CATL shares drop 11% as new battery tax bites, full-quarter hit still to come

CATL (SZSE: 300750, HKEX: 3750) closed down 11.41% at HK$364.80 (c. $46.48) in Hong Kong on October 21, 2026, after the battery maker's third-quarter profit slipped from the quarter before. Net profit attributable to shareholders was 21.25 billion CNY (c. $3.16 billion) for the three months to September 30, up 14.54% from a year earlier but down 5.77% from the second quarter.

Sales kept growing much faster than profit. Revenue rose 58.58% to 165.22 billion CNY (c. $24.59 billion), yet gross margin fell to 20.69%, from 23.15% in the second quarter and 25.80% a year earlier. That is CATL's lowest quarterly margin since the fourth quarter of 2022.

Part of the squeeze is a new tax. China resumed a 2% consumption tax on lithium-ion batteries and four other battery types on September 1, 2026, and the rate doubles to 4% on September 1, 2027. CATL's taxes and surcharges line reached 3.54 billion CNY (c. $526.7 million) in the first nine months, up from 1.84 billion CNY a year earlier.

Almost all of that rise landed in one quarter. Third-quarter taxes and surcharges were 2.21 billion CNY (c. $329.5 million), against 597 million CNY (c. $88.8 million) a year earlier, after a first half of 1.33 billion CNY. The third quarter carried only one month of the new tax, so the fourth quarter will be the first to bear it in full.

On the earnings call on October 20, CFO Zheng Shu said the tax is built into the product price, so CATL cannot pass it on to carmakers until prices are renegotiated. Those talks are still under way, and management said the outcome differs by customer and by timing. Asked how much of the cost CATL would carry itself, the company said it was too early to say.

Export rebates are the second hit. The VAT rebate on exported batteries was cut from 9% to 6% on April 1 and will be scrapped on January 1, 2027. CATL said the cut barely showed in second-quarter results because revenue is booked some time after shipment, so it came through more fully in the third quarter.

Akin Li, executive president of CATL's overseas business, at the TECTRANS II truck battery launch in Hannover, September 14, 2026 (CATL)

Management put most of the margin drop on product mix rather than tax. CATL said it delivered some low value-added projects in the quarter, which raised the share of simpler products in its sales. Its power and energy storage batteries together sold more than 260 GWh in the first nine months, and inventories rose 53.15% to 144.77 billion CNY (c. $21.55 billion) from the end of 2025.

Raw materials added pressure. Lithium carbonate climbed from under 60,000 CNY a tonne (c. $8,930) in mid-2025 to more than 210,000 CNY (c. $31,254) in June 2026, before easing to 130,000 to 160,000 CNY in September, and battery prices have lagged that rise. CATL's revenue growth of 56.19% for the nine months roughly matched the 57.6% rise in China's power and storage battery sales, to 1,681.7 GWh.

The result came in below forecasts. Bernstein had expected quarterly net profit of 22.9 billion CNY (c. $3.41 billion), Goldman Sachs 24 billion CNY (c. $3.57 billion) and CLSA 25 billion to 26 billion CNY. Before the results, JPMorgan cut CATL's Hong Kong shares to neutral from overweight and lowered its target price to HK$500 from HK$725, while keeping an overweight rating on the Shenzhen shares.

JPMorgan argued that carmakers facing the consumption tax, lower export rebates and trade barriers will push part of those costs back up the supply chain. It called this a redistribution of profit along the chain rather than an ordinary price war, with CATL hit first and smaller battery makers hit harder.

The Hong Kong shares had already fallen 6.58% to HK$411.80 on October 20, so the two sessions took about 17% off the price. In Shenzhen, the A shares fell more than 12% on October 21 and now sit more than 50% below their record high of May 7, 2026. Battery equipment maker Lead Intelligent (HKEX: 470) fell 9.58% in Hong Kong, and rival cell maker CALB (HKEX: 3931) lost 3.57%.

Cash is tighter too. Operating cash flow for the nine months fell 23.60% to 61.63 billion CNY (c. $9.17 billion), while prepayments to suppliers rose 85.26%. An executive said CATL began shortening payment terms and paying some suppliers in advance in the third quarter, and that this could weigh on cash flow for a while.

CATL is still locking in its biggest customers. On October 10 it signed a long-term agreement with SERES (HKEX: 9927), whose AITO models have all used CATL batteries, to expand their plant-in-plant battery project at the SERES Super Factory to more than 20 GWh a year. The announcement did not mention the new tax.

The SERES Super Factory, where Phase 2 of the plant-in-plant project is planned at 10 to 12 GWh a year (CATL)

Management still expects demand to hold up. CATL said growth of 20% to 30% in global power and energy storage battery demand is achievable in 2027, citing commercial vehicles, Europe and overseas storage, and it expects its Choco-Swap passenger car network to pass 3,000 stations this year. That network added Huawei's Yinwang as a partner on October 19.

Storage is the bright spot CATL keeps pointing to. At the World Energy Storage Conference on October 15, chairman Robin Zeng said global storage battery shipments rose 71% in the first half, with markets outside China taking more than half for the first time, and that CATL has delivered more than 3,000 storage projects worldwide. China's storage battery sales rose 111.8% to 595.4 GWh in the first nine months, against 38.2% growth for power batteries.

The open question is how much of a tax that doubles next September carmakers will agree to carry, when CATL itself says profit is under heavy pressure across the whole chain. With export rebates also ending in January, the fourth quarter will show whether 20.69% was the bottom for CATL's margin.

Conversion rate: 1 USD = 6.7192 CNY as of October 21, 2026.