Investor earnings expectations for CATL may currently be overly pessimistic.
According to a Morgan Stanley research report dated October 9, market attention is excessively focused on China's passenger vehicle market, which accounts for roughly one-third of CATL's total EV battery sales. However, the bank emphasized that the electrification of China's commercial vehicle fleet, the reacceleration of EV penetration in Europe, and the inflection point in EV demand across global markets outside the US have already formed a substantial revenue exposure that cannot be ignored. The market is underestimating CATL's cross-cycle resilience.
Analysts Jack Lu and Kaylee Xu noted in the report that, based on total cost of ownership (TCO) analysis, CATL's technological advantages can support a premium of up to RMB 0.24/Wh, far above the current actual profit premium of RMB 0.09/Wh, indicating a solid earnings moat.
In response to some investors' concerns that net profit per unit of battery could fall to RMB 0.08/Wh or lower next year, the analysts argued that such a scenario would accelerate industry consolidation, as many second-tier battery manufacturers are already mired in negative cash flow. Therefore, the institution views this as a "bottom-fishing scenario" for CATL shares and maintains its "Overweight" rating on the A-shares with a target price of RMB 500.
Diversified demand offsets weakness in any single market
CATL's EV battery sales structure is undergoing significant changes. The report noted that China passenger vehicles, China commercial vehicles (eCV), and global markets each now account for roughly one-third of its EV battery sales.
In China's commercial vehicle market, driven by diesel-to-electricity arbitrage opportunities (with payback periods of under two years), CATL's battery installations in this segment have surged 53% year-on-year so far this year. Analysts expect battery sales in this segment to grow 50% year-on-year by 2027 amid elevated energy prices.
In global markets, CATL's installations in Europe have grown 32% year-on-year so far this year, while installations in the rest of the world (excluding China, the US, and Europe) have surged 158% year-on-year. Analysts expect battery sales in these two regions to maintain year-on-year growth of 25% and 40%, respectively, by 2027.
TCO premium builds an earnings moat
For commercial applications, the economics of a battery ultimately depend on its usable energy and effective mileage over its lifecycle. CATL's advantages in materials science translate directly into economic value for end users.
The report analyzed that longer cycle life, lower degradation rates, higher round-trip efficiency (RTE), and superior low-temperature performance constitute CATL's core competitiveness. For example, in cold regions, better low-temperature capacity retention means fewer winter charging stops and higher vehicle utilization rates.
The report explicitly stated: "Combining these factors, CATL's batteries possess a sustainable TCO advantage of approximately RMB 0.24/Wh compared to second-tier peers." This theoretical premium is far higher than the current actual profit premium of only RMB 0.09/Wh.
Energy storage business undergoes structural transformation
In the energy storage (ESS) sector, the Chinese market is experiencing a structural shift in revenue models, moving from a single peak-valley arbitrage model to a diversified model combining capacity value, spot arbitrage, and ancillary service revenue.
Although peak-valley price spreads have narrowed in some provinces, the introduction of capacity electricity pricing policies has effectively offset this impact. Analysts noted that for 4-hour energy storage projects, capacity electricity pricing payments are expected to boost project internal rates of return (IRR) by 4 to 7 percentage points.
Globally, driven by rising natural gas prices, increasing grid flexibility needs, and electricity demand from the expansion of AI inference, energy storage is shifting from an "optional" to a "mandatory" component. The bank expects global energy storage demand outside China to grow by approximately 30% in 2027.
The "CATL Inside" brand premium
CATL is no longer merely a component supplier but has successfully established a global consumer brand franchise.
According to a NielsenIQ survey published in September 2026, 37.1% of Chinese respondents said they would consider abandoning a purchase if their preferred vehicle model was not equipped with a CATL battery. Morgan Stanley believes: "CATL's pricing and profit premium is increasingly determined by end-user preferences rather than original equipment manufacturer (OEM) procurement decisions."
Furthermore, CATL shapes the market through continuous new product launches, such as the Kirin battery, Shenxing battery, sodium-ion battery, and condensed matter battery. Over the past six years, its battery capacity per vehicle has increased at a compound annual growth rate of 7%, effectively withstanding downturns in the passenger vehicle retail market.
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