By the end of 2021, CATL's total market capitalization approached 1.6 trillion yuan. During the first cycle of surging lithium battery raw material prices, CATL was dubbed the "King of Batteries" thanks to its massive production capacity, leading technology, and the resulting bargaining power over downstream customers.

At that time, to secure CATL's scarce production capacity, supply chain executives and even CEOs of some automakers frequently visited the company's headquarters in Ningde, Fujian, and had to spend heavily to lock in CATL production lines or form joint ventures. Battery costs once accounted for roughly 60% of the total cost of a new energy vehicle. GAC Chairman Zeng Qinghong posed a pointed question at the 2022 World Power Battery Conference: "Am I not just working for CATL now?"

Whether upstream lithium battery raw material prices were in an upcycle or downstream automakers were engaged in fierce price wars, CATL's net profit was almost never affected. Starting from 2021, CATL's annual net profits were: 15.931 billion yuan, 30.729 billion yuan, 44.121 billion yuan, 50.745 billion yuan, and 72.201 billion yuan. In the first half of this year, CATL's net profit was 43.284 billion yuan, while the combined net profit of 15 major listed automakers was only 21 billion yuan — less than half of CATL's.

The money automakers earn from selling cars flows to CATL, and CATL's net profit is distributed as dividends to its major shareholders. Since 2022, CATL has paid annual dividends of 7.748 billion yuan, 22.06 billion yuan, 25.372 billion yuan, and 36.1 billion yuan. In the first half of this year, it distributed another 6.18 billion yuan. CATL Chairman Zeng Yuqun is the sole actual controller, holding a combined 22.04% stake in the company. More precisely, new energy automakers are working for Zeng Yuqun and CATL's shareholders — earning hard money in an industry with an overall profit margin as low as 1.5%, and "gifting" it to CATL's shareholders as dividends.

CATL paying dividends is normal corporate behavior, but starting this year, automakers are no longer hesitating about "finding a different way to survive."

From Sole Supplier to One of Many

Li Auto was considered a staunch ally of CATL. In November 2023, Li Auto's first pure electric model, the MEGA, debuted at the Guangzhou Auto Show, featuring CATL's latest 4C Kirin battery (later upgraded to 5C) for the first time. This technological collaboration stemmed from a comprehensive strategic cooperation agreement signed by both parties in April of that year. In fact, Li Auto had always used CATL as its sole battery supplier. In June last year, CATL held a special event at its headquarters to celebrate the rollout of the one-millionth Li Auto-exclusive battery pack. In September last year, the two sides signed another five-year comprehensive strategic cooperation agreement.

But by June this year, the newly launched Li L8 had switched to a self-developed battery pack. Compared to chip self-development, Li Auto's battery self-development is even more aggressive. In October last year, Li Auto upgraded its eight-year partnership with Sunwoda Power, establishing a joint venture called Shandong Li Auto Battery Co., Ltd., primarily to industrialize Li Auto's self-developed batteries. The purpose of this collaboration was confirmed at Li Auto's earnings call in March this year: starting this year, all Li Auto models would adopt a dual-battery strategy — Li Auto's self-developed batteries and CATL batteries. CATL's status shifted from sole supplier to "one of many," meaning Li Auto entered a transition period of switching to self-developed batteries.

In September this year, just one year after signing the new strategic cooperation agreement with CATL, Li Auto began fully pushing self-developed battery installation: starting September 7, new MEGA order holders were switched to Li Auto's self-developed 5C batteries; the Li i9 launched on September 16 initially still used CATL batteries but would fully switch after production ramp-up; the i6 to be launched in the fourth quarter will no longer have a CATL version. On September 4, Li Auto became the second-largest shareholder of Sunwoda Power, a subsidiary of Sunwoda, for 2.65 billion yuan.

