CATL: Another deep squat! Is it really that scary this time?

On the evening of March 15, 2025, CATL announced its performance for the fourth quarter of 2024. Due to an accounting adjustment in CATL's 2024 annual report, the warranty reserves in sales expenses were included in the operating cost category (which leads to an increase in operating costs and a decrease in sales expenses). However, Dolphin Research adjusted to the accounting change to track CATL's marginal quarterly changes for 4Q24. Here are the key points:

1) Revenue fell short of expectations, mainly due to lower shipment volumes than market expectations this quarter, with the key issue lying in energy storage: Despite the battery unit price being slightly higher than market expectations this quarter, the main reason for the revenue shortfall was the severe decline in energy storage shipments on a quarter-on-quarter basis: from the 31 GWh of energy storage shipments that Dolphin Research estimated last quarter, it directly fell by 50% to 16 GWh this quarter, while the market expected an upward trend in energy storage shipments this quarter.

2) Power battery shipments exceeded market expectations, but still could not compensate for the "big hole" from the decline in energy storage shipments: This quarter, power battery shipments were quite good, around 130 GWh, a quarter-on-quarter increase of 38.4%, significantly exceeding the market expectation of 114 GWh. However, it still could not fill the "big hole" from the decline in energy storage shipments, with total battery shipments this quarter around 145 GWh, still below the market expectation of 150 GWh.

Dolphin Research believes that several factors contributed to the severe decline in CATL's energy storage shipments: 1) Domestic: China canceled the mandatory energy storage policy, which temporarily affected the shipments of large energy storage systems; 2) Overseas: Mismatched shipment cycles and the dual impact of export tax rebate policies.

3) The decline in battery unit prices was not significant, but this quarter saw a quarter-on-quarter decline in gross margin of 4.6 percentage points due to rising costs per watt-hour, falling short of market expectations: After adjusting for the impact of the warranty reserves accounting change, the actual gross margin this quarter was 26.5%, down 4.6 percentage points from the previous quarter, also falling short of the market expectation of 27.5%. Dolphin Research believes this was influenced by the decline in higher-margin energy storage shipments in CATL's sales structure and the rising prices of upstream raw materials in the fourth quarter.

4) However, capacity utilization was relatively full in the second half of the year: From the key capacity utilization indicator in each financial report (which is strongly correlated with CATL's stock price and is a core operational indicator in manufacturing), CATL's capacity utilization in the second half of 2024 was around 86%, an increase of 8 percentage points compared to the second half of 2023, which is a marginally positive operational indicator.

Dolphin Research's overall view:

In summary, since CATL had already released a performance forecast in advance, the actual performance from this report fell within the guidance, but the overall performance was still below market expectations.

Dolphin Research analyzed the points that fell short of expectations, mainly due to the severe quarter-on-quarter decline in the growth rate of the second curve of energy storage, which dragged down the overall shipment volume and caused the revenue to fall short of expectations. At the same time, the energy storage business has a higher gross margin, but its proportion fell sharply this quarter, combined with rising prices in the upstream supply chain, which squeezed CATL's gross margin. Therefore, both revenue and gross margin fell short of market expectations, but the miss was not significant at the same time, from the most important operational indicator of capacity utilization rate, Nio's capacity utilization rate in the second half of 2024 is around 86%, an increase of 8 percentage points compared to the second half of 2023, which is a marginally positive operational indicator.

Looking at several forward-looking indicators:

1) Capital expenditure continues to increase in the fourth quarter, and Nio is still on an expansion track: Since the third quarter of this year, Nio has started to increase capital expenditure, reaching 9.9 billion yuan in the fourth quarter, an increase of 2.5 billion yuan quarter-on-quarter.

Nio's expansion in the fourth quarter indeed reflects a relatively good trend in short-term industry prosperity, especially in the first quarter of this year, where there is a continuation of national subsidies for power batteries, and the intensity of national subsidies has increased, with the sales off-season not being as pronounced as in previous years.

