CATL's stock suffered a heavy blow in September from the "de-CATL" trade, but a 60-page in-depth research report from JPMorgan argues that the market has severely misjudged this narrative. The report points out that investors are overly focused on the narrowing technology gap while underestimating the strategic value of scale, execution, quality, consumer trust and financial resilience — which are precisely the core of CATL's structural leadership.

According to the JPMorgan report, CATL's A/H shares fell 19% in September alone, while during the same period second-tier suppliers Sunwoda surged 28%, Gotion rose 11%, CALB gained 2%, and EVE dropped 5%, with CATL significantly underperforming the CSI 300 Index (-6%). However, at the height of the "de-CATL" trade, CATL's share in China's passenger electric vehicle battery market actually rose against the trend — up 3 percentage points year-on-year to 44% in the first eight months of this year, and reaching 56% when excluding BYD.

JPMorgan maintained its overweight rating on CATL's A-shares and H-shares, with an A-share target price of RMB 520 (based on a 2027 expected P/E of 20.5x) and an H-share target price of HKD 725 (based on a 2027 expected P/E of 24x). The report notes that CATL's A-shares are currently trading at 11.5x 2027 expected P/E, already below the historical valuation low briefly touched in January 2024 (11.6 to 12.0x), when the CSI 300 Index was about 20% lower than current levels. JPMorgan expects CATL's 2027 earnings per share growth to exceed 20%, return on equity to exceed 25%, free cash flow yield of about 10%, and total shareholder return of 5% to 6%.

Diversified Procurement Does Not Equal Permanent Share Loss

Market concerns about automakers advancing battery supplier diversification are one of the core logics behind the "de-CATL" trade. JPMorgan believes this logic ignores the complexity of historical experience.

Taking NIO as an example, after CALB entered the supply chain, CATL's share in the NIO brand once dropped from 87% in 2023 to 60% in 2025, but then recovered to 77% in the first eight months of this year, while CALB's share plummeted from 29% in 2024 to 6%. Similar share recoveries also occurred at Geely and GAC — CATL's share at Geely recovered from 53% in 2024 to 58% in the first eight months of this year, and its share in GAC passenger vehicles rose from 20% in 2024 to 25% in the first eight months of this year. Meanwhile, CATL also achieved a breakthrough at Leapmotor, going from less than 1% to over 20% share.

JPMorgan notes that Xiaomi's upcoming SkyNomad/Pengcheng SUV platform will adopt CALB and Sunwoda batteries, triggering market concerns about automakers "de-CATL-izing." But according to GGII data, Xiaomi and Li Auto each account for only 3% to 4% of CATL's total shipments, so the direct impact is limited. More importantly, battery supplier diversification is typically a gradual process spanning multiple vehicle platforms and multiple product cycles, rather than a one-time supplier replacement.

Automaker In-House Battery Production: Scale Barriers Hard to Overcome

Automaker in-house battery production is seen as a long-term threat to CATL, but JPMorgan believes this risk is overestimated by the market.

The scale gap is the core obstacle. CATL's 2025 shipments exceed 660GWh, while major second-tier suppliers' shipments are only 40 to 120GWh, and most automakers' in-house battery projects ship less than 10GWh. This scale gap of 30x to 100x directly translates into comprehensive advantages in raw material procurement bargaining power, capacity utilization, unit depreciation burden, manufacturing yield and R&D efficiency.

Global major automakers' in-house battery practices also confirm this judgment. Tesla's 4680 battery mass production target announced at its 2020 Battery Day still had internal production of less than 10GWh by 2025, accounting for less than 4% of its total EV battery consumption. Volkswagen's plan for six European battery plants announced in 2021 had only the Salzgitter plant approaching production readiness by 2026, with overall progress severely lagging.

Recent industry developments further indicate that the market is evolving toward cooperation rather than full vertical integration. CATL's acquisition of Geely's battery manufacturing assets (a joint venture in which CATL holds 51%), and Volkswagen's PowerCo expanding strategic cooperation with Gotion — the latter explicitly citing Gotion's industrial manufacturing expertise as a core reason for the partnership — both point to the same conclusion: the difficulty of scaled battery manufacturing operations exceeds automakers' expectations.

After Technology Convergence, Competition Shifts to Execution and Quality

JPMorgan acknowledges that over the past five years, second-tier suppliers have significantly narrowed the gap with CATL in lithium iron phosphate battery energy density and fast-charging performance, with 800V architectures and 5C charging platforms becoming increasingly common. However, the report argues that convergence in technical specifications does not equal convergence in the competitive landscape.

