CATL's Hong Kong shares fall 10.64% after third-quarter profit declines

CATL reported the results on 20 October, a day before the share fall. Third-quarter net profit attributable to shareholders was 21.25 billion yuan, up 14.54% year on year but down 5.77% from the second quarter, the company reported. Revenue rose 58.58% year on year and 11.8% sequentially to 165.22 billion yuan. Gross margin fell to 20.69%, the second consecutive quarterly decline. Its Shenzhen-listed shares fell about 12% on 21 October, CnEVPost reported.

Year-on-year net profit growth slowed from 36.5% in the second quarter, and both net profit and revenue missed analysts' expectations, Investing.com reported. For the first nine months, net profit rose 31.6% to 64.53 billion yuan, while revenue increased 56.2% to 442.14 billion yuan.

Tax changes add to margin pressure

On its earnings call on 20 October, CATL attributed the decline in profit per unit to changes in product mix, a consumption tax on lithium batteries and a reduction in battery export tax rebates, CnEVPost reported. China resumed levying a consumption tax on lithium-ion batteries and other battery products on 1 September at a transitional rate of 2%. The rate will rise to 4% on 1 September 2027. The value-added tax export rebate rate for battery products was cut from 9% to 6% on 1 April 2026 and will be eliminated on 1 January 2027.

CFO Zheng Shu explained that the consumption tax is included in product prices, making it difficult to pass the additional burden downstream without renegotiating prices with customers. Discussions on cost-sharing arrangements remain underway. The export rebate reduction was not fully reflected in second-quarter sales because of the timing difference between shipments and revenue recognition, and its impact was more fully reflected in the third quarter. The consumption tax will apply throughout the fourth quarter, compared with only September in the third quarter.

Analysts cut ratings

JPMorgan downgraded CATL's Hong Kong shares to Neutral and lowered its earnings forecasts, while maintaining an Overweight rating on its A-shares, according to 21jingji. The bank is concerned that the combined effects of battery consumption taxes, reduced export rebates and trade barriers could cause industry profitability to deteriorate faster than expected, with automaker customers' own profits already under pressure.

CATL management views some of the quarterly earnings pressure as temporary. It expects new products, new technologies and negotiations to share costs with customers to help sustain long-term profitability. Management said future profit per unit would depend on progress in sharing the tax burden and the sales contribution from new products with higher margins. The company also said growth of 20% to 30% in global power and energy storage battery demand is achievable in 2027, supported by commercial vehicle electrification, the European market and overseas energy storage demand.