Farewell to Ning Wang, we shall meet again.

First opened a position on 2025.5.23 at 271.88, with subsequent additions and reductions throughout; overall cost basis around 300. Closed the entire position on 2026.8.19 at 388.97, realizing an unrealized gain of approx. 30%.

I've always been bullish on 'King Ning' (CATL). CEO Zeng understands technology, business, and management, possesses sharp insight, and remains low-key and pragmatic. Within the entire manufacturing sector, he stands as a top-tier entrepreneur.

Furthermore, King Ning has immense upside potential. Whether it's new energy vehicles, solid-state batteries, energy storage, AI, humanoid robots, or the low-altitude economy, wherever electricity is used, you'll find King Ning's presence.

The main reasons for my current temporary exit are as follows:

1. Overweight exposure to power batteries.

Although energy storage growth is rapid, its share of revenue still lags significantly behind that of power batteries.

However, starting in 2026, NEV production and sales have lost momentum. From Jan-Jul, despite double-digit growth in NEV exports, overall domestic NEV production and sales saw YoY growth of less than 10%, primarily driven by a sharp YoY decline in domestic NEV sales.

2. Declining gross margin.

The latest Q2 data shows declines both YoY and QoQ. A shrinking gross margin is a precursor to intense price wars ('involution').

3. Contract liabilities declined YoY.

Although the decline was slight at 0.43% YoY, contract liabilities serve as a 'reservoir' for future performance. A YoY drop in the mid-year report marks the first time since 2021 for King Ning.

4. Prepayments surged 133.71% YoY, far outpacing revenue and profit growth.

Optimistically termed 'strategic stockpiling,' this also reflects a diminished 'client' status for King Ning within the supply chain ecosystem.

5. Slowing growth in non-GAAP net profit.

6. Inventory grew sharply by 81% YoY.

Aside from a significant YoY increase in raw materials, finished goods inventory saw an even larger surge, nearly doubling.

Over the past two years, the inventory turnover rate has shown a clear decline.

7. Operating cash flow growth lagged behind profit growth YoY, possibly due to relaxed payment terms.

Additionally, valuation percentiles for the broader A-share market (91.55% over 10 years) and the ChiNext board (63.69% over 5 years) remain relatively high.

Considering the above, I am temporarily clearing my King Ning position. I will wait for power battery metrics to stabilize (where export growth offsets domestic declines) or for energy storage's share to rise sufficiently to offset the slowdown in power batteries before considering re-entry.

$CATL(300750.SZ)

$CATL(03750.HK)