CATL: Tariff 'bandits' hit hard, the 'King of Ning' struggles to survive

On the evening of April 14, 2025, $CATL(300750.SZ) CATL announced its Q1 2025 results. Here are the key takeaways:

1) Revenue fell significantly short of expectations, mainly due to lower-than-expected battery sales: CATL's Q1 revenue was 84.7 billion yuan, far below the market expectation of 95.5 billion yuan, representing an 11% miss. Dolphin Research noted that this gap is relatively large historically.

The primary reason for the shortfall lies in battery sales. Management disclosed that actual battery sales were 120Gwh, while market expectations for Q1 2025 were 130-140Gwh, resulting in a 10-20Gwh gap.

2) Battery prices stabilized: The average battery price remained around 0.6 yuan/Wh, flat QoQ from 0.61 yuan/Wh. CATL's battery prices are directly linked to lithium carbonate prices, which were stable at 70,000-80,000 yuan/ton this quarter.

3) Gross margin improved slightly: Gross margin rose to 24.4% (adjusted for warranty provisions), beating the market expectation of 22.1%.

4) Net profit slightly beat expectations, but mainly due to financial income: Despite the revenue miss, net profit slightly exceeded expectations due to cost controls (saving ~1 billion yuan) and FX gains (+1.1 billion yuan). However, the quality of this beat is questionable.

5) Inventory continued to surge: Inventory increased by 5.8 billion yuan QoQ to a new high of 65.6 billion yuan, with days inventory outstanding reaching 89 days. Management attributed this to in-transit goods (60% of inventory), but Dolphin Research worries some may be excess energy storage battery stock.

Dolphin Research's view:

Overall, CATL delivered disappointing results, primarily due to weak battery sales. While energy storage sales rebounded QoQ, this likely reflects pre-tariff shipments. Looking ahead, energy storage faces major headwinds from US tariffs and China's policy changes. The inventory buildup also raises concerns about potential write-downs.

With energy storage uncertain, CATL needs strong EV battery growth to compensate. However, the lithium battery industry shows no clear recovery signs, with overcapacity persisting. CATL's market share has edged up recently, but sustainability is unclear amid intense LFP competition.

In Europe, CATL's market share expanded to 38% with 20% YoY sales growth. Near-term orders appear solid, but investors should wait for clearer signs of industry recovery before buying, especially given energy storage risks.

Given energy storage uncertainties, Dolphin Research recommends waiting for deeper valuation discounts (20-25% lower) that fully price in tariff impacts before building positions.

CATL's US energy storage business contributed 9% of 2024 shipments and 10-15% of profits. Management has no clear solution beyond potential LRS model adoption in 2026.

Dolphin Research cautiously forecasts 2025 shipments of 570-580Gwh (+30% YoY) and net profit of 57-58 billion yuan. At 13x PE (historical lows), the valuation floor would be ~741 billion yuan market cap.

Key details:

1. Revenue miss: 84.7B yuan vs 95.5B expected (-11%) due to 120Gwh sales (vs 130-140Gwh expected). EV batteries fell 26% QoQ (seasonal), while energy storage rose 54% from low base.