CATL's battery production momentum continues to lead, and July battery production is expected to remain solid

Overview

This report focuses on China's battery and materials supply chain, especially the output trends, demand drivers, material prices, and valuation comparisons of CATL, CALB, and major battery makers. The report notes that since May, Chinese battery supply-chain stocks have fallen by about 15%-35%, mainly due to sector rotation, lack of new catalysts, geopolitical concerns, downward revisions to June production expectations, and weakening raw material prices. JPMorgan views these factors as largely short-term seasonality and inventory adjustment, rather than a deterioration in medium-term growth outlook.

Core views

The core view is that CATL remains the leader in China's battery supply chain, with output growth significantly stronger than peers, and continues to be the preferred name. The top six battery makers are expected to see July output grow 6% month-on-month and 64% year-on-year; CATL is expected to grow more than 70% year-on-year in July, versus peers at around 40%-50%. Demand-side support is coming from strong energy storage demand, growing EV exports, solid performance in commercial new energy vehicles, and higher per-vehicle battery volume, although Chinese passenger EV retail was weak in 1H26.

Analysis framework

The report primarily uses industry data from ZE Consulting, ICCSino, CPCA, SMM, and compares cell makers' monthly and quarterly output, power battery and energy storage demand, global new energy vehicle sales, material price movements, and valuation across the battery supply chain. The analysis separates short-term production slowdown into seasonality, inventory, procurement, and raw material price factors, and distinguishes these from medium-term demand trends.

Methodology notes

• Industry supply-demand trackingBattery output and EV sales lead relationship

  Battery production usually leads new energy vehicle installation or shipments by 1-2 months

  The report compares Chinese new energy vehicle retail trends lagged by 1-2 months with battery output to gauge supply-chain order flow and downstream demand pace.

• Price and inventory analysisRaw material prices, inventory, and procurement behavior linkage

  Falling prices suppress procurement and push inventory run-down

  Lithium carbonate and other raw material prices continued to weaken in June, leading battery makers to procure more cautiously and reduce inventories, which slowed supply-chain activity; subsequent observation should focus on price stabilization and replenishment.

• Relative performance analysisProduction growth rate comparison of top-tier and second-tier battery makers

  Use year-on-year production growth to measure relative momentum among battery makers

  CATL's 2Q26 and July production growth rates are clearly higher than peers; among second-tier makers, CALB has the strongest year-to-date production growth, above 90%.

Asset mapping & comparison

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

• CATL-A (300750.SZ)

  Core beneficiary and the report's preferred name

  Strengths

  Production growth is significantly ahead of peers; 2Q26 was about 80% year-on-year and July is expected to exceed 70%; potential U.S. inverter restrictions have very limited impact.

  Weaknesses

  June production expectations were revised down, and short-term performance is impacted by inventory adjustment, weaker raw material prices, and sentiment noise.

  Comparison

  Peers are expected to grow about 40%-50% year-on-year in July, while CATL is materially stronger.

  Risks

  Geopolitical frictions, weaker domestic passenger EV demand, and continued declines in raw material prices leading to delayed procurement.

• CATL-H (3750.HK)

  Hong Kong listing of the same company covered alongside

  Strengths

  Benefits from CATL's overall production leadership and energy storage demand.

  Weaknesses

  Hong Kong market sentiment and valuation volatility can amplify stock price swings.

  Comparison

  Shares the same fundamentals as CATL-A, but with a different trading market and valuation environment.

  Risks

  Valuation pullback, policy and cross-border capital risks.

• CALB (3931.HK)

  A relatively strong covered second-tier battery maker

  Strengths

  Year-to-date production growth has exceeded 90%, above the 55% sales growth target.

  Weaknesses

  Competition and pricing pressure remain greater for second-tier players.

  Comparison

  Has the highest production growth rate among second-tier makers, but overall leadership remains weaker than CATL.

  Risks

  Price competition, order sustainability, and margin pressure.

