the cycle, and industry profit distribution has shifted to battery cell manufacturers with scale, capacity utilization, bargaining power, and cash flow.

Analysis framework

J.P. Morgan adopted a multi-dimensional industry framework analysis method in this report, systematically comparing the current battery cycle with the 2021-22 super cycle to judge the sector's current stage and deduce investment strategies. First, the report used the **Supply-Demand Framework** to decompose the demand side (EV vs. ESS, China vs. Global) and the supply side (capacity expansion pace, unit capex, capacity utilization, industry concentration), using these as core variables to predict future pricing power and profit distribution. Second, the report extensively used **Financial Indicator Comparisons** (such as unit gross profit, unit net profit, ROE, cash flow, etc.) for horizontal and vertical comparisons across different companies, to demonstrate **CATL's structural advantage in earnings stability and cash generation capability**, and **the volatility of second-tier battery makers' earnings in the cycle and their sensitivity to price and capacity utilization**. Finally, the report introduced **Policy Risk Analysis** (such as the pre-installation effect triggered by China's ESS targets, tariff changes, subsidy rollback, etc.), and combined it with the **Historical Analogy Method** (referring to the pre-installation pattern in policy target years of China's PV industry in the past) to deduce the risk that ESS demand may slow down in 2H2027. Through these progressively layered analyses, the report ultimately reached the conclusion that range trading and selecting leaders (CATL) is the appropriate strategy currently.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  The investment logic of the industry depends on the balance of supply and demand forces. The demand side is split into two major engines, EV and ESS, while the supply side looks at capacity expansion, utilization, unit capex, and industry concentration.

  The report judges the attribution of pricing power and the strength of earnings sustainability by comparing the differences between the current cycle and the previous cycle in demand structure (EV dominance → EV+ESS diversification), capacity expansion speed (aggressive → more rational), and industry concentration (generally declining) on the supply side variables. This is the most basic and important framework for analyzing cyclical industries.

• Distress Gaming & Behavioral Finance

  Once bitten, twice shy

  The report uses 'Once bitten, twice shy' to describe how market participants (industry and investors), after experiencing the sharp decline of 2022-24, are highly vigilant against any signals of capacity expansion, aggressive financing, or local government-supported projects, quickly interpreting them as potential overcapacity and price competition. This collective behavioral psychology constitutes an important reason for the suppressed valuation ceiling in the current cycle, and also explains why the market lacks patience for overheated growth narratives.

• Cycle & Prosperity FrameworkProsperity Inflection Point Analysis

  Stock prices are more sensitive to the direction (acceleration) of demand growth than to the absolute level of penetration rate.

  By analyzing the relationship between the J.P. Morgan China Battery Index (JPHCHBAT) and battery production growth rate and EV penetration rate, the report found that the market focuses more on 'whether growth is accelerating or decelerating' rather than 'what the penetration rate is'. Once the production growth rate peaks and falls, even if the penetration rate continues to rise, the index also begins to pull back. This means investors should track monthly production/shipment growth rates as leading indicators to judge prosperity inflection points.

• Industry/Industrial Analysis FrameworkVolume-price decomposition

  A company's earnings growth can be decomposed into three elements: 'Volume × Price - Cost'. The focus of the current cycle is shifting from 'Price' (ASP rebound) to 'Volume × Cost Control' (earnings delivery).

  The report attributes the first-phase rally to ASP (selling price) repair, but as the expectation of price oversold rebound is basically priced in, the second phase must rely on volume, capacity utilization improvement, and cost reduction to confirm earnings sustainability. This explains why the strategy recommends range trading for materials and second-tier battery makers, while the leader (CATL) is favored for its stable unit earnings.

• Macroeconomic framework

  The decisive impact of the macro interest rate environment on growth stock valuations.

  The report explicitly points out that the core background for the 2021-22 battery super cycle being able to command extremely high PEs of 40-80x was that the Fed Funds rate was close to zero (0.25%) at the time, and extremely low capital costs supported high valuations for long-cycle growth assets. In the current cycle, the Fed Funds rate is about 3.75%, and even if the first rate cut is expected only in 2027, the market valuation ceiling has been significantly compressed. Therefore, the valuation expansion space after 2025 is much smaller than the previous round, and earnings improvement is a more important driver for stock price increases.

• Event Gaming & Behavioral FinanceExpectation Gap/Expectation Management

  Policy target years (Deadline effect) may lead to early release of demand, followed by a phased slowdown.

  Using the past experience of China's PV industry as an example, the report points out that installation targets set by the state (such as the 2020 and 2025 targets) will stimulate developers to front-load installations, leading to an explosion of demand in the target year and a rapid cooling after the target year. Analogizing to the current 180GW 2027 target for China ESS, the bank predicts that China ESS battery shipments may slow down in 2H2027 due to the end of the rush-to-install period, which is a future time node to be wary of.