Leapmotor is another automaker aggressively making the switch. At its technology day on September 16, Leapmotor announced that its cell production line was officially operational, meaning its battery self-development had extended from CTP (Cell to Pack) to the core cell level. Song Yining, head of Leapmotor's battery product line, mentioned that this production line's capacity could meet the supporting needs of approximately 500,000 to 600,000 vehicles, and due to standardized design, these cells would not be limited to a single Leapmotor model but could be deployed across different models. If Leapmotor achieves its million-unit sales target this year, it means half of its supporting power batteries would be self-supplied.

For Leapmotor, whose average vehicle selling price is only about 110,000 yuan (based on 2026 financial report calculations) and which targets annual sales of one million units, cost reduction and supply chain stability are two core objectives. That is why Leapmotor has built 18 component factories. Leapmotor's first cell production line was a joint venture with CALB, but in September this year, Leapmotor wholly established Lingzhen New Energy, planning to complete cell rollout by 2027 and achieve vehicle installation by 2028. Building a cell factory requires large initial investment and high ramp-up costs, "but based on Leapmotor's sales scale, self-development offers a 10% cost reduction compared to external procurement in the long run," Song Yining said.

Leapmotor's battery self-development and self-production actually began in 2021, when it built its first battery factory through Lingxiao Energy Technology and launched CTC battery-chassis integration technology in 2022. On the other hand, Leapmotor can keep the production of core components firmly in its own hands. Song Yining noted that upstream cell factories need to meet different customer needs, requiring frequent production line switches, which easily causes supply fluctuations downstream. By extending to cell self-development and self-production based on cell standardization, Leapmotor can achieve no production line switching, optimizing efficiency and cost.

XPeng was an earlier new force that broke away from CATL and successively invested in CALB, SVOLT Energy, and Sunwoda. On the XPeng G9L launched on September 17, XPeng applied a new battery integration manufacturing technology called One-Stop Battery, which can reduce battery pack components by 25% and production costs by 15%. "Starting this year, we'll do all batteries ourselves," XPeng Chairman and CEO He Xiaopeng revealed the company's self-developed battery progress in an interview after the G9L launch. However, XPeng will not venture into cell manufacturing — still mainly supplied by the three invested companies — and will focus on battery pack technology, battery management systems, and thermal management.

Since the beginning of this year, for new force brands such as Li Auto, Xiaomi Auto, and AITO, CATL has gone from "sole" to "one of many," losing its exclusive supply position. NIO's main brand is one of the few new energy vehicle brands that still insists on single-source battery supply from CATL. Firefly and Onvo have already introduced suppliers such as CALB, BYD, and Sunwoda. However, NIO remains one of CATL's most steadfast partners, with the Onvo L80 and L90 being the only two SUV models in the 200,000-300,000 yuan range that use CATL batteries across all variants.

Despite continuous diversion, CATL still firmly holds the top spot in domestic power battery market share. In the first half of this year, CATL's installation volume share in China's passenger vehicle market reached 46.7%, with an all-caliber power battery installation share of 46.04%, higher than last year's 43.42%.

Profitability or Technology Convergence?

Mainstream fuel vehicle manufacturers' self-development is mainly concentrated on engines, which is the direct reason for performance differences between different fuel models, while transmissions and chassis mainly come from supply chain collaborative development or direct external procurement. Like engines for fuel vehicles, power batteries are the most expensive and core component of new energy vehicles. Generally, power batteries account for 30%-40% of the total cost of a new energy vehicle, depending on model pricing and battery capacity.

Leapmotor is a reference sample for the impact of core component self-development on profitability. Leapmotor's self-developed and self-produced components have extended to areas such as automotive air conditioning and seats, with a total of 18 component factories. In the first half of this year, Leapmotor's revenue was 38.1 billion yuan with a net profit of 200 million yuan, a net profit margin of less than 1%, basically consistent with last year. But Leapmotor's net profit growth rate in the first half far exceeded revenue growth, meaning its cost reduction efforts have been effective.

