CATL: Tariff "robbers" strike hard, CATL faces a difficult ordeal

On the evening of April 14, 2025, CATL announced its performance for the first quarter of 2025. Here are the key points:

1) Revenue fell significantly short of expectations, mainly due to lower battery sales than the market anticipated: In the first quarter, CATL's operating revenue was 84.7 billion yuan, significantly lower than the market expectation of 95.5 billion yuan, representing an 11% shortfall compared to market expectations. Dolphin Research looked back at the historical data and found that this expectation gap is relatively large.

The main reason for the shortfall was still in battery sales. According to the management's performance meeting disclosure, the actual battery sales for this quarter were 120 GWh, while the market's sales expectation for the first quarter of 2025 was still around 130-140 GWh, indicating an expectation gap of about 10-20 GWh between actual shipments and market expectations.

2) However, battery prices have basically stabilized: In terms of battery prices, the average price in the first quarter was around 0.6 yuan/Wh, which is basically unchanged from the previous quarter's 0.61 yuan/Wh. Generally, CATL's battery prices are directly linked to the upstream raw material lithium carbonate prices, which remained relatively stable this quarter, around 70,000-80,000 yuan/ton.

3) Overall gross margin performed well, with a slight increase quarter-on-quarter: From the perspective of CATL's gross margin, the gross margin in Q1 2025 was 24.4%. This figure is slightly higher than the actual 23%-24% in Q4 of last year. (When sales expenses and warranty costs are included in the sales cost, the data is in line with the accounting standards of Q1 2025.) It also exceeded the market's expected gross margin of 22.1%, showing good performance in terms of gross margin.

4) Net profit slightly exceeded market expectations, but mainly due to a net increase in financial income, indicating low quality of the beat: In terms of net profit, while the revenue significantly missed market expectations, the net profit slightly beat market expectations. This was mainly due to the control of three expenses (which decreased by nearly 1 billion yuan quarter-on-quarter) and a net increase in financial income (which increased by 1.1 billion yuan). However, since the financial income was mainly affected by exchange rate factors, the quality of the net profit that exceeded expectations can only be regarded as average.

5) Inventory continues to grow significantly: From the inventory perspective, inventory continued to grow significantly this quarter, increasing by 5.8 billion yuan from the previous quarter's peak of 59.8 billion yuan. The inventory turnover days also reached a high point of 89 days again. CATL explained last quarter that the reason for the inventory increase was that over 60% of the inventory was goods in transit that had not yet reached the customer handover point, and this portion of goods in transit would convert to revenue in the first quarter of this year.

However, considering the actual performance this quarter, CATL's shipment volume failed to meet market expectations, and the inventory continued to build up. Especially, the energy storage business is facing the cancellation of mandatory storage in the domestic market and the impact of tariffs, especially in the US. As a result, there are concerns that the increased inventory this quarter might be caused by excessive stocking of energy storage batteries.

Dolphin Research Overall View:

Overall, CATL has delivered a result that falls short of expectations. The main reason for this underperformance is the overall battery sales being lower than market expectations. Although the energy storage sales this quarter have rebounded compared to the previous quarter, this is mainly due to the recognition of goods in transit before the impact of U.S. tariffs.

Looking ahead to 2025, the energy storage battery business is still severely impacted by U.S. tariffs. Additionally, the domestic mandatory energy storage policy will officially be canceled in 2025, which will have a short-term negative impact on domestic large-scale storage demand. Furthermore, the energy storage structure is shifting from a focus on the direct current side to the alternating current side (the revenue recognition cycle for alternating current is longer than that for direct current, which may significantly impact short-term revenue recognition for energy storage). The uncertainty surrounding CATL's energy storage business in 2025 remains high, and the previously mentioned overseas data center energy storage ramp-up is still relatively slow, contributing only a small amount to the energy storage business in 2025.

Another indicator this quarter, the high increase in inventory, has raised concerns for Dolphin Research regarding the company's excessive stocking of energy storage batteries before the impact of tariffs. If U.S. tariffs become a certainty, there is still a relatively large risk of inventory impairment.