2) Contract liabilities also saw high growth in the fourth quarter: Contract liabilities can be seen as a close indicator of the change in Nio's order volume. In the fourth quarter, Nio's contract liabilities were 27.8 billion yuan, an increase of 5.1 billion yuan from the previous quarter's 22.7 billion yuan, also showing a trend of marginal improvement, indicating that Nio's short-term operational perspective remains positive.

3) Inventory saw high growth in the fourth quarter: Although inventory continued to grow significantly in the fourth quarter, increasing by 4.6 billion yuan to 59.8 billion yuan, over 60% of the inventory consists of goods in transit that have not yet reached the customer handover point. Due to the increase in overseas sales regions, logistics times have lengthened, and the proportion of sea freight cycles has increased, approximately 60-70 GWh of these in-transit goods will convert into revenue in the first quarter of 2025, assuring Nio's shipment volume in the first quarter.

Therefore, this is different from the inventory backlog caused by the industry downturn and overcapacity; instead, it indicates that Nio's operational situation is beginning to show signs of marginal improvement, thus the performance certainty for the first quarter of 2025 is expected to be stronger.

Additionally, with the announcement of a 20 billion yuan dividend payout, the dividend yield for 2024 reaches 1.7%, accounting for 39% of the net profit attributable to the parent company, with a dividend of 4.55 yuan per share, in line with market expectations. Although it is less than the 22 billion yuan dividend at the end of 2023, considering that Nio is currently seeing signs of continued demand improvement and is increasing capital expenditure for expansion, this can be understood by the market.

However, from the perspective of the lithium battery industry, unlike the rapid upward trend in sales/output of the power battery industry seen in the fourth quarter of 2023, there is a relatively obvious turning point, which is also the time when Nio's stock price began to rebound from a cyclical low (around March 2024, Nio's stock price started to rebound, reflecting in Nio's operational indicators as the capacity utilization rate began to rise year-on-year). Currently, industry sales/output has been fluctuating around 70%. Although the industry's prosperity is still acceptable, it is still too early to declare that the lithium battery industry has reached a turning point, and continuous tracking is still needed.

Currently, the market's expectation for 2025 shipment volume is still 574 GWh, an increase of 21% year-on-year. Dolphin Research estimates that the current stock price corresponds to Nio's 2025 PE ratio of around 18-19 times. Dolphin Research believes that under the relatively high certainty of Nio's performance in the first quarter of 2025, it is still not considered expensive, but if there is no clear turning point in the power battery industry, In the context of short-term fluctuations in energy storage, the upward space may also be relatively limited.

1. From the performance in the fourth quarter, both revenue and gross margin are slightly below market expectations

1. Revenue: The shortfall is mainly due to a significant decline in energy storage shipments, but the battery unit price has stabilized

The operating revenue for this quarter is 103 billion, slightly lower than the market expectation of 104.6 billion. Dolphin Research analyzed the main reasons for the shortfall and found that the issue lies in the shipment volume:

a. First, let's look at the battery unit price:

According to Dolphin Research's estimates, the battery unit price in the fourth quarter is about 0.61 yuan/Wh, which shows a continued month-on-month decline compared to 0.64 yuan/Wh in the third quarter (a decline of about 5%) but is basically in line with market expectations (0.6 yuan/Wh).

Although the shipment of higher-priced power batteries increased in this quarter (compared to the lower-priced energy storage batteries), it somewhat mitigated the overall decline in battery unit prices. However, given the high growth in demand for power batteries in the fourth quarter, the overall decline in power battery unit prices is expected to be not significant.

b. The shortfall is mainly due to battery shipment volume:

This quarter's battery shipment volume is about 145 GWh, while the market expectation is still around 150 GWh, which is about 5 GWh lower than market expectations.

Continuing to break down the power battery business and energy storage battery business:

① In fact, the power battery shipment volume this quarter is quite good, around 130 GWh, a month-on-month increase of 38.4%, exceeding the market expectation of 114 GWh.

② Therefore, the key issue lies in the shipment of energy storage batteries:

The energy storage shipment volume this quarter is about 16 GWh, a nearly 50% decline from 31 GWh in the previous quarter, while the market expected the energy storage battery shipment volume to continue to increase month-on-month to 36 GWh. Thus, in terms of energy storage battery shipment volume alone, there is a gap of about 20 GWh compared to market expectations. Even with the significant month-on-month increase in power battery shipments, it did not fill the "big hole" of the decline in energy storage battery shipments in the fourth quarter.

