CATL (2Q25 Minutes): The growth of new energy vehicles in Europe continues, and local production capacity is gradually being released.
The following are the minutes of the FY25Q2 earnings call for$CATL(03750.HK) compiled by Dolphin Research. For an interpretation of the financial report, please refer to《Ning Wang: Price War, Can It Break Through the Domestic Involution Dilemma?》
I. Review of Core Financial Information
II. Detailed Content of the Earnings Call
2.1 Key Information from Management Statements
1. Operating Performance: Net profit attributable to shareholders was RMB 30.5 billion (up 33% year-on-year), comprehensive gross margin was 25% (up 1.8 percentage points year-on-year), and operating cash flow was RMB 58.7 billion, with monetary funds at the end of the period approximately RMB 350 billion. The company was listed on the Hong Kong Stock Exchange in the first half of the year, raising USD 5.29 billion to build an A+H international capital platform to support global expansion.
2. Power and Energy Storage Batteries: From January to May 2025, the global market share of power batteries was 38.1% (up 0.6 percentage points year-on-year), with a significant increase in the European market share; from January to June, energy storage battery production ranked first globally. By the end of the period, approximately 20 million vehicles had been equipped with power batteries, and energy storage batteries had been applied in over 2,000 projects.
3. R&D Capabilities: Six global R&D centers and 21,000 R&D personnel support technological breakthroughs. Research on lithium metal batteries was published in Nature Nanotechnology, with a total of 49,347 patent applications and pending patents (29,709 domestic and 19,638 overseas).
4. Industry-Leading Product Matrix: Sodium-zinc batteries (the world's first mass-produced sodium-ion battery with a range of over 500 kilometers), the second-generation Shenxing battery (the world's first 800-kilometer range lithium iron phosphate battery), Kunshi chassis commercial ecosystem solutions, etc., all series of mass-produced brands have passed the new national safety standard testing.
5. Expanding into Diverse Fields: The world's first all-electric passenger ship set sail from Xiamen (with a range of 1,000 kilometers), and the strategic investment in the ton-class eVTOL aircraft of Peak Flying Aviation achieved technological breakthroughs. In the energy storage field, a 587 Ah cell, a 9MWh ultra-large capacity system, and an intelligent management platform were launched to optimize safety and efficiency.
6. Accelerating Global Capacity Layout: Domestically advancing the construction of bases in Zhongzhou, Jining, etc.; overseas advancing the construction of factories in Germany, Hungary, Spain (joint venture), and Indonesia, building a global network. ESG performance is outstanding, with the CDP environmental rating rising to B, inclusion in the FTSE Russell Social Responsibility Index, and the German base receiving carbon neutrality certification.
7. Shareholder Returns: Plans to distribute cash dividends equivalent to 15% of the net profit for the first half of 2025 (amounting to RMB 4.6 billion) to reward shareholders.
2.2 Q&A
Q: What were the shipment volumes and structure (domestic and overseas proportions) of power and energy storage batteries in the second quarter? What guidance is there on battery prices?
A: Q2 shipments were close to 150GWh, with energy storage accounting for about 20%, and power batteries being the main component, with a structure similar to before. In terms of prices, Q2 was basically flat compared to Q1, overall stable, with only slight adjustments due to lithium carbonate price fluctuations.
Q: How do you view the industry's progress on solid-state batteries? What is the company's progress in the industrialization of solid-state batteries (such as the progress of the pilot line), the level of main technical parameters, future prospects, and related developments?
A: The so-called solid-state batteries in the current industry are mostly semi-solid, not fully solid. The company is leading in research in this field, with scientific issues basically resolved, focusing on engineering implementation, and currently progressing well. Specific information will be announced after the product is launched.
Q: Under the sulfide route, can the battery achieve about 60 ampere-hours? What is the cycle level? How is the progress of the pilot line from the laboratory to engineering? When is the 7GWh production line planned to be put into use? Is there a rough plan or guidance? What is the commercialization timeline?