Therefore, in the face of high uncertainty regarding CATL's second curve energy storage business in 2025, it still requires high growth in the power battery business to compensate. From the current market performance of power batteries:

From the perspective of the overall lithium battery industry, Compared with the rapid upward trend in power battery industry sales/production in the fourth quarter of 2023, there is now a relatively obvious turning point, which is also the time when CATL's stock price began to rebound from a cyclical low (around March 2024, CATL's stock price started to rebound, reflecting in CATL's operational indicators as a year-on-year increase in capacity utilization). Currently, industry sales/production has been fluctuating around 70%, and this ratio has slightly declined in the first quarter of this year, especially as the production and sales gap for LFP batteries continues to widen. The supply side is still in a state of overcapacity, and there is no clear turning point on the beta side in the lithium battery industry, which still requires continuous tracking.

From CATL's own market share perspective, the market share is showing a slight upward trend, mainly due to the recovery of CATL's LFP battery market share, but its sustainability still needs to be observed.

From the perspective of overseas power battery shipments, the European market saw a 20% year-on-year increase in sales in the first quarter, and overseas production capacity has begun to be put into operation. Currently, CATL's market share in Europe has expanded to 38%, and the short-term trend looks good.

Overall, in terms of power batteries, CATL has a decent short-term trend, and the order volume on hand is relatively sufficient in the short term. However, there is no clear turning point on the beta side in the lithium battery industry, and although the company's market share has slightly increased in the short term, its sustainability still needs to be continuously observed, especially as this year the domestic power battery market is still centered around low-priced LFP battery shipments. In this case, the high uncertainty of the energy storage business in 2025 suggests that the high growth of power batteries may not be sufficient to compensate . Therefore, Dolphin Research believes that investments in CATL should leave enough safety margin for itself, especially after fully considering the negative impact of U.S. tariffs on the energy storage business into the stock price before making low-position layouts.

From the current tariff impact perspective, the influence of U.S. tariffs is relatively significant on CATL's energy storage business. In 2024, 40%-50% of energy storage shipments are expected to go to the U.S., which is equivalent to about 40 - 45 GWh, accounting for approximately 9% of the total shipments in 2024. Due to higher gross margins for overseas energy storage, the net profit from the U.S. energy storage business is estimated to account for about 10%-15% of CATL's overall net profit in 2024. The company has stated that, in the face of the currently volatile policy environment, it will mainly take an observational stance as it does not have an effective response measure yet.

However, in 2026, if tariffs continue to severely impact the company's energy storage business, the company may consider adopting a similar LRS model for shipping power batteries to the U.S. (using licensing, authorization, and services to help battery manufacturers quickly establish battery factories, with all capital expenditures borne by another manufacturer. CATL does not hold shares in the cooperative factory but collects patent licensing fees and service fees. Although this reduces revenue scale, capital expenditures decrease, and the high-margin technology licensing model will lead to improved profit margins). Nevertheless, this segment of the U.S. energy storage business can still continue.

As for 2025, the market originally expected CATL's battery shipments to grow by 30% year-on-year to about 616 GWh this year. Dolphin Research, adhering to a cautious principle, expects the overall shipment volume in 2025 to be around 570-580 GWh, corresponding to a net profit attributable to the parent company of 57-58 billion yuan (implying a net profit of 0.1 yuan per watt-hour). Based on CATL's historical low PE ratio of around 13 times, the valuation bottom line market capitalization is approximately 741 billion yuan, which means that only after a 20%-25% decline will there be a real safety margin.

1. Based on the first quarter performance, the revenue side continues to miss market expectations, while the gross margin performance is still acceptable.

1. Revenue Side: The revenue shortfall is due to sales volume, while battery prices remain stable.

In this quarter, CATL's operating revenue was 84.7 billion yuan, significantly lower than the market expectation of 95.5 billion yuan, with actual revenue being 11% lower than market expectations. Dolphin Research reviewed the history and found that this expectation gap is relatively large.

Dolphin Research roughly analyzed the main reasons for the shortfall and found that the issue lies in battery sales rather than battery prices:

a. This quarter's battery sales were significantly below market expectations:

According to the management's earnings call, the actual battery sales this quarter were 120 GWh, while the market's expectation for the first quarter of 2025 was still around 130 - 140 GWh. Therefore, there is a gap of about 10 - 20 GWh between actual shipments and market expectations, which is the main reason for the revenue shortfall. Breaking it down further,

① This quarter, the sales volume of power batteries was approximately 96 GWh, a quarter-on-quarter decline of 26%, mainly due to the first quarter being a low season for new energy vehicle sales, as well as a low season for power battery shipments. However, compared to the same period last year, CATL's power battery sales increased by 26%, which is considered a reasonable level. Nevertheless, Dolphin Research expects that the sales volume of power batteries will still be slightly lower than market expectations.

