Author | Zhou Zhiyu
CATL has alleviated investors' concerns over the past period with its annual report.
On the evening of March 9, CATL disclosed its 2025 annual report. The net profit attributable to shareholders reached 72.2 billion yuan, a year-on-year increase of 42%, with profit growth 2.5 times that of revenue growth. More importantly, the capacity utilization rate in the second half of the year soared to 102.6%—while everyone is discussing who will be eliminated, this leading company, which holds nearly 40% of the global market share, is already facing insufficient capacity.
In the past year, lithium carbonate prices have fluctuated significantly, and second- and third-tier battery companies have been aggressive in production scheduling, with narratives of price wars almost ubiquitous in the lithium battery industry. Wall Street Insights has learned that CATL currently has some orders limited by capacity, while some orders have overflowed to other second- and third-tier competitors. The implication is that the demand is not poor; rather, the leading company's capacity cannot accommodate it.
Moreover, CATL maintains an optimistic outlook on the overall medium- to long-term growth of the industry. Internally, CATL expects a compound annual growth rate of 20%-30% in the industry over the next 3-5 years.
The capital market has made its own judgment. After the performance was released, some institutions have begun to raise their profit forecasts for 2026 to over 94 billion yuan.
Looking back over the past few years, regardless of how lithium carbonate prices have fluctuated, CATL's profit per Wh has remained relatively stable. During the same period, most second-tier companies have been squeezed by costs during price increases and lack hedging tools during price declines. The same market conditions yield different profit margins.
Where does profit come from, what drives market share, and as the industry enters a new cycle, can this cross-cycle pricing power be sustained—these three questions point to three different answers.
<h2>Locking in Profits</h2>
Revenue of 423.7 billion yuan, a growth of 17%. Sales of 661 GWh, a growth of 39%. Net profit of 72.2 billion yuan, a growth of 42%. The growth rates of these three metrics are completely on different scales.
The sales growth rate far exceeds the revenue growth rate, indicating a decrease in unit price. A simple calculation shows that revenue per GWh dropped from about 76.2 million yuan last year to 64.1 million yuan, a decline of about 16%.
However, profit growth is leading the way.
The answer lies in the cost side. The annual report shows that the proportion of direct materials in operating costs decreased from 76.48% to 71.79%, a drop of nearly 5 percentage points in one year. The cyclical decline in lithium carbonate prices is one reason, and the large-scale production of PSL super pull lines leading to improved manufacturing efficiency is another. While selling prices fell by 16%, costs fell even faster—thus creating a widening gap.
However, what truly stabilizes CATL's profits is not just cyclical luck, but a set of institutional designs.
CATL's contracts for power batteries with downstream automakers generally include a lithium carbonate price linkage mechanism, with a transmission cycle of about 1 to 2 months. When raw material prices rise, costs can be passed down within one to two months. At the same time, CATL holds equity in upstream mineral resources, and Bangpu Recycling recycles 210,000 tons of used batteries and materials throughout the year, with nearly 370 billion yuan in nominal principal of derivative hedging locking in exposure.
When lithium carbonate prices rise, the linkage mechanism transmits costs, and upstream holdings share the benefits of price increases. When lithium carbonate prices fall, low-cost stockpiling and recycling channels fully release cost reduction dividends. Both directions have hedges, keeping net profit per Wh stable at around 0.1 yuan/Wh. In contrast, most second-tier companies are squeezed by costs during the upward cycle and lack price-locking tools during the downward cycle, leaving them passive on both ends
Cash flow is also validating profit quality. The net operating cash flow for the year was 133.2 billion yuan, a year-on-year increase of 37%, significantly higher than net profit. Financial expenses amounted to -7.94 billion yuan, nearly doubling from the previous year—interest and exchange gains from 333.5 billion yuan in cash and cash equivalents have already become a considerable &#34;invisible profit.&#34;
More critically, there is acceleration in Q4. Quarterly revenue reached 140.6 billion yuan (up 37% year-on-year, up 35% quarter-on-quarter), with net profit attributable to the parent company at 23.2 billion yuan (up 57% year-on-year), marking the strongest single quarter of the year. If the annual data represents a trend, Q4 indicates that the slope of the trend is steepening.