Asset mapping & comparison

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

• CATL (300750.SS / 3750.HK)

  Core holding, industry top pick: Benefiting from through-cycle earnings stability and cash generation capability.

  Strengths

  Scale, technology leadership, stable unit earnings (Rmb0.10/Wh), continuous positive free cash flow, highest ROE in the industry at 25%, lowest dependence on government subsidies (only 15% of net profit in FY25).

  Weaknesses

  The report did not highlight its significant weaknesses, but relatively, its short-term tactical upside may not be as large as some second-tier targets.

  Comparison

  The only leader able to maintain stable unit profit; other battery makers' unit profits generally halved during the cycle.

  Risks

  The report did not separately list CATL risks, but it faces the same demand growth deceleration and 2027 ESS policy change risks as the industry.

• CALB (3931.HK)

  Tactically upgraded to Overweight: Has the second-highest shipment exposure to ESS/commercial vehicle batteries, benefiting from the fastest-growing end markets.

  Strengths

  High exposure to B+ segment EVs (favorable to China's EV premiumization trend), ESS exposure second only to EVE Energy, 2026 shipment guidance of 180GWh (+55% y/y), lower valuation (~13x 2027E P/E vs CATL-H 25x).

  Weaknesses

  Lower unit earnings, low ROE (4%).

  Comparison

  The valuation discount relative to the leader may be unjustified.

  Risks

  EV/ESS demand below expectations; unit profit below expectations.

• Putailai (603659.SS)

  Tactically upgraded to Overweight: Transitioning from an anode material company to a separator platform company, with the separator business becoming the main profit source.

  Strengths

  Coated separators account for >85% of net profit, future base film capacity expanding to 10 billion sqm by 2028, expected to become the second-largest domestic wet-process base film; anode cost optimization and PVDF price increases provide additional upside.

  Weaknesses

  Traditional anode business profits continue to decline due to overcapacity.

  Comparison

  Historically valued as a discounted anode company, now should be revalued closer to separator players.

  Risks

  Industry demand below expectations; unit profit and price competition below expectations.

• Gotion (002074.SZ)

  Maintain Underweight (UW), valuation far exceeds industry average.

  Strengths

  Volkswagen Group is the parent company, expected to receive volume boosts.

  Weaknesses

  Core earnings under pressure, valuation too high.

  Comparison

  Valuation is relatively high among second-tier battery makers, and unit net profit is lower than CALB, etc.

  Risks

  Not separately listed in the report, but upside risks include better-than-expected NEV sales, pricing, and cooperation with Volkswagen.

• Hunan Yuneng (301358.SZ)

  Maintain Neutral (N), world's largest LFP cathode manufacturer, but high industry capacity elasticity limits the sustainability of price increases.

  Strengths

  Largest scale (~30% share), cost control via upstream and downstream integration, has state-owned enterprise background (CATL and BYD are strategic shareholders).

  Weaknesses

  LFP industry capacity elasticity is extremely high (capacity can be expanded in 4-5 months), price increases may be unsustainable.

  Comparison

  The only LFP cathode manufacturer that remained profitable during the industry downturn.

  Risks

  LFP battery demand above or below expectations.

• Ronbay (688005.SS)

  Maintain Underweight (UW), overseas NCM demand may be eroded by LFP substitution.

  Strengths

  NCM cathode leader; plays a key role in CATL's sodium-ion battery supply chain, exclusive supplier for the next-generation Gen 6 products.

  Weaknesses

  Overseas NCM demand faces the risk of markets outside China shifting to LFP faster; NCM industry overcapacity.

  Comparison

  Valuation is on the high side.

  Risks

  Battery demand above expectations; great success in overseas orders.

• Dynanonic (300769.SZ)

  Maintain Underweight (UW), LFP cathode leader but cautious about the sustainability of continued price increases.

  Strengths

  World's leading LFP cathode supplier, deeply tied to CATL and EVE Energy.

  Weaknesses

  High industry capacity elasticity, price increases may be unsustainable.

  Comparison

  Belongs to the same LFP cathode industry as Hunan Yuneng, facing the same capacity elasticity risk.

  Risks

  Battery demand above expectations; significant growth in LFMP orders.

• Yunnan Energy (002812.SZ)

  Maintain Neutral (N), global separator leader, supply and demand tight in 2026-27 but a large amount of new capacity in 2028 suppresses medium-term pricing power.

  Strengths

  Global wet-process separator leader, capacity utilization rate expected to reach 72% in 2026 (exceeding the 2022 peak of 69%), further improving to ~79% in 2027.

  Weaknesses

  Recent industry capacity expansion announcements limit the price increase space in 2027; the capital market has proactively priced in the large amount of capacity that can be put into production in 2028.

  Comparison

  In the medium term, pricing power may be diluted earlier than market expectations.

  Risks

  Demand and unit profit above or below expectations.