From the perspective of the existing data on CATL's market share in China excluding BYD (which primarily supplies itself), the market share of CATL's installed capacity has shown a quarter-on-quarter decline since the first quarter of 2024. The main reason for this is the continuous decline in CATL's market share of LFP batteries, as well as the downgrade in terminal market demand leading to a sustained increase in demand for lower-priced LFP batteries. Fortunately, this quarter has seen a slight quarter-on-quarter rebound in CATL's LFP battery market share (excluding BYD), with a quarter-on-quarter increase of 0.8 percentage points, but sustainability still needs to be continuously observed.

② This quarter, the sales volume of energy storage batteries was approximately 24 GWh, a 54% increase from the previous quarter's low of 16 GWh. It is worth noting that last quarter saw a significant decline in energy storage battery shipments, which management explained was mainly due to the long confirmation cycle for certain project-based businesses and the impact of export tax rebate policies.

However, looking at 2025 as a whole, the energy storage battery business is still severely impacted by U.S. tariffs. Additionally, the formal cancellation of mandatory energy storage requirements in China starting in 2025 will have a short-term negative impact on domestic large-scale energy storage demand. Furthermore, the energy storage structure is shifting from primarily direct current to alternating current (with a longer revenue confirmation cycle compared to direct current, which may significantly impact short-term revenue confirmation for energy storage). The uncertainty surrounding CATL's energy storage business in 2025 remains high, and the previously mentioned overseas data center energy storage ramp-up is still relatively slow, contributing only a small amount to the energy storage business in 2025.

b. Now let's take a look at battery prices:

In terms of battery prices, the battery price in the first quarter was basically around 0.6 yuan/Wh, showing little change from the previous quarter's 0.61 yuan/Wh. Generally, CATL's battery prices are directly linked to the upstream raw material lithium carbonate prices, which have remained relatively stable this quarter, around 70,000 to 80,000 yuan/ton.

2. Gross margin has slightly increased compared to the previous quarter

Compared to last year's Q4, CATL's gross margin has slightly increased. Last year's Q4 actual gross margin was 23%-24% (after including sales expenses and warranty reserves into the cost of sales, the data is consistent with the accounting standards of Q1 2025). This quarter's actual gross margin is 24.4%, which also exceeds the market's expectation of a 22.1% gross margin, so the performance on the gross margin front is quite good.

Note: The accounting standards for Q1 2025 are inconsistent with previous quarters and are for reference only

From the perspective of gross sales difference (which is calculated as gross margin minus the sales expense ratio, and due to the impact of accounting policies, it has stronger comparability with historical quarters), this quarter's gross sales difference is around 23.4%, continuing to increase by 1.2 percentage points compared to the previous quarter. Management indicated during the earnings call that the provision for warranty reserves generally accounts for about 3% of revenue (in the first half of 2024 it was 3.1%, and in the second half of 2024 it was 3.4%), so the direct reason for the increase in gross sales difference this quarter is still the rise in gross margin.

Dolphin Research believes the main reasons for the increase in gross margin this quarter are:

① In the previous quarter, the proportion of energy storage batteries in CATL's battery shipment structure was only 11%, while this quarter, the proportion of energy storage batteries has returned to a normal 20%. Since the main overseas customers for energy storage batteries have a higher gross margin compared to power batteries, the shipment structure has somewhat raised the battery gross margin.

② The upstream raw material costs have continued to slightly decline compared to the previous quarter:

In the previous quarter, the upstream supply chain saw price increases in iron lithium, anode materials, lithium hexafluorophosphate, copper foil, etc., which somewhat raised the procurement costs in the previous quarter. However, this quarter, the costs of upstream raw materials, especially lithium carbonate, have continued to show a declining trend (the price of battery-grade lithium carbonate has dropped from a peak of 80,000 yuan/ton in the fourth quarter to the current 72,000 yuan/ton), and lithium mines are still in a phase of oversupply.