Of course, there are also noises that need to be discerned. The total asset impairment for the year was 8.66 billion yuan, concentrated in the fourth quarter. The management of CATL pointed out when explaining this data that the impairment of fixed assets mainly targets early production lines, as older equipment can hardly meet current operational conditions and capacity demands; the inventory impairment was recognized based on a principle of prudence, and in terms of overall asset scale, the proportion is actually shrinking.
However, from another perspective, the proportion of equipment impairment within the total impairment exceeds that of inventory impairment. This structure itself is a signal—rather than indicating asset quality deterioration, it suggests a visible transition in technology generations. Actively phasing out early small-capacity lines and reallocating resources for new generation processes like PSL essentially means exchanging impairment for efficiency, trading short-term profits for long-term upgrades in manufacturing paradigms.
Inventory increased from 106 GWh at the beginning of the year to 186 GWh at the end of the year, a growth of 75%. However, breaking it down, a considerable proportion of the increase is in shipped goods—energy storage systems can take months from factory to installation, debugging, and acceptance, with a large amount of shipped but not yet accepted goods inflating the balance sheet figures. Essentially, this represents &#34;revenue to be confirmed,&#34; rather than unsold inventory. Additionally, preemptively stocking low-cost raw materials during the lithium carbonate upcycle is also a proactive cost management strategy.
The pace of digestion still needs to be tracked. However, from the profit structure, the quality of this round of growth is solid: cost optimization outpacing price declines is the underlying logic, and the linkage mechanism along with upstream layout secures profit stability as a systemic guarantee. The acceleration in Q4 confirms the cyclical position, while the impairment structure suggests that the manufacturing side is actively evolving.
<h2>Full Production Siphoning</h2>
High profit quality is one thing, but high share quality is another.
There is no shortage of market shares gained through price reductions, and such growth is &#34;inflated.&#34; The increase in CATL's market share by 2025 is of a completely different nature.
According to SNE Research data, global power battery usage is projected to reach 1187 GWh in 2025 (up 31.7%). CATL's power battery sales are expected to be 541 GWh (up 41.85%), outperforming the industry by nearly 10 percentage points. The global market share is 39.2% (up 1.2 percentage points), maintaining the first position for nine consecutive years. The overseas market share has surpassed 30% for the first time. Energy storage has been the global leader in shipments for five consecutive years.
At the same time, the gross margin for power batteries is 23.84%, essentially flat. Energy storage stands at 26.71%, also stable. The gross margin overseas is 31.44%, about 7.4 percentage points higher than domestically. Market share is expanding without sacrificing profit margins.
The increase is not achieved through price reductions. Where does it come from?
A key structural change is taking place: the sales growth rate of power batteries is 41.85%, significantly higher than the global sales growth rate of new energy vehicles at 21.5%. Batteries are growing at a pace far exceeding that of complete vehicles.
There are two driving forces behind this. First, the energy capacity per vehicle is systematically improving—pure electric models are transitioning from &#34;optional long range&#34; to &#34;standard long range,&#34; and the battery capacity of extended-range models is rising from 40kWh to 60-80kWh, with the power consumption demands of high-level intelligent driving further increasing energy capacity. Second, the sales of new energy commercial vehicles are expected to grow by 63.7% year-on-year by 2025, with a penetration rate rising to 26.9%. The energy capacity per commercial vehicle far exceeds that of passenger vehicles, with the battery demand for each new pure electric heavy truck being roughly equivalent to that of 3-4 passenger vehicles—this itself is a demand lever.
With these two variables combined, a significant gap has opened up between battery installation volume and complete vehicle sales. Whoever has sufficient high-quality production capacity to fill this gap will be able to capture market share.
Wall Street Journal has learned that CATL's production capacity is fully booked, causing some orders to overflow to other second- and third-tier competitors.
According to industry insiders, some second- and third-tier manufacturers have high expectations for production scheduling in 2026, with estimates ranging from 50%-60% to 80%-100%. Previously, Ding Yueli, head of China basic materials research at UBS Investment Bank, also analyzed for Wall Street Journal that the lithium carbonate market overall will still be in a relatively tight balance in 2026.
