CATL’s stock has plummeted more than 24% in September as major Chinese vehicle manufacturers move to reduce their dependence on the world’s largest EV battery supplier, reshaping the industry’s supply chain dynamics.
Shares of CATL have experienced a dramatic sell-off on multiple exchanges. On the Shenzhen Stock Exchange, the stock fell 24.04% in September alone, closing at approximately CNY 297 (about $44) on September 21, hovering just above its 52-week low. In Hong Kong, H-shares dropped 6.01% on September 15 to approximately HK$516 ($66), marking a roughly 38% decline from June peaks. The combined evaporation of market value across both listing venues exceeds CNY 700 billion (approximately $104.5 billion) since May.
The trigger for this sharp correction is a coordinated shift by major automakers to diversify their battery suppliers. Li Auto invested CNY 2.65 billion (approximately $395.5 million) to become the second-largest shareholder of Sunwoda, equipping its new L8 model entirely with Sunwoda batteries instead of CATL cells. Xiaomi launched its proprietary “Dragon Armor Battery” brand in September, sourcing cells from CALB and Sunwoda rather than relying on CATL, which had supplied its previous EV models. Xpeng increased purchases from EVE Energy, while Huawei’s automotive brand Aito expanded beyond CATL exclusivity by adding CALB and Gotion High-Tech to its supply chain.
Together, Li Auto and Xiaomi account for approximately 13.6% of CATL’s Chinese battery installations, raising concerns about the direction of industry dynamics.
The Profitability Squeeze Driving Diversification
The underlying driver of this “de-CATL” movement is mounting pressure on automakers’ bottom lines. CATL posted first-half net profit of CNY 43.284 billion (approximately $6.5 billion)—more than double the combined earnings of 15 major Chinese listed automakers. Meanwhile, Li Auto’s automotive gross margin fell to 9.4% in the second quarter, down 10 percentage points year over year.
Since batteries represent 30–40% of EV production costs, automakers are targeting this component to improve profitability. The broader industry faced a 20% profit decline in the first seven months of this year amid weak demand and fierce price competition. CATL’s near-50% market share has allowed it to maintain pricing power, frustrating customers seeking relief.
A second motivation involves control. Under the new Sunwoda arrangement with Li Auto, the automaker now leads battery pack performance standards, system design, and integration, while the supplier handles only cell manufacturing. This shift reallocates product definition rights from suppliers to vehicle makers—a structural change that automakers view as essential for competitive advantage.
Smaller battery makers like CALB and Sunwoda, lacking CATL’s market dominance, are far more willing to offer flexible pricing and development terms, making them attractive alternatives.
Experts Remain Bullish Despite Near-Term Headwinds
Despite the stock decline, analysts argue that CATL‘s dominance will likely persist in the near term. Kenny Ng of Everbright Securities International cited the industry’s high entry barriers requiring substantial capital, technological expertise, and talent accumulation. Yang Jing of Fitch Ratings noted that CATL’s diversified customer base, technological edge, and strength in overseas markets and energy storage systems position it to resist competitive pressure.
CATL’s fundamentals remain robust. First-half revenue surged 54.80% year over year to CNY 276.917 billion, while global EV battery market share reached 40.2%. The company is also expanding into energy storage systems, which already account for roughly 25% of revenue, and has begun investments in adjacent sectors including robotics and AI.
However, near-term risks persist. A new 2% consumption tax on lithium-ion batteries took effect September 1, with rates scheduled to rise to 4% in September 2027, directly pressuring external battery suppliers like CATL. Additionally, emerging technologies including semi-solid-state and all-solid-state batteries pose medium- to long-term substitution risks.