Since Ning Wang's energy storage business is still mainly focused on overseas customers (accounting for about 60%), the severe decline in energy storage battery shipments this quarter is expected to have three reasons:

Domestic aspect: China has canceled the mandatory energy storage policy, which has a short-term impact on the shipment volume of large energy storage systems domestically;

Overseas aspect: Mismatched shipment cycles + dual impact of export tax rebate policy

a) Some projects in the energy storage business require installation and debugging, and the confirmation cycle is long. The time for exporting overseas is also long, and unconfirmed revenue cannot be counted in Q4 sales volume;

b) Impact of export tax rebate policy: In the last month of the fourth quarter, the export tax rebate policy began to adjust from 13% to 9%, affecting the energy storage business.

2. Gross margin is also slightly lower than market expectations, affected by shipment structure and upstream price increases

After adjusting for the impact of warranty accounting changes, the actual gross margin for this quarter is 26.5%, a decline of 4.6 percentage points compared to the previous quarter, which also falls short of the market expectation of 27.5%. Dolphin Research believes that the reasons for not meeting market expectations are mainly twofold:

1) Impact of Nio's shipment structure: Decline in the proportion of higher-margin energy storage batteries

As mentioned earlier, Dolphin Research pointed out that the proportion of energy storage shipments in Nio's shipment structure has significantly declined this quarter. The proportion of energy storage shipments this quarter is 11%, down 14 percentage points quarter-on-quarter, mainly driven by power battery shipments.

However, Nio's energy storage batteries have a higher gross margin. Even from the adjusted financial statements that have included warranty costs into sales costs, the gross margin for the energy storage business reached 26.8% in 2024, which is 2.9 percentage points higher than the 23.9% for the power battery business.

2) Price increases in the upstream battery supply chain in the fourth quarter:

Although the prices of upstream raw materials in 2024 are showing a year-on-year decline compared to 2023, direct materials still account for about 76.5% of Nio's main business costs (80.3% in 2023), so upstream supply chain management remains a core factor.

In the fourth quarter, price increases began in the upstream supply chain for lithium iron phosphate, anodes, lithium hexafluorophosphate, copper foil, etc., which has somewhat raised procurement costs and led to a decline in gross margin.

However, due to Nio's accounting adjustment that included warranty costs in the sales cost item, from a trend perspective, 5.1 billion yuan of warranty costs were accrued in the first half of the year, accounting for 3.1% of sales revenue, while 6.7 billion yuan was accrued in the second half, accounting for 3.4% of total revenue. This will have a negative impact of about 0.3 percentage points on the overall gross margin in the second half compared to the first half, but the overall impact is not significant.

At the same time, from the perspective of gross profit margin (gross margin - sales expense ratio), the fourth quarter still shows a downward trend, declining by 4.7 percentage points quarter-on-quarter. Dolphin Research believes this is still influenced by the shipment structure and upstream price increases.

II. Capacity utilization is full in the second half of the year, and the proportion of sales rebates has declined① Capacity utilization rate is full in the second half of the year, expected to be over 90% in the fourth quarter

However, from the key capacity utilization rate indicator in each financial report (which is strongly correlated with Ning Wang's stock price and is the core operational indicator of the manufacturing industry), Ning Wang's capacity utilization rate for the entire year reached 76.3%, an increase of 6.3 percentage points year-on-year.

Looking at the second half of the year, the capacity utilization rate for the second half of 2024 is expected to be 86%, a 21% increase compared to the first half, but since the first half is generally a low season for shipments, the comparability is relatively weak.

However, compared to the capacity utilization rate of 79% in the second half of 2023, it still represents an 8-point year-on-year increase, indicating that the capacity utilization rate in the second half of the year remains relatively full, with the fourth quarter's capacity utilization rate expected to be over 90%, signaling a marginal improvement in business conditions.