According to Ding Yueli's calculations, the expected demand for lithium carbonate from electric vehicles next year is projected to grow by 15% year-on-year, while energy storage is a key variable. UBS understands that the growth expectation for lithium carbonate from energy storage is that leading companies aim to double their targets next year, with large enterprises expecting an increase of over 70%.
Data shows that CATL's capacity utilization rate in the second half of the year is 102.6%, already operating at full capacity. The year-end contract liabilities reached a historical high of 49.2 billion yuan—this is a near indicator of orders on hand, more solid than any verbal statement.
In response to concerns that aggressive production scheduling by second-tier companies may trigger a price war, CATL's management believes that the lithium battery industry has never been scarce; it is high quality that is truly scarce, which is what users really need.
By the end of last year, CATL had 321GWh of capacity under construction. Wall Street Journal has learned that CATL's scale under construction in 2026 will be even larger, with capital expenditures further increasing.
However, there is an easily overlooked distinction: although both are expanding production, each GWh of CATL's expansion is tied to locked long-term supply agreements and technical partnerships, with expansion decisions based entirely on visibility of customer orders rather than a linear extrapolation of industry average growth rates. The aggressive production scheduling of second-tier companies, if lacking the same depth of customer binding, may face the pressure of &#34;overproduction upon commissioning.&#34;
In other words, the current high growth of second-tier companies is partly built on the foundation that the leading companies &#34;cannot accommodate&#34; all the demand. Once CATL's certain capacity is released, the overflow will flow back. The quality of expansion should not only be measured by GWh numbers but should also consider order conversion rates and customer structure.
This is the essence of full production siphoning—not that CATL is stealing others' market share, but that demand is seeking them out
<h2>The Cards in the Second Half</h2>
Whether CATL's value can be sustained in the new cycle ultimately depends on structural changes within the industry itself.
Now, energy storage has shifted from selling battery cells to selling systems, and the competitive benchmarks are being redefined.
Energy storage battery shipments reached 121 GWh (+29%), but revenue grew by only 9% to 62.4 billion yuan. The unit price of battery cells has been significantly compressed, and profit margins are nearing their bottom. However, system integration shipments increased by over 160% year-on-year, with global deliveries exceeding 70 projects—value is migrating from battery cells to systems.
The direction of product iteration is very clear: mass production of 587Ah large battery cells, batch grid connection of the Tianheng 6.25MWh system, and the global debut of the TENER Stack 9MWh solution. The integration level is increasing, and the delivery units are getting larger. CATL has revealed that energy storage is more about providing a complete delivery for owners; the 587Ah cells can increase throughput by nearly 50% compared to the 314Ah cells, enhancing the owner's IRR by two to three percentage points.
An increase of 2-3 percentage points in IRR could mean a difference of hundreds of millions in net present value for an energy storage project. The market is still focused on how many cents the price per Wh of battery cells has dropped, but the dimensions that truly determine bidding results are already shifting—levelized cost of storage (LCOS), grid stability, and intelligent scheduling capabilities are becoming the comprehensive scoring system for energy storage projects. Whoever can achieve cross-domain integration in electrochemistry, power electronics, and AI algorithms will score high on this new scoring sheet.
There is also a new variable on the demand side: the rigid demand for energy storage from AI data centers. AI training and inference loads have severe pulsing fluctuations, and data centers need energy storage to smooth out power shocks and peak shaving. Some grid operators have already required that newly connected large loads must have self-regulating capabilities. For data centers, the opportunity cost of power outages or delays in grid connection far exceeds the marginal increase in battery prices—this is a form of rigid demand that is almost unaffected by price fluctuations.
Current entrants are mostly focused on single-point capabilities—some only make battery cells, while others only make inverters. However, the ultimate competition in energy storage requires full-stack capabilities that coordinate from battery cells to battery boxes to PCS to EMS and then to the grid side. The pure battery cell price war has already hit the floor, and future pricing power lies in system integration.