Leapmotor Chairman Zhu Jiangming has mentioned in multiple interviews that Leapmotor decides to self-develop a particular component based on two main criteria: first, whether the technology is mature — for example, intelligent driving, which Leapmotor previously relied on external procurement for with limited self-development investment, but during the technology convergence period before L3 implementation, Leapmotor rapidly expanded its intelligent driving R&D team starting from 2024; second, whether the benefits of self-development can cover the costs — this applies to Leapmotor's self-developed and self-produced seats, air conditioning, and lights.

According to Leapmotor's calculation model, self-developed cells and batteries offer a 10% cost reduction compared to external procurement. In an ideal scenario, Leapmotor's total vehicle cost is expected to decrease by 2.8%, and overall vehicle gross margin could increase by about 2.4 percentage points — extremely attractive for Leapmotor, whose net profit margin is less than 1%.

A person who previously worked in battery procurement at Tesla believes that the comprehensive price increase of upstream lithium battery raw materials and the implementation of battery consumption tax are the main drivers for automakers turning to cell and battery self-development. Additionally, before all-solid-state batteries achieve commercialization, ternary lithium and lithium iron phosphate battery technologies have also reached a convergence period.

Since July last year, battery-grade lithium carbonate prices have continued to surge from 75,000 yuan per ton, reaching the peak of this round of price increases in May this year at 200,000 yuan per ton. Although subsequently falling back to 130,000 yuan per ton, it is still nearly double last year's low point. In addition, prices of electrolyte (with lithium hexafluorophosphate as the core component), copper foil, and cathode materials have also risen across the board. Driven by upstream price increases, major battery manufacturers' cell prices have risen about 17% over the past nine months.

Cost increases ultimately transmit to downstream vehicle manufacturing. Seres, which turned from profit to loss in the first half of this year, saw Chairman Zhang Xinghai calculate: rising prices of memory chips and battery raw materials increased AITO's average per-vehicle manufacturing cost by 15,000-20,000 yuan, with gross margin decreasing by 5.6 percentage points compared to the same period last year. NIO CFO Qu Yu also mentioned that second-quarter per-vehicle costs increased by 14,000 yuan compared to the end of last year, and could reach as high as 17,000 yuan by the end of this year.

Additionally, the battery consumption tax has been implemented. Starting September 1 this year, relevant authorities resumed a 2% consumption tax on lithium batteries, which will double to 4% on September 1 next year. Battery manufacturers directly pass the tax burden to downstream customers, meaning a 60-kWh battery's procurement cost will increase by about 430 yuan from September 1 this year and double to 860 yuan starting September next year.

An opportunity arose from the settlement between Sunwoda and Geely. On December 25 last year, Geely's subsidiary Viridi E-Mobility Technology filed a lawsuit with the Ningbo Intermediate People's Court, seeking 2.314 billion yuan in compensation from Sunwoda Power. The cause was quality issues in some power battery cells delivered by Sunwoda Power between June 2021 and December 2023, which led to abnormal battery pack performance and losses. The lawsuit ultimately ended with a settlement two months later, with the settlement amount reduced to 608 million yuan, and each party bearing the cost of battery replacement according to their respective responsibilities.

The longer-term significance of this dispute was to push Sunwoda to comprehensively upgrade its quality system, introducing online CT inspection technology to achieve 100% cell inspection. This year, Xiaomi's newly released Dragon Armor battery, applied to its range-extended Pengcheng series, partners with Sunwoda. In September, Li Auto — once one of CATL's most reliable partners — took a stake in Sunwoda Power. But at Xiaomi's technology day in July and the Pengcheng series launch, Xiaomi did not mention partner Sunwoda at all, in stark contrast to its previous frequent mentions of CATL.

The Zeekr 001 involved in the Sunwoda dispute also switched to CATL batteries after recall. This sufficiently demonstrates that CATL still has a gap that second-tier battery manufacturers cannot yet cross. But facing downstream suppliers' diversification strategies and concerns about "de-CATL-ization" triggered by self-development extending to the cell level, CATL will not turn a blind eye.