As battery technology matures, the competitive focus is shifting from parameter metrics to manufacturing consistency, degradation performance, safety, reliability and real-world usage records. CATL currently still holds 76% of China's NCM battery market and dominates supply for numerous high-end EV platforms. In next-generation technology directions, CATL's condensed matter battery leads the industry among commercialized semi-solid-state battery products with pack-level energy density exceeding 270Wh/kg.

The tail effects of quality risk should not be overlooked either. The report lists multiple quality incidents involving second-tier suppliers: cells supplied by Sunwoda to Geely's VREMT were found to have quality defects, Zeekr recalled 38,277 affected vehicles, and Sunwoda paid RMB 608 million in settlement; CALB-supplied 177Ah lithium iron phosphate batteries were confirmed by GAC Aion to have cell swelling and liquid leakage issues; EVE-supplied 169Ah lithium iron phosphate batteries also generated multiple complaints. In comparison, CATL's cumulative warranty provisions from 2019 to 2023 accounted for about 3% of revenue, the highest among domestic peers, but actual recall costs were only about 0.25%, also the lowest in the industry.

Brand Effect: Consumer Perception Becomes a New Moat

Citing NielsenIQ (NIQ)'s 2026 Global New Energy Vehicle Consumer Survey, JPMorgan points out that battery brands are evolving from purely B2B procurement decisions into key factors influencing consumers' vehicle purchase intentions.

The survey shows that 79% of global consumers say a well-known battery brand would increase their purchase intention, and 76% are willing to pay a premium for vehicles equipped with high-quality batteries. CATL ranks first in brand awareness in both China and overseas markets, with a Brand Strength Index (BSI) in China three times that of BYD and an overseas BSI about twice that of LGES. Notably, 37% of Chinese consumers say they would reconsider their purchase decision if their preferred model is not equipped with a CATL battery.

Early data from the used-car market also provides corroboration. According to Chinese used-car market quotations, vehicles equipped with CATL batteries can command a 5% to 10% premium compared to the same model, same age and same mileage using other brands of batteries, with some cases reaching as high as 40%. Li Auto i6's market share trajectory is also highly correlated with CATL's supply proportion — CATL's supply share in the i6 dropped from 100% in Q1 2026 to about 60% in Q3, while the model's share in the C-segment pure electric market fell from a peak of 12% to about 7% to 8% during the same period.

Profit Quality Gap Far Exceeds Surface Numbers

JPMorgan's financial analysis reveals a key fact overlooked by the market: CATL's accounting policies are the most conservative among domestic peers, causing its reported profits to systematically understate true profitability.

Specifically, CATL's warranty provisions exceed 3% of revenue, far above the level of less than 2% common among domestic second-tier peers; fixed asset depreciation life is about 5 years, while most second-tier peers use 8 to 12 years; R&D expenditure is 100% expensed, while most peers capitalize 5% to 20%. JPMorgan estimates that if CATL adopted accounting treatments similar to second-tier peers, its reported net profit would increase by about 30%. Conversely, if second-tier battery makers adopted CATL's accounting standards, all Chinese second-tier suppliers would fall into losses.

The gap in financial resilience is equally significant. CATL is the only company in China's battery industry that consistently generates free cash flow and maintains a net cash balance sheet, while most second-tier suppliers have high leverage, weak profitability and continued cash consumption. Government subsidies accounted for more than 30% of second-tier suppliers' reported net profit in the first half of 2026, compared with only about 10% for CATL. JPMorgan's analysis shows that at current capex and cash burn rates, some second-tier suppliers' cash reserves can only sustain 2 to 5 quarters.

European Policy Risk Manageable, Hungary Plant Ramp-Up Boosts Confidence

The EU's policy discussions on advancing battery supply chain localization, as well as permitting and operational uncertainties facing China-Hungary battery projects, are another factor that has recently weighed on CATL's valuation. JPMorgan believes the related risks are overestimated by the market.

The core logic lies in the supply-demand gap. JPMorgan estimates that EU electric vehicle and energy storage battery demand in 2028 will exceed local cell capacity by more than 2x, and Europe will remain structurally dependent on imported batteries for the foreseeable future. Therefore, even if the EU Industrial Action Plan (IAA) is ultimately implemented, it is expected to include implementation flexibility and multi-year transition arrangements.

Meanwhile, CATL's Hungary Phase I plant officially entered trial production on September 22, easing external concerns about project execution and reinforcing its European localization layout. CATL's current market share in Europe already exceeds 40%, roughly on par with its share in China, and future European business growth will depend more on overall market expansion and local capacity ramp-up rather than further share gains.