CATL’s Q1 results beat expectations, with higher sales, market share and mix strengthening profitability

Overview

This report is Morgan Stanley’s Q1 earnings review of Contemporary Amperex Technology Co. Ltd. The core conclusion is that the company’s Q1 results beat expectations, mainly driven by strong EV battery sales, market share gains, product mix improvement, and high-growth ESS demand. The report also highlights that CATL has built an end-to-end solution strategy in data center storage scenarios through battery systems, digital power, and energy management capabilities.

Core views

Morgan Stanley has a positive view on CATL, designating it as a Top Pick and assigning an Overweight rating. The company’s Q1 net profit and operating performance were stronger than expected: EV battery sales rose 56% year-on-year to 150GWh, ESS sales rose 105% year-on-year to 50GWh, and gross margin held at 24.8%. The report argues that although China’s ePV sales have softened, stronger electric truck sales, market share gains, higher energy per vehicle, and healthy ESS demand offset the pressure.

Analysis framework

The report analyzes Q1 results by decomposing sales, product mix, gross margin, operating profit, investment income, and valuation multiples, and applies an EV/EBITDA framework for target price valuation. The report also applies a valuation framework consistent with global battery peers, focusing on EV penetration, ESS utilization, market share, profitability, and geopolitical risk.

Methodology notes

• Valuation methodologyEV/EBITDA

  Derive target price by applying a valuation multiple to 2026E EBITDA

  Morgan Stanley uses a base-case valuation of 17x 2026E EV/EBITDA, corresponding to roughly 27x 2026E P/E and 1.2x PEG, based on an expected two-year earnings CAGR of about 23%.

• Earnings analysisMorgan Stanley ModelWare

  Financial metrics based on Morgan Stanley internal modeling framework

  The report notes that unless otherwise indicated, all metrics are based on the Morgan Stanley ModelWare framework, some metrics are GAAP or near-GAAP, and the forecasts are Morgan Stanley Research estimates.

Asset mapping & comparison

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

• Contemporary Amperex Technology Co. Ltd. / 300750.SZ

  Core covered name, rated Overweight and listed as a Top Pick.

  Strengths

  Strong EV battery sales, market share gains, fast ESS growth, improved product mix, and early data center ESS positioning.

  Weaknesses

  The report notes that China ePV sales have weakened, and SG&A contribution was below expectations.

  Comparison

  Valuation methodology is consistent with global battery peer coverage using EV/EBITDA by international battery sell-side analysts.

  Risks

  EV penetration and ESS adoption may fall short of expectations; competition from other battery manufacturers; geopolitics could cause supply-chain decoupling; market share gains may stall.

Key data

• 1Q net profitRmb20.7bnUp 49% year-on-year and about 18% above Morgan Stanley expectations.
• 1Q EV battery sales150GWhUp 56% year-on-year, supported by electric truck sales, market share gains, and higher battery capacity per EV.
• 1Q ESS sales50GWhUp 105% year-on-year, in line with Morgan Stanley estimates.
• Gross margin24.8%Above 1Q25’s 24.3%; product mix improvement cushioned materials cost inflation.
• Operating profitUp 85% year-on-yearSG&A contribution was below expectations, while earnings from affiliates rose by Rmb1.3bn due to strong China Moly performance.
• Target priceRmb530.00Based on 17x 2026E EV/EBITDA, implying 23% upside versus the Rmb431.00 close.
• 2026E revenueRmb535,547mnForecast from financial summary table.
• 2026E EBITDARmb122,276mnForecast from financial summary table.
• 2026E EPSRmb19.59Forecast from financial summary table.

Impact & implications

If the trends in sales, market share, and product mix continue, CATL’s profit resilience and valuation support would be driven by EV battery scale advantages, high ESS growth, and emerging demand from data center energy storage use cases. The growing data center energy demand from rising AI inference and computing intensity could become a medium-term structural incremental opportunity for the ESS business.

Risks

• EV penetration and ESS adoption may not perform as expected.
• Competition risk from other battery manufacturers.
• Geopolitical risks causing battery supply-chain decoupling.
• Stalling of market share gains.
• If materials cost inflation cannot be offset by product mix improvement, it could pressure margins.

What to watch

• Whether EV battery sales and market share continue to rise.
• Whether ESS demand remains high-growth, especially data center ESS demand.
• Whether the trend of increasing battery capacity per EV can continue.
• Whether gross margin can continue to stay around or above 24.8%.
• Changes in geopolitical and supply-chain policy.
• The sustainability of affiliate profit contribution to earnings from China Moly and similar partners.