Although the production in the fourth quarter exceeds sales (with full capacity utilization), there has begun to be an inventory backlog, which is also a positive sign, as the certainty of Ning Wang's performance in the first quarter of 2025 is relatively stronger, as mentioned by Dolphin Research below.

② Lithium carbonate prices stabilize, overall sales rebates in 2024 are expected to decline compared to 2023:

From the year-on-year changes in expected liabilities, the expected liabilities at the end of 2024 are projected to be 71.9 billion, an increase of 20.3 billion compared to 51.6 billion at the end of 2023. Among the changes in expected liabilities, it is estimated that 11.8 billion will be recognized as warranty reserves in 2024, while the remainder mainly consists of sales rebates, which are funds returned downstream based on the lithium carbonate price linkage mechanism.

The sales rebates recognized in 2024 are around 8.4 billion (as a reduction on the revenue side), accounting for about 2.3% of the pre-deduction revenue. In contrast, the warranty reserves recognized in 2023 were approximately 17 billion, accounting for about 4.1% of the pre-deduction revenue. Due to the stabilization of lithium carbonate prices in 2024 (especially with a slight upward trend in the fourth quarter of 2024), the proportion of sales rebates to pre-deduction revenue is also declining.

In 2025, as the business conditions begin to show marginal improvement, the short-term downward space for lithium carbonate prices is limited (as prices are already at relatively low levels), and it is expected that the proportion of Ning Wang's sales rebates to revenue may continue to decline.

③ Asset impairment risk remains on the decline:

In the third quarter, Ning Wang recognized a large impairment loss of approximately 4.7 billion (230 million from inventory impairment reserves, and 4.5 billion from long-term asset impairments, which are all related to mineral resource assets, in other words, assets directly linked to upstream lithium carbonate prices).

The market is most concerned about asset impairments, particularly the high increase in inventory impairments, especially the high increase in the impairment of finished goods/in-transit goods, which reflects that battery prices may continue to decline significantly.

In the fourth quarter, asset impairments have decreased to 1.8 billion, of which about 800 million is from inventory impairment reserves, while long-term asset impairments are around 1 billion. Although the implied unit price in the first quarter may continue to decline, the risk of decline is controllable (the proportion of inventory impairment reserves to revenue remains relatively small)

3. High Growth in Shipment Volume, Nio's Market Share Stabilized

From the shipment volume of this quarter, approximately 145 GWh was shipped in the fourth quarter, an increase of about 20 GWh compared to the previous quarter, but still below the market expectation of 150 GWh. Among them, the shipment of power batteries/energy storage batteries was approximately 130 GWh/16 GWh, with a significant decline in the proportion of energy storage.

① From the perspective of power battery market share:

Domestic: In the fourth quarter, CATL's power battery market share slightly declined, dropping from 44.9% in the previous quarter to 43.8% this quarter, a decrease of 1.1 percentage points. If we exclude BYD's installed capacity to calculate Nio's market share, the market share in the fourth quarter also fell from 59.1% in the previous quarter to 58.2%, a decline of about 1 percentage point, which can be considered a normal fluctuation.

Looking at the market share of ternary and LFP batteries domestically, CATL's market share for ternary batteries has remained stable, reaching 70% in the fourth quarter, an increase of 0.5 percentage points compared to the previous quarter. However, the demand for LFP batteries in the terminal new energy vehicle industry continues to grow significantly due to the price war, with the total installed capacity of the LFP battery industry reaching 80% in the fourth quarter, an increase of 6 percentage points compared to the previous quarter.

In this quarter, Nio's domestic LFP battery market share is also increasing, rising by 0.7 percentage points to 37.3%. The increase is not large, and if we exclude BYD's LFP installed capacity, it only increased by 0.2 percentage points.

Therefore, as previously mentioned in Dolphin Research's in-depth analysis of CATL, Nio's market position in high-end models remains solid (the market share of higher-priced ternary batteries continues to rise steadily), but in the LFP market, the overall market demand for batteries shows a trend of consumption downgrade, with a greater focus on reducing battery costs. Thus, the space for Nio's market share in LFP batteries to continue to increase is likely to be quite limited.

