UBS reiterates Buy on CATL: Growth outlook confirmed, largest-ever A-share buyback is a positive surprise

Overview

This report is UBS's update following CATL's second-quarter results and earnings call. The core conclusion is that although unit profit faces modest pressure from factors including customer rebates, changes in export tax rebates, and consumption tax sharing, management's comments on demand, capacity utilization, energy storage, the European market, and medium- to long-term electrification trends have improved growth visibility; the share buyback further strengthens market confidence.

Core views

UBS believes CATL's growth logic continues to be driven by multi-domain and multi-regional electrification. Although domestic passenger EV sales have temporarily weakened, battery loading per vehicle, commercial vehicle electrification, energy storage, European electrification, and energy demand related to AI data centers together support growth. Total 1H26 shipments increased approximately 60% year over year, with energy storage accounting for approximately one-quarter of the total; management maintained its 20-30% CAGR view for the next five years and stated that growth around 2027 could be better than this range.

Analysis framework

The report assesses the company based on second-quarter results, the management earnings call, shipments and capacity expansion, unit net profit, the pass-through of customer rebates and taxes, European localization, the regional mix of energy storage, the AIDC/zero-carbon strategy, and a P/E valuation framework. UBS lowered unit profit assumptions by approximately 4% in its model while raising shipment forecasts by a similar magnitude, leaving the target price unchanged.

Methodology notes

• Valuation methodologyP/E valuation

  Target price based on 22x 2027E P/E

  UBS maintains the Rmb600 target price based on 22x 2027E P/E; the report states that the current share price implies approximately 17/14x 2026/27E P/E, which is not expensive given the earnings growth outlook.

• Earnings revisionsShipment and unit profit assumption adjustments

  Lower unit profit, higher shipments

  As 1H26 net profit per kWh declined from approximately Rmb110 in 2025 to Rmb99, UBS lowered FY26-28 unit profit assumptions by approximately 4%; encouraged by capacity expansion and management's positive commentary, it raised shipment forecasts by a similar magnitude.

• Operational validationValidation through management earnings call information

  Validating growth visibility through demand, capacity, energy storage, and regional mix

  The report highlights management's comments on the certainty of 2H26 demand, 2027 growth, European EV and ESS demand, the commissioning schedule for capacity under construction, AIDC energy demand, and the commercialization of the zero-carbon strategy.

Asset mapping & comparison

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

• 300750.SZ / Contemporary Amperex Technology

  Core covered asset

  Strengths

  Global EV and ESS battery leader with strong shipment growth, rising energy storage mix, smooth progress in European localization, and management confidence signaled by the buyback.

  Weaknesses

  Unit net profit declined from 2025, while customer rebates, declining export tax rebates, and consumption tax sharing pressure profit margins.

  Comparison

  Its 2025 global EV battery share was 39.2% and ESS battery share was 30.4%, both significantly ahead of the industry's second-largest player.

  Risks

  Chinese electric passenger vehicle sales below expectations, slower-than-expected European market expansion, and battery technology breakthroughs by competitors.

• European EV and ESS markets

  Regional growth driver

  Strengths

  European EV sales increased approximately 30% in 1H, with penetration in the low-30% range; European ESS growth was faster than EV growth and exceeded the company's previous expectations.

  Weaknesses

  Demand is affected by exogenous factors such as oil and gas prices and geopolitics.

  Comparison

  The company has first-mover advantages in Germany and Hungary in terms of European localization; the Hungary module plant is already operational, while the cell plant is in the approval stage.

  Risks

  Regulatory, approval, energy price, and geopolitical disruptions could affect demand and commissioning schedules.

• Energy storage systems business

  Important growth segment

  Strengths

  Energy storage accounted for approximately one-quarter of total shipments in 1H26, with the overseas share expected to rise; electrification in Europe, the United States, and emerging markets provides incremental growth.

  Weaknesses

  Price competition exists, and changes in regional mix may affect gross margins and delivery schedules.

  Comparison

  Compared with the domestic mix, the overseas energy storage share is expected to increase while China's share declines correspondingly.

  Risks

  Overseas policy, trade, project grid connection, and price competition risks.

Key data

• 12-month ratingBuyUBS reiterates its Buy rating in the report.
• Target priceRmb600.00The target price remains unchanged, based on 22x 2027E P/E.
• Current priceRmb383.01The price date is 2026-07-24.
• Implied upsideApproximately 56.7%Calculated using the Rmb600 target price and the Rmb383.01 current price.
• Second-quarter net profitRmb22.5bnThe report states that this met lowered expectations.
• Share buyback sizeRmb20-40bnThe report calls it the largest buyback in A-share history, with a price cap of Rmb573 per share.
• Capacity under construction764GWhAs of June, capacity under construction increased to 764GWh from 321GWh in December, equivalent to approximately 73% of the latest annualized capacity.
• 1H26 shipmentsApproximately +60% YoYEnergy storage accounted for approximately one-quarter of total shipments.
• 1H26 net profit per kWhRmb99Below approximately Rmb110 in 2025, prompting lower unit profit assumptions.
• 2026E/2027E P/EApproximately 17x / 14xUBS considers the valuation still very inexpensive relative to the earnings growth outlook.
• 2025 global EV battery share39.2%According to SNE Research, the company is the leading global electric vehicle battery supplier.
• 2025 ESS battery share30.4%According to SNE Research, the market share is more than twice that of the second-largest player.

Impact & implications

The report represents a moderately positive signal for CATL's A shares: the buyback improves capital returns and confidence, while capacity expansion and management guidance strengthen medium-term revenue growth visibility; meanwhile, unit profit pressure is viewed as moderate and manageable, and the valuation still does not fully reflect the growth options from energy storage, European localization, commercial vehicle electrification, and AI data center energy demand.

Risks

• Chinese electric passenger vehicle sales grow more slowly than expected.
• Failure to successfully enter or expand in the European market.
• Battery technology breakthroughs by competitors.
• Continued pressure on unit profit from domestic and international price competition.
• Declining export tax rebates, consumption tax sharing, and customer rebates may compress profit margins.
• European demand may be affected by exogenous factors such as oil and gas prices and geopolitics.

What to watch

• The execution progress of the Rmb20-40bn share buyback, the cancellation ratio, and its actual impact on share capital.
• Whether 2H26 demand materializes and whether inventory pre-positioning can translate into shipments.
• Whether power battery and energy storage demand in 2027 sustains the higher growth described by management.
• The commissioning schedule and utilization rate of the 764GWh capacity under construction over the next 1-2 years.
• Approval and mass-production progress for localized capacity in Germany and Hungary.
• The pace of increase in the overseas energy storage share and project implementation in Europe, the United States, and emerging markets.
• The ongoing impact of customer rebates, declining export tax rebates, and consumption tax sharing on unit net profit.
• Commercial orders and sales realization for AIDC and zero-carbon energy solutions over the next 1-2 years.