CATL's Offense and Defense

On September 17, a report written by consumer research and retail monitoring company NielsenIQ was released at an opportune time. The core research of this report was "power batteries becoming a key decision factor for consumers choosing and purchasing vehicles," noting that "for automakers, batteries not only determine the safety and experience of the vehicle but also directly influence sales conversion." One conclusion extracted from the report — "40% of Chinese respondents say they would not choose a car without CATL batteries" — directly trended on Weibo. This conclusion was supported by multiple research data points: for Chinese consumers, the weight of power batteries in vehicle purchase decisions has risen to 13.8%; 40% of Chinese consumers care about battery safety, 37% about range; in the Chinese market, CATL's mind share (top-of-mind unaided awareness) is as high as 40.9%; CATL's BSI (premium capability based on user choice willingness) is as high as 6.0, three times that of BYD batteries; 37.1% of Chinese consumers explicitly stated they would abandon purchasing a desired model if it did not use CATL batteries.

At the end of the report, NielsenIQ disclosed the research period and sample size. This was a quantitative study conducted from April 17 to June 11 this year, using online questionnaire responses, with 3,035 valid samples collected from Chinese consumers.

CATL has taken more measures to try to shift the narrative. On September 18, CATL's and NIO's official Weibo accounts simultaneously posted photos of CATL Chairman Zeng Yuqun and NIO Chairman Li Bin meeting during the IAA Mobility show in Germany. Both even posted identical captions, stating they "held in-depth exchanges on the next phase of strategy and will further expand cooperation." This was a "soft" official news item and also the only content on CATL's official Weibo this year about Zeng Yuqun and a new energy vehicle company founder discussing expanded cooperation.

On September 22, well-known auto reviewer Chen Zhen posted a video on his Weibo of his visit to CATL's factory. The edit history of this post shows that the publisher progressively added trending topics such as "40% of Chinese respondents say they would not choose a car without CATL batteries," "CATL quality," and "the de-CATL-ization narrative is unacceptable" over two edits, showing clear signs of manual intervention.

On the same day, "China Industry and Information Technology News," affiliated with the MIIT News and Publicity Center, published an article sharply criticizing the phenomenon of packaging automakers' upstream expansion as "de-CATL-ization" as inconsistent with the current development trend of China's new energy vehicles. It also noted that many automakers' "battery self-development" is not true self-development because batteries are not yet standardized components for new energy vehicles and have relatively high technical barriers. It also criticized low-price competition transmitting to the upstream of the industrial chain, leading to low-price-oriented procurement that easily neglects safety and reliability.

Whether from capital market reactions or data disclosed in CATL's financial reports, the urgency for CATL to prove itself is evident. After peaking on May 7 this year, CATL's stock price had fallen 37.4% by the September 24 close, with market value shrinking by about 800 billion yuan. The faster retracement phase was from August 25 to September 24 this year, with cumulative stock price decline exceeding 20% and no sign of rebound.

CATL's operating fundamentals have not undergone major changes. After experiencing a complete cycle of raw material price surges, declines, and rebounds, CATL increasingly resembles a precision money-making machine. In the first half of this year, CATL managed to maintain a nearly 42% increase in net profit despite a three-year low in comprehensive gross margin and a domestic market share not exceeding 50% — no small feat. What CATL should be wary of is that with both the domestic passenger vehicle market and new energy vehicle market declining this year, inventory exceeding 130 billion yuan — the highest level since 2021 — combined with automakers' battery self-development and diversion by second-tier manufacturers, could negatively impact CATL's profits. However, CATL's business structure has been significantly optimized over the past few years. In the first half of this year, CATL's energy storage business revenue reached 53.26 billion yuan, becoming a true second growth curve and accounting for 20% of revenue.