• Sungrow

  Inverter-policy news-related name

  Strengths

  Not a core battery name in this report, but linked to the U.S. inverter-restriction headlines.

  Weaknesses

  Dropped about 20% over two trading days after media coverage.

  Comparison

  CATL is seen as minimally affected by this event because its U.S. exports are mainly not PCS.

  Risks

  U.S. import limits, geopolitical tensions, and regulatory uncertainty.

• Lithium materials and battery materials chain

  Variables affecting cost and inventory cycles

  Strengths

  Falling raw material prices ease cost pressure in the battery value chain.

  Weaknesses

  Declining prices suppress procurement appetite and encourage inventory run-down.

  Comparison

  Wet-process separator prices remain relatively resilient, while electrolyte and some raw material prices show clearer weakness.

  Risks

  Further declines in lithium prices, mine approvals and supply shifts, and weaker demand seasonality.

Key data

• Chinese battery supply-chain stock pullbackabout 15%-35%Declined from early May highs; versus CSI300 around -1%.
• CATL 2Q26 battery production growthabout 80% year-on-yearThe report says its production momentum remains outstanding.
• CATL July expected production growth>70% year-on-yearAbove peers' growth of about 40%-50%.
• Top six battery makers July output plan+6% month-on-month, +64% year-on-yearSlower than prior months, but still above normal seasonality.
• Major battery makers 7M26 expected production growthabout 53% year-on-yearAccelerated from around 40% year-on-year in 1Q26 to around 60% in 2Q26 and around 64% in July.
• Chinese manufacturers 5M26 energy storage battery output+114% year-on-yearICCSino data show most energy storage lines among major battery makers are still at high utilization.
• 5M26 EV exports+115% year-on-yearEuropean EV sales rose 38% year-on-year in the same period.
• Chinese passenger new energy vehicle retail1H26 expected -13% year-on-yearDomestic passenger vehicle demand is weaker than expected but partly offset by higher per-vehicle battery content.
• 5M26 battery content per vehicle+9 kWh per vehicle, about +20% year-on-yearSupports battery demand more strongly than vehicle sales performance.
• 7-month Chinese lithium carbonate productionExpected -3% month-on-monthLikely the first month-on-month decline since after the Spring Festival, mainly due to tighter spodumene supply.
• Lithium carbonate price range viewRmb150k-200k/ton near the lower endThe report expects lithium prices to remain near the low end of this range for the next several months.

Impact & implications

The report is somewhat constructive on CATL and China's leading battery makers, viewing the short-term pullback as potentially offering a chance to reassess the relative advantage of the leaders. If July orders recover, raw material prices stabilize, and 8-9 months enter the stronger seasonal order season, the second half of 2026 output momentum could continue to improve. For second-tier makers, CALB stands out as relatively strong due to year-to-date production growth of over 90%; for the materials segment, prices are broadly weaker, reducing cost pressure but also curbing near-term procurement and replenishment.

Risks

• Chinese passenger new energy vehicle retail demand is weaker than expected, with 1H26 expected to be down about 13% year-on-year.
• Continued declines in raw material prices may lead to delayed procurement, deferred replenishment, and slower supply-chain activity.
• Trade frictions or regulatory restrictions among the U.S., EU, and China may continue to compress valuation of the sector.
• The June production expectation downgrades indicate short-term uncertainty in order levels and inventory management.
• If order recovery in the 8-9 seasonal peak is weaker than expected, 2H26 production momentum may fall below the report's assumptions.

What to watch

• The strength of July order recovery and actual execution of output plans by the top six battery makers.
• Whether lithium carbonate and key material prices stabilize, especially support near the low end of the Rmb150k-200k/ton range.
• Inventory run-down pace and replenishment timing by battery makers.
• Whether 8-9 months enter a stronger seasonal demand phase.
• Whether Chinese passenger new energy vehicle demand improves in 2H26 and whether 4Q26 year-on-year growth returns to flat or positive.
• Details of potential U.S. restrictions on Chinese inverters or energy storage-related products.