Cell Supply Has Been Secured, but Policy-Driven Shipment Pull-Forward Does Not Equate to Demand Improvement

Overview

The report focuses on Sungrow Power Supply's energy storage cell procurement, localized production in Europe, and shipment pace in 2H26. The company continues to adopt a light-asset cell model, managing supply through long-term framework agreements, monthly smoothed allocation, and annual purchase commitments, but it cannot fully isolate itself from raw material price increases. In the European market, it adopts a dual-track strategy combining Chinese exports with local production, while the phase-out of export tax rebates and changes in U.S. FCC regulation may bring overseas shipments forward. Based on this, Nomura maintains a Neutral rating.

Core views

First, the company has secured a cumulative 56GWh of cell supply, with relatively low near-term restocking pressure, but the price corridor does not mean costs are fully locked in, and most of the pressure from raw material increases is still borne by Sungrow Power Supply. Second, CALB's production lines in the Hefei park can reduce costs by about 5%-6% compared with externally purchased cells; the company and Tianqi Lithium jointly invested in Sunwoda Power Technology, with management seeking to ultimately reduce costs by 10%-12%. Third, the progress of European localization lags the policy cycle, and the Poland plant has not yet entered mass production, but once commissioned it is expected to meet European origin and local-content requirements; exports from China will continue to serve free-market projects, while local production will serve tenders supported by public funds. Fourth, the cancellation of export tax rebates and changes in FCC regulation will pull part of demand forward to 2H26, so the sustainability of recent shipment growth should be viewed cautiously.

Analysis framework

The report combines industry research, supply-chain cost breakdown, regional capacity and policy pathway analysis, and relative valuation based on 2027E P/E. The research focuses on assessing whether secured cell volumes can stabilize costs, whether European localization can qualify the company for public projects, and how policy milestones alter the pace of shipments and revenue recognition.

Methodology notes

• Valuation methodsP/E Relative Valuation Method

  Determine the target price using forecast P/E and the historical valuation midpoint

  The CNY 120 target price is based on 14x 2027E P/E, 0.2 standard deviations below the historical average of 17x, with the discount reflecting expected gross margin decline in 2026-2028; the benchmark index is CSI300.

• Fundamental ResearchIndustry Chain Research

  Estimate supply-chain resilience through procurement mechanisms, secured volume scale, and cost sharing

  The research breaks down three mechanisms: long-term framework agreements, monthly smoothed allocation, and annual purchase commitments, and estimates the sharing ratio of raw material price increases between cell manufacturers and Sungrow Power Supply.

• Policy AnalysisPolicy Event Scenario Analysis

  Assess the impact of policy effective dates on regional supply and shipment pace

  The report analyzes European local-content requirements, adjustments to China's export tax rebates for battery products, and U.S. FCC rules, distinguishing real demand growth from shipment pull-forward ahead of policy implementation.

Asset mapping & comparison

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

• Sungrow Power Supply（300274.SS）

  Core research target

  Strengths

  Has secured 56GWh of cell supply, with procurement scale and multi-layer procurement mechanisms strengthening supply assurance; the dual-track European strategy balances the cost and delivery advantages of Chinese manufacturing with the public tender eligibility of local production.

  Weaknesses

  The light-asset cell model means the company still needs to bear most raw material price increases, the Poland plant has not yet entered mass production, and gross margin is expected to decline in 2026-2028.

  Comparison

  Compared with fully relying on external procurement, production lines within the Hefei park can reduce cell costs by about 5%-6%; compared with exporting only from China, local production in Europe is more conducive to meeting public-financing project requirements.

  Risks

  European and U.S. policy restrictions, weakening demand for large energy storage projects, demand decline after shipment pull-forward, and mismatch between overseas warehouse shipments and revenue recognition.

• Tianqi Lithium（002466.SS）

  Industry-chain partner jointly investing with Sungrow Power Supply in Sunwoda Power Technology

  Strengths

  Industry-chain investment is expected to strengthen cell supply synergies and support Sungrow Power Supply in achieving further cost reductions.