② From the perspective of energy storage batteries:

Short-term expectations may be under pressure, but in the long term, the domestic energy storage market is returning to market competition, and AI computing power has led to a surge in demand for data centers. The need for an uninterrupted power supply for computing power will require higher energy storage, which is expected to drive Nio's long-term energy storage shipment volume, although it will take some time for data center energy storage to ramp up.

Nio is also relatively optimistic about the prospects of the energy storage market, believing that from a 3-5-year perspective, the growth rate of the energy storage market will be faster than that of power batteries, approaching the 25%-30% range.

4. However, the leading indicators imply that Ning Wang's short-term operational performance may continue to improve.

From several leading indicators of Ning Wang's fourth-quarter performance, the short-term battery market remains relatively good, and there is no need to worry too much about the risk of a downturn in Ning Wang's short-term operations:

① Capital expenditure continues to increase in the fourth quarter, and Ning Wang is still on an expansion track:

From the perspective of the capital expenditure cycle, although Ning Wang has passed the intensive investment period for capacity (2021-2022), subsequent market competition saturation and overcapacity have led to a downward cycle in capital expenditure since the fourth quarter of 2022, reaching a temporary low of 6.7 billion yuan in the fourth quarter of 2023.

However, starting from the third quarter of this year, Ning Wang began to increase capital expenditure, reaching 9.9 billion yuan in the fourth quarter, an increase of 2.5 billion yuan quarter-on-quarter. Additionally, from Ning Wang's ongoing capacity, the battery system's ongoing capacity is expected to reach 219 GWh by the end of 2024, an increase from 153 GWh in mid-2024, and the amount of ongoing capacity has also increased from 25.2 billion yuan in the third quarter to 29.8 billion yuan, an increase of 4.6 billion yuan.

This means that Ning Wang's expansion in the fourth quarter indeed reflects a relatively good short-term outlook for the lithium battery industry, especially with the continuation of national subsidies for power batteries in the first quarter of this year, and the increased intensity of national subsidies, resulting in a sales off-season that is not as pronounced as in previous years.

In terms of Ningde Times' power battery products, this year, the Shenxing battery and Kirin battery will see concentrated shipments, increasing from a share of 30-40% last year to 60-70%. The hybrid battery Xiaoxiao, released at the end of last year, has already been matched with over 30 models, and models equipped with Xiaoxiao will be concentrated in the market in 2025. This year's new product cycle does not show a trend of deterioration in Ning Wang's operations; instead, it is moving in a positive direction.

② From Ning Wang's current contract liabilities, there is a significant increase in the fourth quarter:

Since Ning Wang primarily operates a B2B business, it often receives advance payments from downstream B-end customers without having delivered the products yet. Therefore, contract liabilities can be seen as a close indicator of changes in Ning Wang's order volume.

In terms of Ning Wang's contract liabilities for the fourth quarter, they amount to 27.8 billion yuan, an increase of 5.1 billion yuan from 22.7 billion yuan in the previous quarter, showing a trend of marginal improvement. Thus, from the perspective of Ning Wang's short-term operations, it remains positive.

③ As for Ning Wang's current inventory: Although inventory in the fourth quarter increased by 4.6 billion yuan compared to the third quarter, reaching 59.8 billion yuan, corresponding to an inventory volume of 106 GWh, looking back at the last round of destocking, inventory at the end of 2023 was only 44 billion yuan (corresponding to an inventory volume of 70 GWh). The market may be concerned that Nio is starting to accumulate excess inventory again.

However, Dolphin Research believes there is no need to worry too much. In Nio's inventory structure, nearly 40% consists of goods that have been shipped (products that have been shipped but not yet recognized as revenue), and 18% consists of inventory goods (products that have not yet been shipped but may have been pre-ordered and stocked in advance).

Nio also explained that over 60% of the inventory consists of goods that are in transit but have not yet reached the customer handover point. Due to an increase in overseas sales regions, logistics times have lengthened, and the proportion of sea freight cycles has increased, amounting to about 60-70 GWh. This portion of in-transit goods will be converted into revenue in the first quarter of 2025, assuring Nio's shipment volume in the first quarter.