A: The parameters such as ampere-hours mentioned are all small-capacity samples, which are products of the R&D process and cannot be applied at present. The company's goal is to commercialize mass-produced products, and the progress is currently good. Process products are not key milestones.
Commercialization is more complex than productization, requiring consideration of cost and supply chain maturity. The company plans to achieve small-scale mass production by 2027, with supply chain maturity typically taking 3-5 years, and commercialization or mass production is expected around 2030. True commercialization is still some distance away and is not as simple as publicized. It takes longer from sample to commercialization. To achieve economic viability, the entire industry chain needs to increase investment and technological R&D, and it is expected to reach a large-scale state in 3-4 years.
Q: The investment progress on the industry side is faster and exceeds expectations, and all parties are very active. Can you introduce more about the relevant situation?
A: The current capital circle is highly enthusiastic, but the technology will not be finalized until 2027. It is still early for large-scale investment on the industry side, and the so-called active investment is to prepare for small-scale mass production at that time. The industry is still in the R&D and sample stage, with no large-scale production investment.
Q: In the second quarter or the first half of the year, what was the proportion of the energy storage business in the US and overseas markets? With the "disguised stocking" situation in the US expected to decrease in the second half of the year or next year, what impact will this have on the unit profit of the company's energy storage business?
A: In the first half of the year, the overseas proportion of the company's energy storage business was slightly more than half, with nearly half domestically. Overseas rush installations were mentioned more by LG, citing the impact of related legislation (IRA), while the company's overseas sales cover many regions such as Europe, the Middle East, etc., and growth in other regions is good. Although the US market may be affected by legislation, there is overall confidence in the subsequent growth of overseas markets.
Q: In the second half of the year and the next few years, will the proportion of overseas in the company's energy storage business remain roughly the same compared to the first half of the year and previous years, or will there be significant changes? Will this change in proportion affect the unit profit of the company's energy storage business?
A: Concerns about the impact of Document No. 136 on domestic energy storage have not materialized, with rapid growth and good market support. Currently, both domestic and overseas energy storage growth is fast, and which is faster depends on market development and international policy changes. Currently, both growth rates are considerable.
Q: Since solid-state batteries may not be the fastest to commercialize, what will be the next major product or technology that will significantly widen the gap with second-tier manufacturers?
A: The Shenxing II, sodium new battery, and Xiaoyao dual-core products released at the Shanghai Tech Day in April this year are competitive and are being gradually implemented. In the energy storage field, the Tianheng system and 587 large cell products were also released. The company has achieved fruitful results in technology R&D and product innovation, and new products need time to be implemented. The sodium new battery, Shenxing II, and Xiaoyao dual-core are expected to be announced for vehicles from the second half of this year to early next year, all of which are market-influential new products.
Q: In the second quarter and the first half of the year, the gross margin of power batteries decreased by about 1 percentage point year-on-year, while the gross margin of energy storage increased by 1 percentage point year-on-year. What caused the decline in the gross margin of power batteries?
A: The fluctuation of about 1 percentage point in the gross margin of power batteries is a slight fluctuation, related to multiple factors such as product structure and raw material prices. Overall, the gross margins of power and energy storage remain stable, with breakthroughs in cost control and other aspects even making them stable with a slight increase. The net profit margin in the first half of the year exceeded 18%, reaching a recent high, which better reflects the stability of profitability.
The changes in product composition and customer base lead to varying project profitability, but the net profit level per GWh remains stable in the long term, and as shipments increase, the overall net profit and shipments positively correlate. Due to the large scale of funds, the company engages in hedging, and the impact of exchange rate fluctuations on the gross margin will be offset by the cost of funds, so looking at the gross margin alone is not comprehensive. The net profit margin is more stable, especially when the impact of exchange rate fluctuations is significant this year. The gross margin is easily affected by various factors, while indicators such as unit watt-hour net profit, sales net profit margin, and ROE better reflect stability, with the sales net profit margin reaching a historical high.
