CATL: With H-Share Premium Surpassing 20%, Is the Global Lithium Battery Leader Poised for a Value Re-Rating?

Following the listing of $CATL(03750.HK) on the Hong Kong stock market on May 20, 2025, with an issue price of HKD 263 per share, as of today's closing, the stock price of CATL has increased by 36% compared to the issue price, and the premium of CATL' Hong Kong shares compared to A-shares has reached 22.4%.

Why has CATL, already a 'bull lady', become a 'sweetheart' in the Hong Kong stock market? Will CATL truly undergo a value reassessment? What changes have occurred in its fundamentals?

This analysis first examines the business expectations from a fundamental perspective, then discusses the financial aspects. We begin with an analysis of the marginal changes in the domestic and overseas (especially European) power battery markets:

I. Domestic Power:

a. No change in supply and demand itself, but profit expectations improve under anti-involution

From the overall perspective of the domestic power battery industry, the current prosperity of the domestic power battery sector is at a relatively good level (sales/production in the power battery industry generally maintain above 70%), and with the introduction of the new energy purchase tax next year, coupled with the uncertainty of the continuation of state subsidies, the terminal demand side is expected to be guaranteed in the second half of 2025, which will also drive the demand side prosperity of the midstream battery industry.

Additionally, under the policy level of 'anti-involution' and the overall control of production in the lithium battery industry, the overall supply and demand relationship in 2025 is expected to be relatively balanced, with the sales/production ratio in the power battery industry likely to continue maintaining at the 70%+ level.

b. CATL' market share continues to show a downward trend, but the expected decline is limited

However, from the trend of CATL' market share in China (excluding BYD, mainly self-supply), CATL' market share in China continues to show a downward trend, and the fundamental reason for the decline is still the continuous decline in the market share of LFP batteries.

At the industry level, the proportion of low-cost LFP batteries continues to increase (the proportion of LFP batteries in domestic vehicle installations has increased from 75% in 2024 to about 82% in January-May 2025), which is still driven by the extreme involution of domestic terminal car sales, leading to high demand for cost-effective models, and car companies can only achieve a balance between gross profit margin and pricing by procuring LFP batteries under low pricing demand.

However, CATL, due to its strategic decision not to engage in price wars (contrary to the strategy adopted by new energy vehicle leader BYD), continues to lose market share in domestic LFP batteries amid high growth in demand for low-cost LFP batteries in the terminal automotive industry and the low barriers of LFP batteries themselves.

But with potential policy control over battery price wars and a relatively balanced overall supply and demand relationship in the industry, CATL' market share in 2025 is expected to have only a slight decline compared to 2024.

II. Overseas Power Batteries: Will Europe surprise?

From the perspective of the two largest overseas electric vehicle markets, due to policy reasons, CATL can currently only export through its asset technology authorization (LRS) in the United States, while Dolphin Research estimates that Europe is likely to be the market where CATL' overseas power batteries exceed expectations:

1. European new energy vehicle penetration rate rebounds

From the perspective of European new energy vehicle penetration rate, the market share in Europe showed a relatively significant upward trend from 23% in 2024 to 25.5% in January-May 2025, with the penetration rate of new energy vehicles reaching 27% in May alone.

Although the European new energy vehicle CO₂ emission compliance scheme has been relaxed in terms of time limit, changing from the original single-year assessment in 2025 to an average assessment from 2025-2027, providing a three-year window period.

Even with some leniency, 2025 will be the first year of substantial entry into compliance emission requirements, driving European car companies to accelerate the transition from fuel vehicles to new energy vehicles, especially to meet emission standards, it is necessary to increase the proportion of pure electric models in new energy vehicles (pure electric models have lower CO₂ emissions compared to plug-in hybrid models), thus the penetration rate of European new energy vehicles and the overall battery capacity per vehicle show an upward trend.

2. CATL' market share in Europe shows an expansion trend:

From the perspective of CATL' market share in Europe, CATL has shown a continuous expansion trend since 2025, increasing from 35% in 2024 to 44% in January-April 2025.

From the market share of several major players in Europe, CATL continues to erode the market share of LG/SK On, partly due to the gradual decline in subsidies for electric vehicles in Europe, leading to a continuous increase in demand for economical electric vehicles, and CATL' dual layout of LFP+ternary routes, compared to LG/SK On/SDI mainly focusing on ternary, with LFP just starting, CATL' LFP batteries have a price advantage, better meeting Europe's demand for economical electric vehicles.

Meanwhile, CATL is also accelerating factory construction in Europe to avoid tariffs and logistics costs, making the price of power batteries in Europe more competitive, seizing the time window for the continuous increase in demand for new energy vehicles under the 2025-2027 carbon emission regulations in Europe.

Therefore, it can be seen that while the domestic power battery market is fiercely competitive, the European market is instead a very good opportunity for Chinese battery manufacturers to layout, allowing CATL to enjoy the growth of market share in the European new energy vehicle market while also achieving a trend of market share expansion.

Dolphin Research estimates that in 2025, with the overall penetration rate of European new energy vehicles at 28%-30% and CATL' market share in Europe continuing to rise to 48% (35% in 2024), the European market can contribute an incremental shipment volume of 40-50Gwh to CATL in 2025.

Compared to the total shipment volume of 380Gwh in 2024, this is equivalent to contributing 13 growth points, and the unit price per wh shipped to Europe is nearly twice that of domestic, so the corresponding revenue growth from this shipment volume is even higher.

III. How to view CATL' current valuation?

It can be seen that although CATL is unlikely to have an alpha logic for increasing market share domestically, the overall supply and demand relationship in the domestic power industry remains relatively stable, with the competitive landscape of the entire industry chain expected to improve after the policy level anti-involution.

The area where CATL may exceed market expectations in terms of fundamentals is mainly Europe, where the formal entry into the stage of emission requirements implementation accelerates the increase in pure electric penetration rate, thereby driving the demand for power batteries; at the same time, CATL has the hope of increasing market share with its relatively comprehensive product layout and forward-looking capacity layout.

From a valuation perspective, based on Dolphin Research's assumption of this year's shipment volume of 620-630Gwh (including the incremental assumption for Europe), CATL' Hong Kong stock corresponds to a P/E multiple of about 22 times for 2025.

Under optimistic sentiment (25-year shipment volume of 630 Gwh, net profit per wh of 0.11-0.113 yuan, 25XPE), the current Hong Kong stock price may have an upward space of about 15%-20%, but the space for further valuation increase is not large.

In terms of asset attributes, in the eyes of overseas funds, the European market seems to have certain technological attributes due to the insufficient product line configuration of existing overseas competitors, and most domestic competitors have not yet achieved large-scale capacity in overseas regions, but Dolphin Research believes that this advantage of CATL overseas compared to competitors is still more of a mismatch in capacity timing, not a true technological asset, and achieving a technological valuation of 25XPE may still be difficult, with no fundamental change in valuation logic.

IV. How to view the premium of CATL A/H shares?

① H-share issuance structure and small circulation:

CATL' H-share accounts for only 3.4% of the total share capital, with about 70% held by the top 25 institutional investors, and 50% locked by cornerstone investors for 6 months, resulting in a relatively small actual circulation.

② Scarcity of CATL as a target:

CATL is a global leader in power batteries, and similar targets are scarce in the Hong Kong stock market, making H-share listing a core asset pursued by funds, driving the premium.

③ Passive funds and index inclusion expectations

CATL' H-shares have already been included in the MSCI index, and the market expects CATL to be quickly included in the Hang Seng Index, which will attract a large amount of passive fund allocation, thereby enhancing the valuation of H-shares.