Morgan Stanley Cuts CATL Earnings Forecast, Maintains Overweight Rating
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CATL's Q3 net profit hit RMB 21.2 billion, but came in 12% below Morgan Stanley's own forecast; the core issue is per-unit net margin dropping to RMB 0.08/Wh from RMB 0.10/Wh in H1. Despite the miss, the bank holds its Overweight rating and RMB 500 price target.
Where exactly did Q3 fall short?
Net profit reached RMB 21.2 billion, up 15% year-on-year — but 12% below Morgan Stanley's estimate. The top line grew; quality didn't keep pace.
The key metric: per-unit net margin dropped from RMB 0.10/Wh in H1 to RMB 0.08/Wh. This means → for every watt-hour of batteries sold, CATL earned 20% less than six months ago.
Analysts Jack Lu and Kaylee Xu expect consensus earnings forecasts to see meaningful downgrades following the results.
Why did margins shrink so suddenly?
Management pointed to two factors: an unfavorable product mix — lower-margin products took a bigger share — and a heavier tax burden from reduced VAT rebates plus a new 2% consumption tax effective September.
In plain terms = the products selling most are the ones that earn least, while the government gave back less tax and charged more — a double squeeze.
The combined tax impact added roughly RMB 1.5 billion in costs versus Q2. Battery shipments topped 260 GWh; gross profit rose 27% YoY to RMB 34.2 billion, but gross margin fell 2.5 percentage points quarter-on-quarter to 20.7%.
Will RMB 0.08/Wh become the new normal?
Morgan Stanley expects margins to recover from the trough, but says the extent increasingly depends on product-mix shifts and competitive intensity in energy storage.
This reflects a structural issue: China's energy-storage market has relatively loose quality requirements, weakening CATL's ability to convert quality leadership into pricing power. Emerging price competition keeps pressing unit margins down.
On the tax front, if the incremental burden cannot be passed on to downstream customers, ongoing cost cuts will have to absorb it — but that takes time, and the short-term drag on margins is hard to fully offset.
If results are under pressure, why keep Overweight?
Morgan Stanley maintains an Overweight rating on CATL's A-shares with a RMB 500 target. The stock traded at RMB 259.08 at time of publication — implying roughly 93% upside.
Valuation method: a 13× EV/EBITDA multiple on 2027 estimated EBITDA, translating to about 20× forward P/E for 2027.
The bank forecasts CATL net profit of RMB 95.1 billion in 2026 and RMB 111.9 billion in 2027. This means → Morgan Stanley is betting the margin squeeze is transitional and that mid-to-long-term earnings scale keeps expanding.
What to watch next?
The core checkpoint: whether per-unit margins can recover toward H1's RMB 0.10/Wh level as the product mix improves.
This means → if RMB 0.08/Wh hardens into the new baseline, both Morgan Stanley's earnings forecast and target price will need further cuts.
In plain terms = whether margins bounce back is the dividing line between CATL being worth 300 or 500.
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