  Weaknesses

  The report does not provide the quantitative contribution of this investment to Tianqi Lithium's earnings.

  Comparison

  Its role is mainly upstream industry-chain synergy and is not the core subject of this report's valuation and rating.

  Risks

  Failure to achieve the investment project's cost-reduction targets and volatility in battery raw material prices.

Key data

• Secured cell supply56GWhImplies limited near-term incremental procurement demand.
• Procurement locked in advance5GWh, CNY 0.30/WhCompleted before the end of 1Q26, corresponding to a 201% year-on-year increase in 1Q prepayments.
• Raw material price increase borneApproximately CNY 0.08/WhCalculated based on every CNY 0.10/Wh increase in raw material prices, with cell manufacturers typically subsidizing CNY 0.01-0.02/Wh.
• Hefei park production linesTwo production lines, 5GWh in totalOperated by CALB, with Sungrow Power Supply providing the plant and personnel; costs are about 5%-6% lower than external purchases.
• Thailand production line planTwo production lines, 5GWh eachUsed to further expand cell supply capacity.
• Investment in Sunwoda Power TechnologyCNY 805mn, 2.93% stakeSubscribed by Sungrow Power Supply and Tianqi Lithium, with management targeting an eventual 10%-12% cost reduction.
• Investment in Poland plantEUR 230mnThe site covers 65,400 square meters and is planned to produce inverters and integrate energy storage systems, but has not yet entered mass production.
• Impact of European financing barriersApproximately -10%Refers to the estimated business impact of financing restrictions faced by Chinese-made products when participating in large European projects.
• Export tax rebate for battery products9% reduced to 6%, canceled in 2027Reduced to 6% from April 1 to December 31, 2026, and canceled from January 1, 2027.
• Target price and valuationCNY 120; 14x 2027E P/EThe share price on the report date was CNY 114.16, and the company was then trading at 13x 2027E P/E.

Impact & implications

Secured cell supply can reduce the risk of near-term supply disruptions, but cost protection is incomplete; if raw materials continue to rise, the gross margin of energy storage systems may remain under pressure. After the Poland plant is commissioned, it is expected to meet European local-content and origin requirements, improving access to public-funded projects and low-interest financing; before then, Chinese-made products still face policy and financing discounts. The phase-out of export tax rebates and FCC rules will pull shipments forward into 2H26, but overseas warehouse stocking can be counted as operational shipments without immediate revenue recognition, so shipment data may diverge from revenue and end demand.

Risks

• Sungrow Power Supply's European energy storage business faces policy pressures such as local content, capacity utilization, and public financing eligibility, with significant relaxation potentially not occurring until after 2027.
• The U.S. FCC has placed foreign-produced power inverters on the Covered List, which may limit growth in the U.S. market.
• When cell raw material prices rise, Sungrow Power Supply needs to bear most of the incremental costs, and gross margin may decline further.
• Weakening demand for utility-scale energy storage projects may pressure orders and shipments.
• Shipment pull-forward before policy implementation may bring forward future demand, and overseas warehouse stocking is counted as operational shipments but does not immediately recognize revenue.
• Upside risks to the target price include faster-than-expected development of the data-center customer energy storage business and stable battery prices driving gross margin improvement.

What to watch

• Mass production timing, capacity utilization, and progress of European local-content certification at the Wałbrzych plant in Poland.
• The proportion of policy pull-forward orders in 3Q26 shipments and the pace at which shipments convert into revenue.
• The sharing of incremental costs between the company and customers after the reduction and cancellation of export tax rebates for battery products.
• The actual impact of subsequent FCC rules on access to and growth in the U.S. inverter and energy storage businesses.
• Changes in cell raw material prices, procurement price corridors, and gross margin of energy storage systems.
• The development pace of data-center energy storage customers and demand for utility-scale projects.
• The actual cost-reduction magnitude brought by the Hefei and Thailand production lines and the investment in Sunwoda Power Technology.