CATL: More aggressive share strategy, with the A-share listed as the top pick

Overview

This report focuses on CATL’s new market share strategy, post-2Q earnings forecast revisions, and relative allocation between the A-share and H-share. The core view is that the company intends to enter a broader addressable market, particularly the mid- and low-end segments, through more aggressive capacity expansion and its cost and technology advantages. Near-term blended margins are diluted by the product mix, but Morgan Stanley does not believe this represents a structural deterioration in overall product pricing power or margin structure.

Core views

Morgan Stanley maintains its Overweight rating on CATL’s A-share and H-share and switches its top pick from CATL-H to CATL-A. The report emphasizes that investors should not focus primarily on the recent weakness in blended USD/Wh margins, as this is more a result of share expansion and product mix changes; more importantly, CATL is converting incremental volumes into incremental profits and expanding its competitive footprint. The report forecasts approximately 24% EBITDA growth in 2026-2027, driven by strong energy storage demand, electric truck adoption, and market share gains.

Analysis framework

The report analyzes post-2Q earnings forecast revisions, business-level volume and price assumptions, EV battery and energy storage gross margin assumptions, relative A/H-share valuations, risk-reward scenarios, and peer valuation multiples. The A-share base case applies a 15x EV/EBITDA multiple to 2027E EBITDA, implying approximately 22x 2027E P/E; the H-share base case applies a 17.5x EV/EBITDA multiple to 2027E EBITDA and assumes a 20% H/A premium.

Methodology notes

• Valuation methodsEV/EBITDA

  Derive the target value by multiplying 2027E EBITDA by the target valuation multiple.

  The report states that it uses the EV/EBITDA method to remain consistent with the methodology used by global battery analysts when covering international peers; the A-share base case uses 15x 2027E EV/EBITDA, while the H-share base case uses 17.5x 2027E EV/EBITDA.

• Scenario AnalysisBull/Base/Bear Case

  Reflect different paths for technological iteration, demand, market share, and competitive pressure through bull, base, and bear scenarios.

  In the bull case, if the company maintains high-intensity R&D investment, technological leadership, and high ROE, the valuation could rise to 20x 2027E EV/EBITDA. The bear case assumes that technological breakthroughs by second-tier battery manufacturers intensify competition, resulting in market share losses and margin pressure.

• Model SourceMorgan Stanley ModelWare

  The report’s financial metrics are primarily based on Morgan Stanley’s internal modeling framework.

  The report notes that, unless otherwise stated, all metrics are based on the Morgan Stanley ModelWare framework, with certain metrics using consensus estimates, GAAP, or near-GAAP definitions.

Asset mapping & comparison

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

• Contemporary Amperex Technology Co. Ltd. (300750.SZ)

  Core covered company; the A-share is designated as the Top Pick

  Strengths

  Cost and technology advantages, market share expansion, strong energy storage demand, leading R&D investment, high ROE potential, and share buyback support.

  Weaknesses

  Near-term blended USD/Wh margins are affected by a higher proportion of mid- and low-end products, while 2027 and 2028 earnings forecasts were lowered due to the new consumption tax.

  Comparison

  Relative to the H-share, the report believes the A-share is supported by the large-scale buyback, improving A-share liquidity conditions, and the high H/A premium; it therefore switches the top pick from CATL-H to CATL-A.

  Risks

  EV penetration or energy storage applications may be weaker than expected, threats from second-tier battery manufacturers, supply chain decoupling caused by geopolitical risks, and a stagnation in market share gains.

• Contemporary Amperex Technology Co. Ltd. (3750.HK)

  H-share of the same company; maintains Overweight but is no longer the top pick

  Strengths

  Continues to benefit from the company’s technological leadership, energy storage demand, market share expansion, and revenue recognition from high-margin overseas volumes.

  Weaknesses

  Trades at a higher H/A premium relative to the A-share; the report believes buyback and liquidity factors make the A-share more attractive in the near term.

  Comparison

  H-share target price: HK$815.00; A-share target price: Rmb595.00, and the A-share is designated as the Top Pick.

  Risks

  The same company-wide risks, including intensifying competition, margin pressure, geopolitical risks, and weaker-than-expected demand.

Key data

• A-share rating and target priceOverweight；Rmb595.00The table shows that the A-share target price implies 52% upside and is designated as the Top Pick.
• H-share target priceHK$815.00The H-share maintains an Overweight rating, but the top pick has switched to the A-share.
• 2026 earnings forecast adjustmentRaised by approximately 1%Higher-than-expected 1H energy storage volumes drove an increase in the volume assumptions, offsetting part of the impact from lower USD/Wh margins.
• 2027 and 2028 earnings forecast adjustmentLowered by 2.6% and 2.7%, respectivelyThe report states that this mainly reflects the impact of the new consumption tax.
• 2026E revenueRmb600,613 mnMorgan Stanley’s estimate disclosed in the financial summary table.
• 2027E EBITDARmb168,113 mnAn important forecast input for the valuation framework.
• 2028E net incomeRmb153,688 mnNet income forecast in the report’s financial summary.
• EV battery volume assumptions2026E 712.4 GWh；2027E 929.1 GWh；2028E 1,141.9 GWhCorresponding to assumptions for market share expansion and demand growth.
• Energy storage volume assumptions2026E 217.5 GWh；2027E 305.0 GWh；2028E 386.0 GWhThe report raised its energy storage volume assumptions due to stronger-than-expected 1H volumes.
• H/A premium33%The report cites this premium as one reason the A-share is more attractive than the H-share.

Impact & implications

For investment implications, the report interprets CATL’s near-term margin pressure as a structural mix change during an active share expansion process rather than a decline in competitiveness. If volumes in the low-end market continue to contribute incremental profits, the market may focus more on total profit expansion, the company’s broader competitive footprint, and its ability to drive industry consolidation. The A-share buyback and H/A premium together reinforce the attractiveness of allocating relatively more to the A-share.

Risks

• EV penetration and energy storage applications may be below expectations.
• Other battery manufacturers pose potential threats, particularly as technological breakthroughs by second-tier battery manufacturers could intensify competition.
• Geopolitical risks could lead to decoupling of the battery supply chain.
• Stagnant market share gains could affect volume growth and the realization of incremental profits.
• A shift in the product mix toward the mid- and low-end segments could continue to depress blended margins.
• The new consumption tax could pressure the 2027 and 2028 earnings forecasts.

What to watch

• The pace of revenue recognition for high-margin overseas volumes in 2H.
• Whether energy storage demand and ESS volumes continue to outperform the 1H results.
• Whether EV battery volume growth, ASP, and gross margins are consistent with the 2026-2028 assumptions.
• Whether expansion in the mid- and low-end markets can continue to contribute incremental profits rather than simply dilute margins.
• The execution progress of the A-share buyback and its support for relative performance.
• Changes in the H/A premium and capital preference for the A-share relative to the H-share.
• Technological breakthroughs by second-tier battery manufacturers and the intensity of price competition.