Therefore, this is different from the inventory backlog caused by declining industry prosperity and overcapacity; instead, it indicates that Nio's operational performance continues to show signs of improvement, and the certainty of performance in the first quarter of 2025 will be even stronger.

In-depth Research:

On January 23, 2025, the company published an in-depth article: Viewing Nio through TSMC: An Inescapable Cyclical Fate.

On July 14, 2021, the company published an in-depth article: NIO (Part 2): Is Faith Building a "Rigid Bubble"?

On July 7, 2021, the company published an in-depth article: NIO (Part 1): Where Does the Confidence of a Trillion Market Value Come From?

Financial Report Tracking:

On October 21, 2024, financial report commentary: [“Trillion” Nio is Really Going to Rise This Time?](https://longportapp.cn/zh-CN/topics/24598047?app_id=longbridge&utm_source=longbridge_app_share&channel=t24598047&invite-code=4NOXYT&locale=en-US&community_badge=1&profile_following_followers_activities=1)》

October 21, 2025 Financial Report Commentary:《 CATL 3Q24 Earnings Conference Minutes》

July 27, 2024 Financial Report Commentary:《 Internal and External Pressure, Ning Wang "Tiger Falls to the Plain"》

July 29, 2024 Conference Call Minutes:《 CATL 2Q24 Conference Call Minutes》

April 15, 2024 Financial Report Commentary:《 Ning Wang: The Low Point Has Passed, Is Dawn Near?》April 16, 2024 Conference Call Summary: Full Capacity Utilization, Has Ning Wang Started to Sweep the Battlefield?

March 16, 2024 Conference Call Summary: Before the Dawn of the Battery Blood Battle, Did Ning Wang Step In to Deliver the Final Word?

March 16, 2024 Conference Call Summary: Ningde Times 4Q23 Conference Call Summary

October 19, 2023 Financial Report Commentary: Ning Wang: Slowing Growth, When Will the Trillion Era Return?

October 20, 2023 Conference Call Summary: Slowing Growth, Does Ning Wang Continue to Maintain Gross Profit at the Expense of Market Share?

July 25, 2023 Financial Report Commentary: Ning Wang: Stability is Enough, Just Becoming "Mediocre"

July 25, 2023 Conference Call Summary: [Ningde Times Summary: Expanding Overseas, Protecting Gross Profit](https://longportapp.cn/zh-CN/topics/8478937?app_id=longbridge)

April 21, 2023 “Ning Wang: Perfect Counterattack Expectations? A Strong Foundation is Key”

April 21, 2023 “CATL: Grasping Energy Storage and Overseas Markets, Gross Profit Remains Stable (Minutes)”

March 9, 2023 Earnings Report Commentary “CATL: Car Manufacturers Cry, Batteries Smile, How Far Can This Money Go?”

March 9, 2023 Conference Call Minutes “CATL: ‘Current Gross Profit Margin is a Reasonable Level’ (Minutes)”

October 22, 2022 Earnings Report Commentary “With All Stars Supporting, Ning Wang, Next Year is the True Love Test”

October 22, 2022 Earnings Report Conference Call Minutes “Lithium Prices Will Drop Next Year, New Energy Vehicle Penetration Rate Will Be Faster Than Expected”

August 24, 2022 Earnings Report Commentary “CATL: Small Setbacks are Just Interludes, YYDS is the Main Theme”Minutes of the earnings call on August 24, 2022: "Profits from power batteries in the second half of the year will not be worse than in the second quarter"

Overview of the power battery sector on May 20, 2022: "The collapsed new energy, has the investment divergence point arrived?"

Earnings commentary on April 30, 2022: "The performance thunder arrives as expected, is the era of Ning Wang coming to an end?"

Earnings call on April 30, 2022: "Ning Wang does not care about performance thunder, market share and customer structure are the core observation indicators"

Earnings commentary on April 22, 2022: "Dispersed public sentiment kills valuation, CATL faces a dual test of profitability and confidence"

Earnings commentary on October 28, 2021: "In the face of yyds CATL, should we still fear valuation?"