On the other hand, localization overseas has shifted from a bonus to a ticket for entry.
CATL's overseas revenue reached 129.6 billion yuan (30.6% of total), with an overseas gross margin of 31.44%, which is 7.4 percentage points higher than domestic margins. The high premium is backed by customer stickiness and delivery assurance brought by localized production capacity.
The first phase of Hungary's over 30 GWh has completed debugging and is ramping up, while projects in Indonesia are under construction and those in Spain are in planning. Wall Street Insights learned from CATL that its overseas factory investments are about 1.5 to 2 times that of domestic ones, and the demand for orders in Hungary is saturated.
The external environment is forcing changes. The EU allocated up to 3 billion euros in March to support local battery manufacturing, Zimbabwe has restricted the export of lithium ore requiring local processing, and Indonesia is promoting the localization of nickel ore processing. The global lithium battery supply chain is shifting from &#34;Made in China, exported globally&#34; to &#34;regional production, local delivery.&#34;
LG, SK, and Samsung SDI are building factories in North America, while Chinese companies are establishing a presence in Europe and Southeast Asia. The battery industry is replicating the regionalization path of semiconductors. The window for going overseas will not remain open forever; the early bird gets the worm.
Currently, &#34;implicit clearing&#34; has already begun.
On the surface, the industry does not appear to be contracting—second and third-tier production schedules are aggressive, and new capacity is still being deployed. However, the leading companies have a capacity utilization rate of 102.6% in the second half of the year, with stable and rising gross margins and continuously expanding market share. The prosperity of second-tier companies is, to some extent, built on the overflow from the leaders.
A deeper asymmetry lies in the profitability tools. CATL has a price linkage mechanism to transmit cost fluctuations, nearly 370 billion in hedging locked exposure, upstream minerals, and an annual recycling volume of 210,000 tons to hedge resource risks. Whether lithium carbonate rises or falls, the profit per Wh remains stable at around 0.1 yuan/Wh. Small and medium-sized enterprises are more passive in both directions; the same market conditions yield different profit margins.
CATL's logic for capacity expansion has shifted from prioritizing scale to prioritizing certainty—321 GWh of capacity under construction is backed by locked long-term contracts and technical specifications, with contract liabilities reaching a historical high of 49.2 billion yuan, confirming order visibility. In contrast, if second-tier manufacturers' aggressive production schedules lack equally deep customer binding, the day capacity is released could also be the day profit margins come under pressure.
Orders overflowing to second-tier companies may accelerate the return flow, and the differentiation in capacity utilization rates and concentration of profits may occur faster than the market expects. This is the meaning of &#34;implicit clearing&#34;: capacity is not retreating, but profits are concentrating.
From first topping global power battery shipments in 2017 to capturing nearly 40% of the global market share and achieving annual profits exceeding 70 billion yuan by 2025, CATL has completed its leap from an industry dark horse to an absolute leader in eight years. Listing in Hong Kong, building factories globally, systematic energy storage, and mass production of sodium batteries—this company is transforming from a battery manufacturer into a definitional player in new energy infrastructure.
However, the challenges of the new cycle are also escalating. The price of lithium carbonate has entered a new round of fluctuations, the window for localization overseas is narrowing, and the competitive dimensions of energy storage are shifting from battery cells to systems. Whether CATL can maintain profitability stability while expanding production capacity and outperform policy changes in its global layout is not just a question for one company, but a critical battle for how far China's lithium battery industry can go in the global energy transition

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The industry will maintain a year-on-year compound growth rate of 20%-30%

- CATL's 2025 annual report alleviates investor concerns, showing a net profit of 72.2 billion yuan, a 42% increase year-on-year.  
- The company's capacity utilization surged to 102.6% in the second half of the year, indicating strong demand and limited ability to meet orders, contrasting with industry-wide price volatility.  
- With a projected industry growth rate of 20-30% over the next 3-5 years, CATL's strategic positioning and robust profit mechanisms underscore its role as a leader in the energy transition, despite emerging challenges in lithium prices and localization efforts.

Is Ning Wang's new cycle still increasing in "gold content"?