Q: The battery materials business grew by nearly 70% year-on-year in the first half of the year, and the gross margin of other businesses grew by more than 30% year-on-year. What are the reasons for these two areas of growth? (Including reasons related to battery material recycling)
A: In the first half of the year, the battery materials business involved recycling, dismantling, and upstream precursor inputs. Due to the significant fluctuations in metal prices caused by international events, the company, having signed long-term agreements with suppliers, generated value-added tax on warehouse goods in the current cycle, resulting in a higher gross margin. As related events continue, there may be a quota system in the future, which will enhance the value of long-term agreement orders. Although it is difficult to maintain a high gross margin in the long term, it will still be at a relatively high level due to resource scarcity.
Q: Can the company provide a clear outlook for the third quarter?
A: We have always emphasized to investors to focus on the company's long-term growth over the next three to five years. Hong Kong stock investors also value long-term and international competitiveness and recognize the company's investment value. In the short term, the capacity utilization rate in the first half of the year reached a saturation level of 90%, which can infer the order situation in the second half of the year. However, the company is reluctant to guide short-term expectations too much and hopes investors will focus on long-term value. Investors can also understand the current state from the capacity utilization rate and inventory in the first half of the year.
Q: In the fiercely competitive car and energy storage markets, as a provider of core vehicle components and high-value products, how will Ningde empower domestic and overseas customers from a pricing and product strategy perspective to help them gain better advantages and shares in the competition?
A: In the fiercely competitive new energy vehicle and energy storage markets, the company stands out by relying on technological innovation, enhancing product performance around three major directions and four major innovations, gaining customer recognition with high-quality products and services, rather than pure price competition. The product prices are even higher than many competitors, which is the company's consistent strategic direction.
For the economic market, the company helps partners enhance customer stickiness and lower entry barriers through the battery swapping model. Currently, the number of partners and models in the battery swapping business is increasing, and it will continue to develop and demonstrate greater value in the future.
Q: The inventory level in the second quarter increased slightly, with finished goods inventory increasing significantly compared to the beginning of the year, while the total amount of goods dispatched remained roughly the same as at the beginning of the year. What is the subsequent inventory confirmation rhythm? What is the approximate amount of current inventory?
A: Although the absolute amount of inventory has increased, the company is more concerned about the inventory turnover speed. The inventory turnover days in the second quarter were basically the same as in the first quarter, about 88 days. In the inventory, dispatched goods and finished goods inventory account for a large proportion. It should be noted that finished goods inventory does not mean there are no designated customers, but there are two situations: one is that the product has been produced but the customer has not yet picked it up; the other is due to trade terms, when delivering overseas, the product has passed through Chinese customs and entered foreign customs, stored in Ningde's overseas transit warehouse, but has not yet been delivered to the customer's factory, so it is still considered finished goods inventory rather than dispatched goods. This makes the finished goods inventory appear slightly more than expected. However, these are all benign inventories and are expected to be digested within the next 88 days. In fact, these inventory product lines will be sold and transferred externally in the future.
Q: The income tax rate in Q2 was significantly higher than usual. What is the reason?
A: The comprehensive income tax rate increased due to a decrease in the amount of additional deductions compared to the same period and the deferred payment of some local taxes to support local phased construction in the first half of the year. The overall tax rate remains reasonable.
Q: With the accelerated growth of new energy vehicles in Europe, what is the company's market share and shipment situation in the European power market? What is the outlook for shipments after the Hungarian and German factories form effective capacity next year?
A: The European new energy vehicle market has resumed rapid growth since last year, and the growth rate continues. The company's Thuringia factory in Germany was put into production at the end of 2022, achieving local production and supply; the first phase of the Hungarian factory module was put into production last year, and the cell factory will be mass-produced by the end of the year, with the second phase and the Spanish joint venture factory in preparation. In the future, European local production capacity will be gradually released, matching the market volume rhythm.
Q: Can you share the shipment and profitability situation of the German factory in the first half of this year?