• Lead Intelligence-A (300450.SZ)

  Maintain Overweight (OW), expansion into the humanoid robot field opens up new growth space.

  Strengths

  Battery equipment leader; signed a strategic cooperation with the Beijing Humanoid Robot Innovation Center in May 2026, laying out humanoid robot components, production lines, and commercialization.

  Weaknesses

  Target multiples are lower than the historical average, reflecting mean reversion from the peak cycle.

  Comparison

  Among battery equipment peers, apart from the humanoid robot business, new order growth is also relatively strong.

  Risks

  Downstream battery maker capacity expansion below expectations; intensified industry competition leads to gross margin pressure.

• Lead Intelligence-H (470.HK)

  Maintain Overweight (OW), same logic as A-shares.

  Strengths

  Same new growth curve for humanoid robots and battery equipment business as A-shares.

  Weaknesses

  Factors such as H-share liquidity may bring an additional discount.

  Comparison

  Same company and same logic as A-shares, but the Hong Kong stock version.

  Risks

  Same as A-shares.

Key data

• 2026/27 Global EV+ESS Battery Demand Forecast (JPMe)2.6TWh / 3.3TWhUpsized by approx. 18%-22% from previous forecast (2.2TWh/2.7TWh), mainly due to ESS demand revision.
• Global BEV+PHEV Sales Forecast (2026/27E)21.2 million / 23.6 millionDowngraded by approx. 10-11% from previous forecast (23.5 million/26.4 million), mainly due to weakening domestic auto demand in China.
• China ESS Battery Shipment Growth Rate (2026E y/y)76%Far exceeds China passenger vehicle battery growth rate (5% y/y), and is the core engine of battery demand growth.
• Industry Valuation Range (2027E P/E)15-25xSignificantly fallen from the 2021-22 peak valuation of 40-80x; current stock prices are still 30-80% lower than 2021 highs.
• CATL Unit Gross Profit / Net Profit (2022-25)GP/unit ~Rmb 0.14/Wh；NP/unit ~Rmb 0.10/WhThe only company in the entire industry that maintained stable unit profit during the cycle; second-tier battery makers' unit net profit halved or even lower during the same period.
• CATL Average ROE (2025)25%Far higher than second-tier battery makers such as CALB (4%) and EVE Energy (10%).
• Global Wet-Process Separator Capacity Utilization Rate (2026E/2027E)72%/79%2026 utilization rate will exceed the 2022 peak (69%), with tighter supply in 2027.

Impact & implications

The report believes that the current battery sector is at a critical logic switching point: moving from the first phase of universal ASP rebound to the second phase of differentiated earnings sustainability. This means: - **For CATL**, its core holding status is further consolidated, and market returns will come from through-cycle earnings growth and cash flow, rather than valuation multiple expansion. - **For materials and second-tier battery makers**, it is difficult to reproduce the sector-wide comprehensive revaluation of the previous round, and investment opportunities are more tactical and mean-reversion in nature. The upgrade of CALB and Putailai reflects the potential staged relative returns brought by earnings upgrades driven by valuation attractiveness and volume growth within a specific time window. - **For the industry**, factors such as the high macro interest rate environment, shortened capacity construction cycles, declining industry concentration, and enhanced customer bargaining power jointly suppress the overall valuation ceiling of the sector. At the same time, the explosion of ESS demand provides incremental support for its bullish logic, but also brings out the potential risk of demand fallback after the 2027 policy target year.

Risks

• China ESS shipments may significantly slow down in 2H2027 due to front-loading of demand ahead of the national targets at the end of 2027.
• Battery cell and material prices are currently still 40-80% lower than the 2021-22 peaks, with insufficient momentum for further ASP increases; there is a risk of earnings recovery falling short of expectations if it relies purely on prices.
• The industry has recently seen a series of capacity expansion announcements, and the large amount of capacity to be released around 2028 may prematurely suppress medium-term pricing power and profit margins.
• Policy risks: China EV trade-in subsidies reduced in January 2026, purchase tax halved, battery export tax rebates decreased, and potential increase in battery consumption tax.
• Macro risks: The US Federal Funds rate is currently around 3.75%; if the rate cut time is later than expected (the market has started to price in a shift forward), it will limit the sector's valuation expansion space.
• Industry concentration has declined in multiple sub-sectors, pricing power is more dispersed, and price increases may not be a universal phenomenon.

What to watch

• Changes in monthly battery production/shipment growth rates, especially the y/y growth rates of the top five battery makers and ESS batteries, as leading indicators for judging the trend of the battery index.
• Whether there is an inflection point in the growth rate of China ESS battery shipments in 2H2027, and whether ESS installation volumes after that (in 2028) can receive new policy support.
• The sustainability of overseas (Europe, emerging markets) ESS demand and its support level for total demand.
• Volume and target execution of CALB and Putailai, especially CALB's continuous share expansion among customers (Xiaomi, Huawei, Toyota, etc.).