2. Inventory continues to grow significantly, and asset impairment has basically stabilized

1) Inventory continues to grow significantly

From the inventory perspective, this quarter's inventory continues to grow significantly, rising by 5.8 billion yuan from the previous quarter's peak of 59.8 billion yuan. The inventory turnover days have also reached a high point of 89 days again. CATL explained last quarter that the reason for the inventory increase was that over 60% of the inventory consisted of goods in transit that had not yet reached the customer handover point. Due to the increase in overseas sales regions, logistics time has lengthened, and the proportion of sea freight cycles has increased, approximately 60 - 70 GWh. This part of the in-transit goods will be converted into revenue in the first quarter of this year. Dolphin Research believed at that time that CATL's first-quarter shipment volume was relatively secure, with a strong degree of certainty.

However, from the actual performance of this quarter, CATL's shipment volume this quarter did not meet market expectations, and inventory continues to accumulate, especially as the energy storage business faces the cancellation of mandatory storage in the domestic market and the impact of tariffs overseas, particularly in the United States. There are concerns that the increased inventory this quarter may be due to excessive stocking of energy storage batteries.

2) Asset impairment has declined this quarter, mainly due to the relatively stable price fluctuations of lithium carbonate

In the first quarter of 2025, asset impairment was 1.1 billion, a decrease of 700 million from the previous quarter's 1.8 billion. CATL's asset impairment is mainly divided into:

① Inventory write-downs; ② Long-term asset impairments;

Long-term asset impairments are mainly related to mineral resources. Although the price of lithium carbonate has slightly declined this quarter compared to the previous quarter, the overall fluctuations are not significant, so the risk of long-term asset impairment is relatively controllable (directly related to lithium carbonate prices). However, Dolphin Research is slightly concerned about the inventory impairment risk of energy storage batteries in the following quarters (given the potential excessive stocking of energy storage batteries this quarter), especially in the context of high uncertainty in geopolitical situations.

IV. Still on the expansion track, short-term order volume remains good

1) Capital expenditure continues to increase, and CATL is still on the expansion track:

From the perspective of the capital expenditure cycle, although CATL 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 in the fourth quarter of 2023.

However, starting from the third quarter of 2024, CATL began to increase capital expenditure, reaching a new high of 10.3 billion in the first quarter of 2025. Additionally, CATL's construction projects increased by 5.4 billion compared to the previous quarter, reaching 35.2 billion this quarter. Dolphin Research believes that the increase in construction capacity may be preparing for the new product cycle in 2025 and the construction of battery swap stations. This year, the power battery, Shenxing battery, and Kirin battery will be concentrated in shipments, increasing from 30 - 40% last year to 60 - 70% this year. Last year, the hybrid battery named Xiaoxiao was released and has already been equipped on over 30 models. In 2025, more models equipped with Xiaoxiao will enter the market.

At the same time, under the construction of battery swap stations, CATL has set a goal of building 1,000 battery swap stations this year. CATL believes that the future energy replenishment pattern will be divided into three parts: slow charging, fast charging, and battery swapping, thus laying out plans for both fast charging and battery swapping.

2) From the current contract liabilities of CATL, the first quarter continues to show high growth compared to the previous quarter:

Since CATL mainly operates a B2B business, it may receive advance payments from downstream B-end customers without delivering the products yet. Therefore, contract liabilities can be seen as an approximate indicator of the change in the order volume on hand for CATL.

From CATL's first quarter contract liabilities, the contract liabilities amount to 37.1 billion, an increase of 9.3 billion compared to the previous quarter's 27.8 billion, continuing to improve marginally, and the short-term order volume on hand remains at a good level.

In-depth Research:

On January 23, 2025, the company published an in-depth article: Through TSMC to See CATL: An Inescapable Cyclical Fate

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

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

Financial Report Tracking:

On March 16, 2025, CATL: Another Deep Squat! Is It Really That Terrifying This Time? October 21, 2024 Financial Report Review: “Trillion” Is CATL Really Going to Rise This Time?

October 21, 2025 Financial Report Review: CATL 3Q24 Earnings Conference Minutes

July 27, 2024 Financial Report Review: Internal and External Pressure, CATL “Tiger Falls to the Plain”

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

April 15, 2024 Financial Report Review: CATL: Has the Low Point Passed, Is Dawn Not Far? April 16, 2024 Conference Call Summary: Full Capacity Utilization, Has CATL Started to Sweep the Battlefield?

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

March 16, 2024 Conference Call Summary: CATL 4Q23 Conference Call Summary

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

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

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

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

April 21, 2023 “CATL: 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, CATL, 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 CATL coming to an end?"

Earnings call on April 30, 2022: "CATL 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?"