A: The German factory was profitable in the first half of this year, and capacity is gradually ramping up.
Q: The company has guided that unit net profit can be sustainably stable, while the net financial income in the second quarter increased significantly compared to the first quarter (from about RMB 2.2 billion to RMB 3.6 billion), which should include exchange rate effects. How should we understand the sustainable stability of unit net profit and the impact of exchange rate gains and losses between quarters? (As exchange rate gains and losses are usually considered unsustainable)
A: The euro and other exchange rates fluctuated greatly in the second quarter. The company held euros and hedged, generating exchange gains, but the increase in material costs priced in euros affected the gross margin, and the two formed a hedge, with the exposure fully hedged. Due to the large foreign exchange reserves, the fluctuations in financial expenses caused by currency fluctuations cannot fully reflect the actual situation. It is recommended to look at the gross margin and related items of financial expenses together, and focus on net profit or ROE to truly reflect profitability performance.
Q: The mining license for the Jiangxi mine is about to expire. What is the current renewal and communication situation with the government? Is there a risk of production reduction or suspension?
A: The recent extreme market conditions for lithium carbonate have drawn attention to the renewal of the Jiangxi lithium mine mining license. The Yichun lithium mine project is currently operating normally, and the renewal application has been submitted to the Yichun City Natural Resources Bureau in advance as required, with receipt confirmed by both city and provincial levels. The required documents are complete, and the content is complete, awaiting approval. The company is relatively optimistic about this, and the process is compliant.
Q: What is the company's principle for hedging lithium carbonate? If short-term price fluctuations such as continuous increases occur, will hedging be carried out? Is there a marginal impact on unit profitability (as battery price adjustments are relatively slow)?
A: The company has multiple ways to deal with lithium carbonate price fluctuations: hedging transactions are relatively few, relying more on long-term agreements, with a high proportion of self-mining; there are price linkage agreements with customers, forming a natural risk hedge. The company is concerned about lithium mine fluctuations and hopes for long-term stability, allowing upstream and downstream to obtain reasonable returns and balance production and sales, avoiding extreme fluctuations (previous fluctuations were mostly due to news, causing losses to futures participants). Stable prices are more beneficial to the market.
Q: The construction of domestic and overseas production bases is accelerating. Is there a quantitative guide for the scale of capital expenditure for the whole year? The interim report already has an interim dividend arrangement. Will there be changes in the direction of the subsequent dividend ratio?
A: This year's capital expenditure is expected to increase by about 30% year-on-year due to battery expansion and supply chain layout, with the current capacity under construction increasing compared to last year and the annual report.
The interim dividend is in response to regulatory and investor calls, distributed at 15% of the current period's profit, with the total amount unchanged, and will be deducted from next year's annual dividend, aiming to enhance investors' sense of gain and alleviate the pressure of long-term holding without returns.
Q: After 2-3 years of low profits or even losses in the upstream lithium battery sector, how does the company adjust the pace of upstream capital expenditure to match demand growth and achieve long-term healthy development of the industry chain? Are there any related strategy adjustments?
A: The expansion cycle of China's industry often does not match the demand cycle, leading to overcapacity after upstream enterprises expand, facing price or profitability pressure, which exists in multiple industries, including lithium batteries.
Currently, with the expansion of battery plants and the growth of downstream EV, ESS, etc., the profitability of the industry chain (including upstream) is recovering well, which is related to the capacity cycle.
The company is supportive of suppliers, providing assistance in terms of payment terms and supply chain management, and has initiated innovative cooperation initiatives with suppliers, prepaying funds to support their R&D and new product investment for those with R&D capabilities and willingness, striving to form a virtuous cooperative ecosystem.
Q: Is there any prediction that any upstream link may experience supply tension in the next 1-2 years?
A: Currently, there is no particularly tense link upstream, as the market is dynamically changing, and the current capacity can cover expectations. Whether there is supply tension depends on whether demand exceeds expectations: if it exceeds expectations, the entire industry chain may be tight; if it falls short of expectations, the industry may face difficulties. For example, at the beginning of the year, it was expected that the growth rate in Europe and some sub-markets would not be fast, but in the past six months, their performance has far exceeded expectations, prompting the market to adjust demand expectations, which may bring new opportunities and challenges to the supply side.
At this stage, it is too early to judge whether there is excess or shortage in the link, but the upstream supply chain has made significant progress in capacity, efficiency, manufacturing capability, etc., after the expansion exercise, and is no longer in the early dilemma state, with a high level, and can quickly expand when there is demand.
Q: This year's power growth significantly exceeds energy storage, and overseas growth is significantly faster than domestic, which is different from past trends (domestic electric vehicle growth was actually faster than overseas). What is the underlying logic? Will this trend continue in the future?
A: In the first half of this year, the power sector showed good growth, with an increase in the electrification rate of passenger cars and faster growth in commercial vehicles. Regarding the growth rates of power and energy storage, the data shows that energy storage is faster, which may require verification from both sides; the revenue growth rate may be faster for power, while the shipment volume is faster for energy storage. Overseas, the electrification rate in Europe and other places is increasing rapidly, driving outstanding performance in overseas business.
Q: It was previously mentioned that AI has a significant impact on lithium batteries. What new progress has been made?
A: The impact of AI on lithium batteries is a long-term trend, especially in the AI data center field. Since the Zhongzhou project at the beginning of the year, the company has been in contact with many AI configuration-related projects, which require some time to be implemented. Currently, there are multiple projects in negotiation domestically and internationally, which will be gradually implemented and reflected in the company's subsequent energy storage sales.
Q: The company launched the 587 Ah large battery, which exceeded expectations. Previously, the market believed that there were problems with the winding process for more than 5 million times. What technical problems were overcome? On this basis, is it possible to develop larger specifications? What was the proportion of energy storage system shipments in the first half of the year?
A: The 587Ah large cell reflects the company's technical capabilities. Due to the fierce competition in the energy storage market, the company continues to upgrade its products, and the 587Ah is the optimal solution that comprehensively considers cell characteristics, balancing energy density, safety, and lifespan. The cell is not necessarily better the larger it is; although increasing capacity can reduce costs and increase density, it needs to consider actual scenarios. The 587Ah meets the transportation requirements of various countries and can avoid container overweight, making it the optimal solution at present. Larger specifications may have transportation difficulties. In addition, the company will continue to optimize products, and the proportion of DC and AC products in the energy storage system is increasing.
The company's pad product shipment proportion is high, with about 70% being this type of more expensive product, and bare cell sales are few, with related appliances selling well.
Q: The proportion of parts other than bare cells has approached 50%. Is there any relevant data for the second quarter?
A: About 70%.
Q: The company previously proposed a goal of building 1,000 battery swapping stations by 2025 and may invest funds itself. How many have been built so far? How much has been invested?
A: The goal of building battery swapping stations remains unchanged. Currently, about 400 passenger car swapping stations and about 40 heavy truck stations have been built, with no concerns about the annual target. The battery swapping network is rapidly expanding, and the cooperative models with car companies will be launched this year, which is a comprehensive solution to market competition. The initial battery swapping stations were slow, but once the network is formed, it will be effective. The company is firmly investing, and after product upgrades and simplification, the investment in a single battery swapping station is not high.
The investment in battery swapping stations is fully funded by Ningde Times with its own funds. The 1,000 passenger car stations and 300 heavy truck stations planned for this year will also be built with its own funds. According to estimates, the national battery swapping network needs more than 10,000 stations, but the company will not bear it alone. In the early stage, to promote the project and let the market recognize its value, the company invested itself; later, more partners will be introduced, and actual planning has been carried out with Sinopec and others. In the future, if 10,000 or 12,000 stations are built, it will not be solely invested by the company. The early investment with its own funds is to ensure speed, and later it will be jointly invested with partners.
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